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Saturday, 26 May 2012

Losses Incurred Due to Inadequate Corporate Purchasing Programs and Practices


Good purchasing personnel are tremendous at negotiating prices but one can reasonably assert that they may not always be aware of other hidden costs in what they do. These costs insidiously erode the gains from hard-fought negotiated prices. Let's take a quick look at some of these hidden costs.

There are many losses and unrecoverable costs due to ineffective supplier assessment and approval. 

A large number of organizations have implemented supplier approvals but without adequate attention to the reality of “garbage –in-garbage-out”. Consequently, they do a very poor job of approving their suppliers. Permit me to restate the positive alternative to the understanding of “garbage-in-garbage-out”. Properly selected suppliers deliver safer and higher quality input materials consistently. This is essential in the delivery of safe and quality products to consumers.

There is usually a collaborative effort between the QA and purchasing departments in the supplier approval process. Even where the need is understood and such collaboration is established, many implemented supplier approval procedures woefully lack proper direction. After several years of auditing, I have found that proper supplier assessment techniques and assessment criteria are not used by many operations. Never mind the time and resources wasted in some redundant “supplier approval” activities. Useless activities are common. Many operations receive documents from suppliers without ever really looking at these documents. Quality system managers fail to conduct proper and thorough follow up actions in response to supplied material failures because, "after all, the affected suppliers have certificates from reputable third party audits".  

As a specific example, what is the real value of requesting the suppliers’ allergen declaration document and simply placing this on file because “this is an audit requirement”? Copies of third party audit certificates are also requested from suppliers. To what end and how these are actually used remain an enigma. Countless purchasing and QA departments rest satisfied simply because their prospective suppliers have third party audit certificates. I can understand requesting the actual audit results because these contain more information than the plain certificates. At the same time, these audit reports often state that they are snap shots and do not represent or guarantee the continuing good performance of the audited parties. How much then, should purchasing personnel rely on these audit reports for their decisions to continue buying from the suppliers? Should these even be dependable criteria for purchasing decision making? In some organizations, little to no attention is given to other pertinent supplier assessment and monitoring criteria and activities simply because the suppliers submitted their third party certificates.

The supplier approval programs of several companies sadly constitute no more than waste bins for valuable resources. Purchasing and QA personnel are forced to spend valuable time in conducting activities that contribute absolutely nothing to preventing unacceptable materials from coming into their operations. The realities faced everyday are rarely examined and adequately addressed in the development of many supplier approval programs. I have reviewed many supplier approval programs that are no more than window-dressing schemes to impress third party auditors. They are often fanciful but ineffective. Some are not even so fanciful but ineffective all the same.

Purchasing and QA personnel also need to be aware that unrecoverable losses can be attributed to bad corporate purchasing programs and practices. Just to name a few: Time and money are often wasted in quality control (fire-fighting) activities due to bad materials purchased from bad suppliers. Time and money are wasted due to recall events resulting from bad materials or products purchased from bad suppliers. In spite of the transferable blame, distribution outlets (wholesale, retail sale, food service, restaurants, etc.) suffer tainted reputations that drive customers away.

Summary: 

Suppliers: If you need paper certificates to prove to your customers that you are doing everything right, you are very likely not doing everything right.


Customers: If you rely on paper certificates from your suppliers as proof that they are doing everything right, you are very likely not looking at the right metrics. 

A robust supplier approval and monitoring program that looks beyond mere paperwork or third party audit requirements is essential for every operation. Obtaining the copy of a third party audit certificate is never sufficient. Even obtaining copies of third party audit reports is not sufficient. A holistic program like the GCSE-Food & Health protection SSQA program is essential. It focuses on reality. The supplied products and/or services and the historical consistency of meeting desired safety and quality requirements form the primary bases for assessing the success of implemented control measures and programs.

All redundant elements need to be eliminated from the supplier approval process. Resources must be effectively directed and applied. Necessary and proper collaborative arrangements must be established and maintained. Properly designed and implemented supplier approval programs provide huge benefits to all, and I mean ALL stakeholders (purchasing and QA personnel, business operators, suppliers, customers, consumers, public health personnel, third party auditors, regulators – the world).

Posted By Felix Amiri
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Felix Amiri is the current Food Sector Chair of GCSE-Food & Health Protection

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