The Successful Merger of Two Supplier Certification Processes
Alfred T. (Ted) Ericson III
Alfred T. (Ted) Ericson III, Senior Consultant, Ericson Consulting, Lincoln, NE 68504, 402/464-4682, fax 402/464-4719, email@example.com
85th Annual International Conference Proceedings - 2000
Abstract. Company mergers present professionals with the task of creating new processes using the best practices of the companies undergoing the merger. In December 1997, Sandoz Pharmaceuticals and Ciba Giegy merged to form Novartis Pharmaceuticals. The Self Medication (Over the Counter Medication) divisions were faced with creating one Supplier Certification Process where two existed before.
The process design was to take the best practices of the two companies to create a better process. This presentation will review creation of the new process guidelines, highlighting what processes/procedures came from which company, outline the new process, and summarize success of certification.
The presenter was responsible for creating the new process, in coordination with departments/teams, in his role as Manager of Supplier Certification for Novartis Consumer Health.
The Opportunity. One of the major purposes of Purchasing/Supply Management organizations is to maximize the profitability of your respective companies or organizations. We do this by effective maximizing the contribution of out suppliers.
Pella Corporation states this quite well in their mission statement for their Supplier Management Department:
- To Optimize the supply base.
- To Maximize the supply base.
- To Improve the supply base.
- To encourage innovation in the supply base.
Companies have found that one of the ways to accomplish the above is through creation and management of an effective Certification Program with their suppliers. An emphasis on supplier quality to achieve supplier excellence is key to company's success.
History. Sandoz Pharmaceutical's and Ciba Geigy's Consumer Pharmaceutical Certification efforts go back to the mid-1980's. Both companies saw the advantages of certifying high volume suppliers to save incoming inspection/testing time and costs, reduce the amount of inventory leading to potential JIT delivery schedules, reducing inventory and storage costs, and improve overall quality of components and products.
As can happen when two organizations independently develop a process, these efforts resulted in different philosophies in some key areas. For example, a key component of the Sandoz process was to reduce the amount of incoming testing/inspection to the lowest level possible, ultimately to the point of only needing to perform some form of identification (along with review of appropriate shipment production records) before approval. The Ciba process, while moving to reduced testing, retained a higher level of inspection and required more frequent full testing to monitor supplier compliance.
Supplier Quality Philosophy. The Philosophy we adhered to in creating the Novartis Consumer Supplier Quality Certification Process was to empower suppliers with the responsibility for producing high quality components for use by Novartis Consumer. This is accomplished by forming alliances with selected suppliers to improve quality, reduce the cost of non-conformance and increase productivity with less expense by focusing on prevention.
The process we developed includes auditing of the manufacturing site, a commitment to work within the process from the supplier, development of a process for certification, and maintenance of Performance Ratings for the supplier.
Certification Process. A typical certification, for Novartis Consumer, may entail the following:
- Evaluation of Process Capability Data from the Supplier
- A summary of Incoming Inspection/Testing Results
- A summary of the Supplier's Overall Quality History
- A summary of the Supplier's Delivery History
- A summary of the Component(s) Functionality and Machinability History
- Audit of the Supplier's Manufacturing Facility
- Novartis Consumer and the Supplier agree on the testing and procedures used for release and shipment of finished components to Novartis
- Novartis Consumer and the Supplier agree on testing procedures used for receipt and release at Novartis
- Novartis Consumer monitors 5 - 10 shipments concurrent with implementation of new procedures.
Supplier Monitoring. After a supplier is certified the normal monitoring process is fourfold. First, one shipment per year, from the supplier, undergoes a full testing protocol. (In addition there may be provisions made for quarterly microbial testing.)
Secondly, the supplier's manufacturing facility may be audited annually, depending on the overall assessment of their performance. Normally, if a supplier's performance has been excellent an audit is conducted every three years.
Third, the supplier's quality, delivery and quantity delivered performance are measured monthly or quarterly, depending on the volume of receipts.
Last but not least, the supplier receives an annual report card which measures their Objective Performance (Quality, Delivery, Quantity), Subjective Analysis, and their Audit Rating.
Results. At the end of 1998 Novartis Consumer, Lincoln, NE site had moved from certification of about 50% (at end of 1997) of all Packaging Material receipts to 80% certification. 100% of all corrugated, folding cartons, labels and PET Bottles come from certified suppliers. In addition, a major portion of all Plastic Bottles, Foil, PVC/PVDC Film, and several key active ingredients are certified.
Savings are monitored via tracking of the following:
- Reductions in Storage Costs
- Reductions in Inventory Carrying Costs
- Reductions in Inspection/Testing Costs
- Reductions in Sampling Costs
- Price Reductions
Savings/Cost Avoidance in 1998 totaled over $800,000. They are expected to exceed $1,200,000 in 1999.
Novartis Consumer Health, "Guidelines for Supplier Quality Certification".
Hale, Roger L., Ronald E. Kowal, Donald D. Carlton, and Tim K. Sehnert. Managing Supplier Quality. Exeter, New Hampshire: Monochrome Press, 1994.
Bossert, James L., editor, Supplier Management Handbook, Milwaukee: ASQC Quality Press, 1994.