RCA Radio Episode 007: Supply Chain Risk Management

Erika Porcelli: Hello, and welcome to RCA radio, a podcast covering the latest news and challenges in regulatory compliance and quality assurance facing the life science industries. I’m your host, Erika Porcelli. Today we are covering episode three in our supply chain management series. Companies across America are tightening up their supply chains in order to reduce the risk of interruptions. In this episode, we will be discussing supply chain and risk management. Today I’m joined by Larry Servi, who is RCA’s Director of Program Management. Larry, welcome.

 

Larry Servi: Thank you.

 

Erika Porcelli: So, Larry, why are we here today talking about supply chain risk management?

 

Larry Servi: Okay, well really probably any time is a good time to talk about supply chain and risk management, but why now? What’s changing. A lot of things have happened in the world. Just as a way of quick background in what’s changed, really previously, primary driving to sourcing of manufacturing was to drive down manufacturing costs by moving to locations, lower labor costs and looking at the lower cost of raw materials that come with that. Infrequently an alternative considered, especially in the case of high volume manufacturing has been the potential for automation.

“what’s changed … primary driving to sourcing of manufacturing was to drive down manufacturing costs by moving to locations, lower labor costs and looking at the lower cost of raw materials that come with that. Infrequently an alternative considered, especially in the case of high volume manufacturing has been the potential for automation.”

 

As a result of that in the seventies, eighties and nineties, there were significant moves in manufacturing to geographies with low cost of labor. Initially many products previously made in America, for example, were moved to Mexico or Puerto Rico. Then things shifted and a lot of products were moved to Taiwan, China, India, Malaysia. Employment, as a percentage of GDP in the US has dropped from over 20% in the late seventies to under 10% by 2010. Anyone that’s been working in the industry has really seeing that firsthand, as I have.

 

Recently though, one could argue that the risk of interruptions to the supply chain may be somewhat in light of those manufacturing moves. But recently we had the pandemic, that a lot of people experienced factory closures out of necessity for safety. A lot of things have happened in the political climate with regard to trade imbalances and tariffs. It behooves us to look at supply chain and the risk associated with potential interruptions in that supply chain.

 

Erika Porcelli: Do you have a sense of how much of the manufacturing has been moved off shore? Like a percentage?

 

Larry Servi: I can’t quote you a number, but it’s been substantial. A lot of the research you see out there really combines multiple industries. I know, for example, the overall numbers are lower, as far as overall industry because some of the electronics and software has continued to be, some of that has been still in the US. But especially in the medical industry, I know firsthand, I’ve seen a lot of the, especially higher volume commodity products and high volume raw material components have moved off shore, but I can’t give you a good number on that.

 

Erika Porcelli: So in your opinion, what are things that companies can do to reduce the risk of supply chain interruptions? I know that’s a big topic right now, right?

 

Larry Servi: It sure is. Well, one option is just to do a reevaluation of where to locate manufacturing is probably a good business practice anyway. Over the years, labor rates in some of these countries, such as Mexico and China have increased as a result of so many companies moving their manufacturing there. It may be still lower than the US or some other countries, but it’s changed. So those economic numbers would look different, in terms of a return on investment.

 

Also, the viability of automation due to technology advances, if you compare to where technology was for automation in the seventies or eighties compared to what’s possible now, the scenario may look a lot different. Political climates and uncertainties also need to be considered, but you can easily understand since the risk is hard to quantify that political climate uncertainties when you’re doing financial modeling. But it makes sense to do a reevaluation periodically.

 

A second option is to proactively qualify alternative or duplicate sourcing. This allows a business to quickly shift to a new supplier if or when necessary. I think something I’ve seen has always been a need for companies, but especially now, with the risk of factory shutdowns and political uncertainties.

” proactively qualify alternative or duplicate sourcing. This allows a business to quickly shift to a new supplier if or when necessary.”

 

Erika Porcelli: So I have a two part question for you. The first piece is, isn’t it costly and time consuming to change suppliers or manufacturing locations? Then secondarily, is there anything that can be done to reduce or relax the qualification requirements?

 

Larry Servi: Great questions, and thanks for bringing those concerns up. They’re very relevant. For years, companies have recognized the benefits to having multiple approved suppliers because it provides leverage in pricing negotiations, but most firms that I’ve seen over the years, companies continue to be single sourced and they struggle to quickly find alternatives. Even though companies know it behooves them to have multiple sources, it just never seems to be high enough priority compared to other projects and programs.

 

But the risk associated with interruptions has probably maybe increased, especially because of some of these previous moves. When forced by suppliers, due to continuous supply or forced component changes by the supplier, it’s a struggle. But there are some things that could be done to minimize potential disruption to supply. One thing is that company’s SOPs governing qualification requirements to qualify in alternative suppliers are by necessity, they’re conservatively written to ensure comprehensiveness, but frequently there are opportunities to add flexibility to those procedures.

 

For example, on a case by case basis, one can use a risk based approach to qualification, in terms of what kind of verification or validation testing is needed in order to sufficiently mitigate risk. The best practice is to weave appropriate risk analysis into those qualification SOPs, as a means to provide this kind of flexibility.

“The best practice is to weave appropriate risk analysis into those qualification SOPs, as a means to provide this kind of flexibility.”

 

I would add that general SOP requirements for verification of validation are typically written to require that all product requirements are comprehensively met, but incorporation of risk analysis provides a means to ensuring that testing is not unnecessarily done. It needs only be done to the extent necessary to sufficiently mitigate risks to safety and efficacy. Rationales for reduced qualification tests need to be technically sound and they need to be conservatively employed and documented on a case by case basis.

 

For example, in the case of like for like equipment or material complications, if a material or equipment is truly like for like, verification testing, rather than full validation, maybe justifiable. But we always need to be careful because materials or equipment that may seem on the surface to be like for like, upon further analysis, that’s the danger of using rationales. Sometimes you find they really weren’t like for like.

 

An example of that is, let’s say changing from one polypropylene plastic material to another grade of polypropylene, may not truly be like for like because the molecular weight, crystallinity, additives using the polypropylene, like antioxidants or slip agents used by the polypropylene manufacturers can vary. These differences can affect the functionality and biocompatibility of the product. So using rationales to minimize testing is very useful and very important, but needs to be carefully done.

 

Erika Porcelli: Yeah, you had touched on a few minutes ago the reduction and the qualification requirements. We’re in a pandemic, you kind of look at this at the top. Do you think that further down the road that there would need to be a deeper qualification done or do you think across the board it’s okay to take that risk based approach no matter what the climate is?

 

Larry Servi: Oh, I would say that one of the things that’s very important, and if you look at the FDA guidance documents and ISO risk management standards, it’s really expected that companies weave risk management into their quality management system procedures, so that it’s part of the natural process. Again, you know, the, the basis for verification of validation, as long as you statistically and rationally show that you’ve mitigated your risks, it’s really good business practice. What we’re really talking about here today is just why that’s so important with regard to the supply chain, and trying to show how that can actually save time in the long run by having the supporting risk analysis to back up decisions made on what kind of testing is needed.

“if you look at the FDA guidance documents and ISO risk management standards, it’s really expected that companies weave risk management into their quality management system procedures, so that it’s part of the natural process.”

 

Erika Porcelli: Yeah, I think that makes a lot of sense, especially as companies are looking at their workforce and all the social distancing and all of the things that are currently impacting manufacturing processes. So even with qualification streamlined and rationalizations employed to the extent possible, is there anything else that can be done if qualifications simply cannot be accomplished in time to avoid a supply disruption?

 

Larry Servi: Another good question. Well, the first approach that could be done is to allow, and I’m going to preface that by saying these are things, they’re not new, these are not new concepts, but I just want to reinforce them, is what approaches to allow internal ramp up activities and even initial production internally using the alternative supplier. This is if you’re in a time crunch and just really no time, and you want to avoid back orders or supply chain interruptions, starting the sourcing and the initial production internally to the company in parallel with completion of any qualification testing, that needs to be supported by procedures being in place to ensure that the product doesn’t get inadvertently released to the customer prior to completion of those qualification tests. But doing that kind of parallel approach can potentially save weeks or months of time while qualification testing is formally completed. Again, the risk to that kind of approach is internal because the product is tested in parallel, and it may need to be scrapped if qualification in the long run doesn’t actually pass testing, but there’s no risk to the customer in taking that type of approach.

“doing that kind of parallel approach can potentially save weeks or months of time while qualification testing is formally completed. Again, the risk to that kind of approach is internal because the product is tested in parallel, and it may need to be scrapped if qualification in the long run doesn’t actually pass testing, but there’s no risk to the customer in taking that type of approach.”

 

A second approach, commonly employed when time consuming shelf-life or stability testing is needed for qualification, is to allow release of the product into the marketplace in parallel with completion of qualification testing. In other words, initiating shelf-life testing or stability, but in parallel with that, releasing product to the marketplace. This approach needs to be supported again by risk analysis, as a means to document that the associated risk to the customer is low. Folks need to recognize that the risk here is that if future testing finds that the product is not sufficiently over the intended shelf-life, it may become necessary to actually recall product from customers, which no one wants to ever have to do, so that’s the risk with that type of approach.

 

The third approach normally applied only as a last resort is where time or cost to mitigate risks are prohibitive is to consider performing a risk versus benefit analysis. Risk benefit analysis balances the benefits of uninterrupted supply of product to the consumer against the potential harm or risk associated with providing product with risk to safety or efficacy that are not fully acceptable. That type of analysis needs to be allowed for by company procedures and documented in a risk management files associated with the product line. But that is an acceptable way of avoiding a severe problems with the supply of important products to our consumers.

 

Erika Porcelli: Thank you, Larry. That information was all super helpful. Do you have any final thoughts?

 

Larry Servi: Well, I guess I’d like to summarize by saying that there are a number of options that could be considered when seeking to avoid disruptions in a supply chain. Understanding and documenting the risk associated with evaluating those options is fundamentally a sound business practice. I would point interested parties to the ISO standard 14971, which is a standard for risk management in medical devices. It’s an international standard. As well as the Q9 FDA guidance for quality risk management. Those are very helpful to augment some of the things we talked about today.

 

Erika Porcelli: Larry, I really want to thank you for taking the time out of your day to spend some time talking about supply chain and risk management and always for your insight. Thank you to our listeners for tuning into this episode of RCA radio. Be sure to subscribe to be the first to know when we upload the next episode in our series covering supply chain management. Thank you so much, Larry.

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