Classification of Suppliers according to their criticality (A-B-C) or associated risk

It is useful to classify suppliers according to their associated risk (Good Manufacturing Practice (GMPs, cGMPs, Part III, ICH Q10). Concepts such as QRM (Quality Risk Management), risk analysis, Failure Mode and Effects Analysis (FMEA), and also, why not, economic, technical and logistical aspects, should be part of the study in order to make it as complete and useful as possible. The starting point is clear, it is always necessary to identify our critical suppliers. An A-B-C classification based on a risk analysis will in most cases be sufficient. Of those suppliers type «A», critical, it will be advisable to carry out a series of actions that will allow us to be more efficient, reduce the risk associated with a defect of the supplier and avoid as far as possible a stock break or shortage. Note that we are not talking about a Pareto analysis, which is another valid approach for this type of classification, although it could again be taken into account when making decisions about it.  My proposal is not to remain in a Pareto analysis. We have to go further. Having defined a complex method and doing it well in the design base will give us a competitive advantage over the competition. On those who apply the Pareto method, and especially on those who do not have a protocol of action defined in this respect. The supplier’s economic analysis must also be taken into account, not just an analysis of your quality system. Because of my background (bachelor’s degree in Business Administration and Management) perhaps I tend to value the economic aspect excessively, but nobody can deny me that it is an inconvenience that a critical supplier breaks down or runs out of materials due to financing problems. We should investigate the supplier’s official accounts, to avoid situations of this type, or others that might arise. Type «A» supplier: Critical supplier. High associated risk. Supplier Type «B»: Major supplier. Medium associated risk. Supplier Type «C»: Non-critical supplier. Low associated risk. Steps to follow:

1- PLAN:

• Combining internal and external information.
• Take into account all departments, not just Purchasing or Quality.
• Classify according to criticality.
• Gather all the necessary documentary information (certificates, accounting, reports, etc.)
• Conduct audits.

2- DO:

• Conduct an FMEA study for each supplier

3- CHECK:

• Identification of the risk of incorporating new suppliers.
• Risk reduction

4- ACT:

• Define risk mitigation plans.
• Monitoring through continuous evaluation plan.

Type «A»suppliers are those who provide us with products, starting materials, reagents or services without which it would be impossible to develop our core business. In addition, a failure in the products or services, even a supply problem, could be critical (defining critically how best to adapt to the degree of risk aversion of the person responsible, such as damage to the end patient, a deterioration in the company’s image, an economic impact, etc.). On this type of suppliers I always recommend, whenever possible, to have an alternative supplier and keep it active, i.e., to make at least a couple of purchases per year. In this way, we will ensure that we have a «plan B» for a problem with our primary supplier. These suppliers will be the ones to whom we will have to monitor them more closely. That is, like a football defense, to monitor each of their deliveries, strictly evaluating the quality of the product or service. They are those with a high associated risk, so we will need to allocate more resources to their monitoring. If we are allocating the same resources to check each reception, regardless of the criticality of the product, we are wasting resources, with its associated opportunity cost. That is, while checking staples or gloves, we do not check starting materials, reagents, etc. Such is the importance of these suppliers that their choice cannot be subjective. As such, methods collected by procedure should be carefully chosen and employed. It is not enough for the competition to buy from him (although it can be a factor to be taken into account) or for my brother-in-law to work there. What we do at this point will be inspectable by the authorities, so the criteria should be clear and written (EMA/385898/2013, Compilation of Community Procedures on Inspections and Exchange of Information, pag. 119, point 4.5 (2). We’ll have to be able to explain and defend them. Once we have decided that a supplier is critical, type «A», we have to decide what we do with it. I recommend a physical audit of it, as I said in a previous post. For type «A» suppliers, my recommendation would be to perform the physical audit and a documentary evaluation beforehand. In addition, an analysis of each reception. For type «B» suppliers, an initial documentary audit might be sufficient, subjecting them to a physical audit for those cases where there are sustained problems at a qualitative level during receptions or the process, which we will evaluate one by one initially and reduce the frequency as a function of the possible incidents that appear. A variable inspection frequency is usually recommended for all cases, especially for types «B» and «C». For type «A» I recommend an inspection frequency of 100% of the receptions (not the materials themselves, which we can partially inspect). In some cases we may have a supplier, which we could define as «A-plus», that has a key product for our process, and from which it is not possible to find an alternative supplier. We could detect that it has economic problems, in which case we could define some special action, such as vertical integration of the same, or economic collaboration if the size, structure and state of the accounts of both allow it. Obviously, time and continuous evaluation should allow us to obtain a better perspective of our initial choice when classifying our suppliers. Modifying an initial criterion should only be a way of adapting our requirements to a changing environment, be it Quality, economic, legal, environmental, etc. As a general rule, the quicker the adaptation time to a change or problem, the less time passes between problems and solutions, the more flexible our structure will be and the better adapted we will be, increasing our competitiveness (external or intra-group, depending on the type of organization we belong to). Therefore, it is important to bring as close as possible to the detection of the problem or threat on the map, solution approach, final solution. Flexibility is a competitive advantage, and as such should be encouraged.

Conclusions

In summary, we must take into account the risk associated with our suppliers when making an A-B-C classification, and in addition not only take into account aspects of quality, but also economic, legal, technical, etc… Subsequently, define a follow-up action plan for these critical suppliers by means of goods inspection plans, trending incidents, periodic audits defined on the basis of written criteria, etc. Plan, Do, Check and Act. Find alternative suppliers for those classified as «A». We have introduced the supplier topic «A-plus» and finally we have encouraged flexibility as a search for competitive improvement. In the future I would like, taking advantage of my mixed business and quality training, in addition to my experience of more than 17 years in the pharmaceutical industry, to dedicate some input to the search for opportunities for improvement within the sector, acquisition of competitive improvements, outsourcing, etc. all this focused from the point of view of management and its correlation with quality, which must always be positive and as close to 1 as possible. Again, thank you all for reading me and don’t hesitate to contact me for any doubt, clarification or correction you consider appropriate.

Update April 2018:

Based on this article, I have created a document to be able to incorporate everything explained above into the quality system. It is available in the shop: link