Supplier Quality ManagementBest Practices and Practical Insights for 2015

2

The impact of poor quality

product recall increase 1999-20111+135%

1 Recall Execution Effectiveness Report. Deloitte, GMA, FMI and GS1. May 20102 raps.org, A. Gaffney, “Number of Drug Recalls Surges at FDA, Led by Mid-Level Concerns”, August 2014

6x FDA drug recall increase 2004-20132

3

The impact of poor quality

$90M

A product recall can cost an organization between1

$10M

1 Recall Execution Effectiveness Report. Deloitte, GMA, FMI and GS1. May 2010

52%recalls due to supplier/vendor issues1

4

Let’s do the math

Drug recalls in 20131 1225

1 raps.org, A. Gaffney, “Number of Drug Recalls Surges at FDA, Led by Mid-Level Concerns”, August 2014

Cost per recall $10M to $90M

Cost of drug recalls in 2013 $12B to $110B

X

5

Let’s do the math

Cost of drug recalls in 2013 $12B to $110B

52% of recalls due to

suppliers/vendors$6B to $55B

1%

$60M to $550MWhat if improving supplier visibility & quality reduced

recalls by…5%

$300M to $2.75B

6

Industry challenge: Identifying Quality Issues Early

1X 10X 100X 1000X…Issue

Resolution Cost

Supplier Network

Corporate Planning & Design

ManufacturingFacilities

Distribution Centers

Consumers

Only 22% of companies see quality as an integrated function of their supply chains1.

1 Gartner, S Jacobson, “Quality: The Missing Link in Your Supply Chain Strategy”, January 2015

7

Industry challenge: Supply chain complexity

1 The Supplier Performance Measurement Benchmarking Report, Aberdeen Group, 2002

50-80%of the total product costs are spent on raw materials & parts procured from multiple suppliers across different parts of the globe1

8

Industry challenge: Supplier visibility

1KPMG Global Manufacturing Outlook report, 2014

Complete visibility Tier 1, 2 and

beyond suppliers visibility

Limited visibility

Limited Tier 1 supplier visibility, but not Tier 2 &

beyond

Some visibility

Tier 1 supplier visibility & some Tier 2 supplier

visibility

22%

38% 40%

Only 22% of today’s manufacturers have complete visibility into their supply chain1

Supplier Quality Maturity FrameworkMastery of each step leads to improved visibility and quality across the supplier network

Level 1 Level 2 Level 3 Level 4 Level 5

Ad-hoc

Email communication

Faxcommunication

Manual data capture Supplier

Scorecard

Repeatable

Supplier Agreements

Electronic data capture & spreadsheets

Approved Supplier List

Collaborative

Quality Network Integration

QualityNetworkCollaboration

QualityNetworkVisibility

Historical Performance / Automated Scorecard

Automated

System Driven

Centralized Supplier Management

Metrics and KPIs

Tier 1SupplierCollaboration

PredictiveInsights & Triggered Events

Optimized

Tier 1SupplierVisibility

10

Best Practices for Managing Quality Inthe Supply Chain

Broaden supplier assessmentsEnable broader visibility into the supplier network

45% of executives agreethe leading challenges to

supply chain efficiencyinclude supplier

performance and qualitymanagement

- KPMG Global Manufacturing Outlook report 2013

1

11

Establish clear measurement programsLeverage automation tools to support measurement & monitoring of supplier quality

Best Practices for Managing Quality Inthe Supply Chain

2

Dynamic Supplier Scorecard

Real-Time

Consistent

Accurate

PrioritizeScheduleManage

InformedSystematicEfficient

Execute Consistent

Remediate Integrated

Measure Accurate Decisions

Complete

Measure and Inform

Audit Management

Audit Execution

Audit Planning

Supplier Audit Checklist

12

Best Practices for Managing Quality Inthe Supply Chain

Invest in infrastructureEnable quality across the supply chain through effective communication of quality events

Cloud Computing will play the most

important role in IT enabling quality between

now & 2017- Gartner, S Jacobson, “Quality: The Missing

Link in Your Supply Chain Strategy”, January 2015

3

Supplier 1

Supplier 2

Supplier 3

13

Best Practices for Managing Quality Inthe Supply Chain

Close the quality loop with suppliersLeverage technology to connect & integrate

suppliers into quality management processes

4

Quarantine

Quality Processes

Product Nonconformance Notification Received Supplier Identification Root Cause CAPA Plan Effectiveness Check

Issue Identified Notification to Supplier SCAR Reviewed CAPA Approved Action Item Reminders

14

Extend quality management practices into the supply chain

Visibility - Identify issues early before they become costly quality incidents

Traceability - Understand the root cause and source of quality issues in your supply chain

Accountability - Ensure supply chain partners understand issues and resolution requirements in a timely manner

Profitability - Mitigate quality related financial risk and improve supply chain efficiency

For more information, visit:www.spartasystems.com