Kari Miller, Regulatory and Product Management Leader, Pilgrim Quality Solutions, an IQVIA company
Risk continues to be a major focus in most businesses today, regardless of industry. In the past few years, Life Sciences organizations have seen a steady rise in supply chain issues resulting in lost market caps, recalls, regulatory fines, and other financial impacts valued in the billions of dollars. Subsequently, the standards organizations and regulators around the globe have taken note and responded accordingly. So it’s no surprise that minimizing business and operational risks, as well as legal and regulatory compliance, is on every executive’s mind, and for good reason.
Supplier risk, put simply, is the probability associated with a supplier causing an interruption in an organization’s supply chain by impacting the availability of products and services within that supply chain. Supplier impact, at a minimum, effects two legs of the three-legged Governance, Risk, and Compliance (GRC) stool: those two legs are Risk and Compliance. The impact of suppliers on an enterprise can be significant.
Risk on the Rise
When you couple the global nature and length of supply chains with operational strategies such as lean manufacturing, just-in-time manufacturing, zero inventory, outsourcing, and subcontracting, supply chain risks are increased as even minor supplier disruptions will have a cascading effect on supply. There is little to no safety net to prevent these effects.
While lean, just-in-time, off-shoring, and outsourcing strategies have allowed companies to reduce overall costs while improving efficiencies and expand more quickly into new markets, they also expose companies to risk. These risks include the potential of a supplier suddenly going bankrupt, closing operations, taking short-cuts in quality, experiencing capacity issues, regulatory compliance pressure, a data breach, or even being acquired.
The Chain Reaction Effect
It’s been said that one risk leads to another. While the source of that phrase is unknown. Its truth is readily apparent. Supply chain disruptions, product and service shortages, and quality issues can result in poor financial performance, drops in stock prices, brand reputation issues, and most importantly, an organization’s ability to serve patients, thereby impacting public health.
One McKinsey study of medical products companies claims that supply chain risk events are the second leading contributors to large monthly declines in share price, “resulting in drops of 10 percent of more.” The cost of a major recall in a medical device organization has been as high as $600 million. Penalties and fines of $900 million have been recorded, and that figure doesn’t include losses of goodwill and market share.
Managing the Costs
There are many types of supply chain disruptions that can occur and they can be very expensive; expenses that go well beyond the loss of a sale. Ironically, the risk circumstances that have a relatively low probability of occurrence, typically result in the greatest severity of impact, because when they do occur, they have cascading risk impact throughout the organization. Although such risks cannot be completely eliminated, their impact can and should be reduced. Regulatory bodies around the globe recognize this as well, and have implemented regulations and guidances around supplier controls to managing this risk and its potential fallout on organizations and the public.
So, how can supplier risk be reduced and what is the role of Quality in that process? You can read more about how reducing supplier risk reduces your organizational risk in the newest Quality industry e-book, The Impact of Supplier Management on the Organization and the Role of Quality, from Pilgrim Quality Solutions. Request your copy here.
Reduce Supplier Risk, Reduce Organizational Risk
This e-book addresses ways to reduce supplier risk in your organizations, and the role of Quality in that process.