Selecting and Qualifying Suppliers: How Rx-360 Can Help

By Martin VanTrieste

The selection of a supplier and ongoing qualification of suppliers is one of the most important tasks a manufacturer can undertake to assure high quality products for the patients they serve. William Edwards Deming, back in the 50’s and 60’s, explained how a manufacturer’s quality system must encompass their suppliers in order to successfully deliver high quality products to its customers. Toyota was one of the first companies to embrace Deming’s advice when it was just a small Japanese car manufacturer, and today Toyota attributes its ascension to the world’s largest and most respected automobile manufacture to Deming’s principles, particularly related to supplier selection and development.

Today, the amount of data that most Quality, Supply Chain and Procurement executives have available to them to make such decisions is often less than ideal. This dilemma is one faced by a number of industries, not just the biotech, pharmaceutical and generic industries.

Knowing this, Rx-360 wanted to learn if these other industries have discovered a better model for vendor selection and qualification. The answers we found were amazing. It is clear that we can learn from other industries. We learned a great deal from our research, including what works and more importantly what doesn’t work. The biggest learning was that different companies within the same industry can share quality data successfully and lawfully, and that many regulators encourage the sharing of such data as a matter of public policy to address societies’ woes, such as work conditions, environmental sustainability, and public safety.

Applying this type of data sharing to the biopharmaceutical industry will lead to a number of benefits.

• Biotech, pharmaceutical and generic companies will gain a greater understanding of their supply chains and suppliers, allowing companies to make more informed supplier selections.
• Suppliers will benefit from standardization, setting of clear expectations, competing on a level playing field and eliminating auditing fatigue.
• All parties will also see significant efficiency gains while improving the quality of their processes and products, which in turn benefits the patients that rely on those products.

During our research we looked to the food, apparel, petroleum, semi-conductor, aerospace and environmental service industries in particular to see what we could learn. It was clear that when it comes to sharing data, we are far behind our colleagues in some of these industries. For example, a non-profit trade association called CHWMEG, Inc., which shares data and conducts assessments of suppliers that deal with the waste products of manufacturers has been in existence since 1985 and has saved its members over 27 million dollars in North America. The following are some common themes that led to that success:

• Willingness of manufacturing firms to be transparent with each other
• Allowing members the flexibility to participate in data sharing as they feel comfortable
• Allowing suppliers (auditees) to authorize the release of data and audit results, so that competitors can’t data mine
• Willingness to standardize and abandon paradigms that “we are different”
• The purpose of data-sharing is for each firm to make their own independent vendor selection decisions -- not for a consortium to approve or disapprove a supplier

We also learned what did not work, such as:

• Not allowing the suppliers to participate
• Not protecting suppliers’ intellectual property
• Not protecting suppliers from competitor data mining
• Having too rigid of a system
• Focusing too heavily of product specific information

As a result of our research, Rx-360 determined that it will offer three different forms of audit sharing. Not all members will feel comfortable participating in all three types of audit sharing, and that is OK. In addition, some members may never add any data to the data sharing database and only extract information from the database, which is also OK. Remember one of our mantras is flexibility. The following are the three types of audit sharing:

1. Redacted Audits: Members add audit reports using their audit standards to a secure database along with the suppliers’ responses in a redacted manner to protect confidentiality such as, member company names, proprietary equipment and process names.
2. Sponsor Type Audits: A single biotech, pharmaceutical or generic firm will sponsor an audit of a supplier using the audit standards adopted by Rx-360. The audit report and supplier’s response will be added to the secure database.
3. Push Type of Audits: Multiple firms sponsor an audit of a supplier using the audit standards adopted by Rx-360. The audit report and supplier’s response will be added to the secure database.

For more information on these audits, click here.

Each of these systems has pros and cons but the combination of all three processes provide a wealth of data that does not exist in our industry today.

Let me give a brief overview of how the data will be made available to members for use in selecting vendors:

1. First, a standardized pre-audit questionnaire is completed by the supplier which will include many aspects of the suppliers operations including supply chain, risk management, environment, employee health, safety, GMP, etc.
2. In addition, routine product specific information related to animal derived materials and country of origin will be available.
3. Then the results of audits, the supplier’s response and corrective actions will be added to the database along with verifications that the corrective actions were completed.

Much of this data can be updated in real time by the supplier and automatic notifications e-mailed to interested members. The frequency of the on-site audits will be determined by members’ interest. For example, a large well-known manufacturer of Active Pharmaceutical Ingredients may be audited annually, where a less critical supplier of shipping packages may be audited every three years. In addition, since the member determines the acceptability of the supplier or not, one member may need the same supplier audited annually due to the criticality of the material to that particular firm and another firm may only require the same supplier to be audited every three years.

As you can see, a comprehensive data sharing approach will provide decision-makers with more information, allowing them to make better decisions quicker and more efficiently. Then we can all shift our attention to supplier development, just as Deming had preached several decades ago.

More Information of each of the type of shared audits:

Redacted Audits: One type of audit sharing would be to simply place existing audits conducted by members using their internal audit standards, along with the supplier’s response into a secure database.

These audits would have to be redacted to protect trade secrets, and to remove the pharmaceutical firm’s name to prevent any antitrust violations. Once placed into a secure database, and once members have been granted permission by the auditing firm and the supplier, members can access the information within the database. This information could then be used by members to help make vendor selection decisions, similar to what a vendor questionnaire has accomplished in the past. Members can access this data for a nominal fee that will be provided to the company that conducted the audit to off-set their audit costs. The Consortium will work with the Department of Justice to obtain an antitrust waiver for this activity, similar to what Fair Factories Clearinghouse obtained for the apparel industry (http://www.fairfactories.org/).

Sponsor Type Audits: In this system an audit is initiated by a single biotech, pharmaceutical or generic company otherwise know as the “sponsor.”

A sponsor will request an audit of a supplier of a raw material or component which may be the manufacturer, re-labeler, re-packager, distributor or broker. Audits can only be conducted utilizing a certified auditor from a Consortium-approved auditing firm or sponsor’s auditing staff. The audit will be scheduled between the sponsor, auditee and the auditor. Once the auditor completes the audit, an audit report will be prepared and reviewed and approved by the sponsor. Once approved the audit report will be placed into the Consortium’s database and provided to the supplier. The supplier is required to respond to the audit within 30 days. The audit response will be reviewed by the auditor, sponsor and audit committee. If the audit response is accepted, then the corrective actions from the audit response will be added to the Consortium’s database.

The audits, audit reports and audit responses are considered the property of the sponsor and supplier. Audit reports and audit responses can only be distributed to a requestor if the sponsor and supplier approve such distribution. This will provide protection of intellectual property, prevent competitors from gaining competitive intelligence and allow the supplier to control their data. Audits that will be shared will be cGMP, HES (Health, Environment and Safety), Supply Chain and Security audits of suppliers, distributors, brokers, etc. The sponsor pays for the cost of the audit. Members can purchase the audit package for 10% of the original cost of the audit. This fee will be provided to the sponsor to help off-set the original cost of the audit.

Push Type Audits: In this system an audit is initiated by multiple biotech, pharmaceutical or generic companies. The push system initiated by multiple members will work as follows:
 

1. Individual firms submit a request to audit a list of suppliers to the Consortium. A supplier can be a manufacturer of raw material or component, re-labeler, re-packager, distributor or broker.
2. The Consortium consolidates these requests in a blinded and confidential manner, so that the requesting firms do not know the names of the other firms requesting the audit.
3. The Consortium contacts the supplier to request an audit on behalf of the requesting firms, specifying the names of the requesting firms to the supplier.
4. Audits that will be shared will be cGMP, HES (Health, Environment and Safety), Supply Chain and Security audits of suppliers, distributors, brokers, etc.
5. Each requesting firm may complete an audit scoping document that provides specific directions to the audit team
6. The audit team contacts requesting members with any questions.
7. The Consortium conducts the audit, issues a report and tracks corrective actions.
8. Requesting firms are asked to decide if each corrective action is:
   1. Approved, Approved with Comments, Abstain from Deciding or Not Accepted.
9. This data is summarized, provided to requesting firms and suppliers and used to work with the supplier to modify corrective action plans.
10. The Consortium tracks corrective actions and verifies that they have been completed
11. The requesting firms share the cost of the audit.
12. Other members can purchase the final audit report.

The push system is being successfully used by CHWMEG, Inc (http://www.chwmeg.org/), a non-profit association comprised of manufacturing companies interested in efficiently managing the waste management aspects of their environmental stewardship programs