Compliance Challenges in Global Supply Chains
A recent news story tells of inspectors leaving a Walmart-certified factory in Guangdong Province in China after approving the production (and shipment) of more than $2 million in Walmart specialty Christmas items- soft goods like reindeer suits and Mrs. Claus dresses for dogs. Inspection had failed to catch that the items were not made at this particular factory.
Chinese workers made the goods at a rogue factory that had not gone through the certification process set by Walmart for labor, worker safety or quality. To receive approval for shipment to Walmart, a subcontractor simply moved the items over to an approved factory, where they were presented to inspectors as though they had been stitched together there and never left the premises. Soon after the merchandise reached Walmart stores, they began falling apart.
Goods manufactured in the global supply chain are a challenge for manufacturing enterprises. Inspections can uncover problems that render huge fines and penalties for faulty production and labeling. Manufacturers must be on watch as to not trigger regulatory failures and non-compliance issues. Fines can occur for a range of offenses from bribery, corruption, product non-compliance, and financial fraud, and now reach into the many billions annually. Challenged by requirements for quality and efficiency, manufacturers are finding product non-compliance is more of a regulatory concern than corruption.
Risks develop in corporate supply chains for a number of reasons. Transparency is always an issue, so noncompliance issues can be blind spots, hidden from view. By its very nature, business tends to hide or even reward unnecessary risk. Non-compliance problems often reside just beneath the surface of an underfunded or ineffective compliance program. Corporate claims of ignorance due to noncompliance and corruption is not an acceptable excuse. Management must meet high standards for both quality and compliance and implement a robust risk identification and management system to solve supply chain risks.
Integrated cloud based Enterprise Resource Planning (ERP) solutions provide the ability to set thresholds for triggering notification of quality and compliance problems. To ensure the kinds of collaborative and visibility insights necessary to manage quality and compliance risk in the first place, a cloud based ERP system is a key tool so that all business data runs in real time.
Here are four tips for the global manufacturer to ensure product quality and compliance in their supply chain:
Tip #1: Does your data system correctly match Purchase Order to Supplier Information?
Manufacturers and their suppliers need to be in constant communication, so that up-to-date data is available to ensure all the product compliance issues of quality, safety, and global regulations are met before the purchase order is filled. The first step is to ensure correct data matches the Purchase Order with all Supplier Information. Having the right data in place for all operations will enable supply chain management to observe all compliance issues. This is why the right automated tools and solutions used by well- trained, support personnel, will assist in managing an effective, truly transparent supply chain, and help monitor and maintain it, so that the supplier information meets the inspector’s requirements by end delivery. For example, a robust ERP could interface with a compliance/quality solution system like ComplianceQuest, considered ‘best of the breed’ in its approach to building an enterprise solution that integrates all operations so that everything matches and aligns.
Tip #2: Are you able to maintain regular oversight of Supplier quality and compliance?
Manufacturers must be able to maintain consistent oversight of quality and compliance issues to ensure parts and material purchases come from approved suppliers. For example, Rootstock partners with ComplianceQuest to provide the data support needed so that manufacturers keep a pulse point on the status of how supplier product and parts quality meet the product’s requirements and expectations.
A good system like Rootstock will provide an Approved Supplier List (ASL) which shows availability and status updates based on results from quality events. Supplier audits are documented with any observations on areas needed to improve. Supplier quality metrics are made available in a dashboard to both the Manufacturer and each Supplier based on permissions.
Manufacturers need these tools; it is now vital to move beyond using spreadsheets, docs, or emails to manage compliance. Supplier and purchaser both must have total data integrity. For a seamless flow of information, Rootstock, Salesforce and ComplianceQuest all work together in a single user experience and customer record, to meet this objective. Manufacturers need to be assured that all inspection criteria are met and that the accuracy of the material, parts, and product inspection process meets with all inspection goals at the journey’s end.
Tip #3: How quickly can you correct any nonconforming materials?
As David Bush and Nikki Willett state in the above referenced “Discover Rootstock ERP webinar,” Receiving and In-Line Inspections must expedite the material and review process to prevent nonconforming material to be released into Inventory. Good compliance software systems like ComplianceQuest support end of line inspections and help manufacturers keep good inventory flow necessary for product production. Non- conforming material must not be released into inventory. Inspectors are immediately notified when an Inspection is needed based on system information, and Inspection Requirements are then provided quickly so that the Inspector records the results. When nonconformance issues can be quickly recorded, actions plans can quickly be created or escalated and a notification sent to the ERP system “not” to release the inventory.
Tip #4: Are you able to integrate quality and compliance issues with your ERP?
Documentation from the very beginning of product manufacturing to the final inspection must be accurate. It must be integrated to both the ERP and the Enterprise Quality Management (EQM). Regulated and ISO certified companies NEED automation tools to successfully maintain detailed documentation on all changes to design specifications, standard operating procedures (SOPs), material changes, supplier changes, process changes, etc. This is why current data must be used when ordering from a supplier. Rootstock uses both ECO’s (Engineering Change Orders) and RC (Revision Control) to assure the most up-to-date documentation, material requirements, and processes are used.
When all these quality controls are properly integrated, the system maintains the part status information electronically. The users know what parts/revisions are in stock and on order. Manufacturing Requirements Planning (MRP) ensure parts match the implemented status of Revisions and/or ECO’s. The users are not left wondering if the parts in inventory and on order are based on old or new data.
Inspection failures, non-conformances and other quality events are captured by EQM with results sent to the ERP to manage inventory release and locations. Users know that bad material/parts are not sent off to distribution. A maintained ASL is easily accessible for purchasing to accept POs from only qualified Suppliers. Users know that a supplier’s quality status is valid to accept material/parts for inspection including the appropriate sampling plans. On-going quality metrics are collected from both ERP and EQM and displayed in a dashboard. Both Manufacturers and Suppliers know exactly what the current status is of a supplier’s quality.
Brian Alster, Global Head of Compliance and Supply at Dun & Bradstreet, recently warned that maintaining a sustainable, compliant supply chain will be the biggest corporate challenge this year. Although a tough task when products and raw materials are sourced globally, with each supplier holding different risks, the best step is to do it correctly from the start and root out possible risk. The global regulatory landscape for compliance is ever changing. Manufacturers must be on top of all data so compliance risks can be identified. Full transparency relies on one source of data and the ability to quickly identify supply chain risks and flag the hot spots that need improvement.