Working with contract manufacturers to outsource the complete production of a product offers a number of advantages: reduced costs, a more efficient allocation of resources, and a more agile response to changes in corporate strategy.
But contract manufacturers also pose risks for quality functions—especially those working in highly regulated industries, where products come under extra scrutiny—so the organization must assess the right risks and ensure contract manufacturing partners perform to the expectations required of them.
The contract manufacturers’ level of risk should dictate the depth of Quality’s involvement, so that the function can keep quality to a high standard while preserving the financial and strategic advantages of the partnership.
The Eight-Step Program
There are eight steps Quality can take, in partnership with Procurement, to improve the management of their relationships with contract manufacturers.
Create a list of criteria to assess contract manufacturers: Include both your company’s internal standards as well as external criteria, like regulations from the US Food and Drug Administration (FDA). Consider factors like safety and environmental criteria, manufacturing principles, quality management systems, and standards for product testing.
Quality should conduct an audit based on these criteria, and contract manufacturers that don’t pass the audit should make corrections based on notes from Quality and then reapply for authorization.
At some companies, Quality provides contract manufacturers with documentation on the quality and performance requirements they’ll need to meet up front. This way, contract manufacturers are aware of the company’s standards and can determine whether to rule themselves out or proceed before investing time in the process.
Require contract manufacturers to secure approval on major changes: Include a clause in contracts that requires contract manufacturers to re-apply for approval if they wish to use a new facility or work with a new subcontractor. One quality team in our network monitors directly the performance of “tier 1” contract manufacturers but uses third party audits for lower tier suppliers.
“Before we visit any new site, we require the contract manufacturer to fill out a questionnaire for us and also send us a copy of a third party quality system audit report,” one member told us. “Only after we see this information do we go in and spend the time reevaluating the contract manufacturer.”
Modify your assessment of contract manufacturers depending on the risks involved: It takes time to comprehensively assess contract manufacturers, so work with Procurement to determine which contract manufacturers pose the greatest risk to your company.
Consider factors such as risk to the customer, regulated versus non-regulated products, and how critical the product is to your firm. Procurement can also help determine which contract manufacturers are worth spending time on to develop a long-term partnership.
Track performance: To ensure contract manufacturers are performing to standard, it’s important to track performance as soon as you start working with them. Companies typically use a combination of four approaches to do so: assessments (both formal and informal), non-comformance metrics, monthly performance reports, and sampling or testing.
“If we’re bringing on a new offshore contract manufacturer, we test every lot coming in, and we audit them frequently until the results are consistent and identical,” one CEB Quality member said. “Once we have not found any significant issues over a period of time, we back off on the testing and may do it in every fifth lot instead of every lot.”
Help them improve: Monitoring contract manufacturers’ performance will help you see where they can improve: for instance, to become more efficient, to develop new capabilities, or to create a new product.
“We are very much involved with our vendors,” one member told us. “We taught them how to achieve the standards, helped them improve their internal processes, and monitored their ongoing progress. It has helped to solidify the relationship to be mutually beneficial and respectful.”
Set response times up front: When corresponding with contract manufacturers, quality organizations rarely receive a response within 24 hours. This delay can cause problems for the function, particularly during product investigations or other pressing issues. Set up communication requirements up front–at the time the contract is signed–to prevent delays.
“When something happens like a peanut recall and we need to assure our customers that we don’t have any products that contain the contaminated ingredients, it isn’t acceptable to wait three weeks to hear back from a contract manufacturer,” an executive told us.
Set up a system to manage information: Make sure to track relevant information, whether you use a series of spreadsheets or integrate the data into existing systems.
Work with the contract manufacturers’ heads of quality: Hold regular meetings with your quality counterparts at the contract manufacturers to find solutions to existing issues and discuss opportunities to improve.
One company’s quality team holds quarterly meetings with the head of quality at each of its most critical contract manufacturers, reviewing quality metrics and discussing current issues such as regulatory changes.
“Ultimately, it’s a partnership,” one member told us. “When it becomes confrontational or when you start hiding critical information from one another, it’s never going to work.”