How to Build a Strong Vendor Program

In the wake of the collapse of the Francis Scott Key Bridge in Baltimore, it is a good time to review the importance of building and reinforcing your supply chain. Supply chain is something that the average person typically never thinks about, but thanks to the COVID-19 pandemic, the war in Ukraine, a grounded container ship in the Suez Canal, and the Houthis terrorist group launching attacks on shipping in the Red Sea, supply chain has become an integral part of the nightly news. As the media has reported, each of these events has added costs to shipping, and in the case of Ukraine, food insecurity in different nations. A container ship’s journey around the Horn of Africa adds six days to its delivery date. The food industry got a wake-up call when COVID-19 hit in 2020 and with China closing its borders, there was suddenly a dearth of certain ingredients, especially non-nutritive sweeteners.

But no matter the obstacles, the real focus of supply chain management or vendor programs is ensuring that the ingredients, raw materials, and packaging used to produce foodstuffs are safe, wholesome, and of high quality. Importers and buyers must establish programs in keeping with regulations such as the U.S. Food and Drug Administration’s (FDA) juice and seafood Hazard Analysis and Critical Control Points (HACCP) programs, the Food Safety Modernization Act, and the U.S. Department of Agriculture’s (USDA) MegaReg for meat and poultry safety. These programs must be developed, documented, implemented, and maintained by every link in the supply chain.

When building your company’s supply chain or vendor program, as many refer to it, the top priority is to ensure food safety, and ultimately, to deliver safe foods to consumers and industrial users. A strong vendor program includes several different elements, including but not limited to, identifying and evaluating potential suppliers, selecting (that is, approving or rejecting suppliers) and initiating the supplier relationship, and assessing supplier performance.

Identifying Potential Suppliers

Food processors, especially the research and development (R&D) team, are always looking for potential suppliers. When a new product is developed, a line extension is in the works, or an opportunity for a cost reduction in formulation or processing is identified, the R&D group will be charged with finding and evaluating ingredients or raw materials from different sources. These could be from current suppliers or new ones, from domestic or international vendors, or they may be sourced from in-house.

During the development stages, R&D will look at how the ingredients perform, collect specification sheets and other technical data, and obtain potential costs and background information on the company. When the development or modification work has been completed or is nearing successful completion, there will be a be a list of potential new suppliers generated. The emphasis is on “new,” since utilization of an existing supplier fast-tracks the whole process. Now, the one exception to the rule is if the ingredient or material comes from another plant in the approved supplier’s network of companies. Supplier approval must be based on a plant-by-plant approval because there have been incidents that have caused recalls. In one case, for example, when an approved supplier shipped product to a user from a facility that had not been approved by the buyer, there was some fault on the part of the user since their receiving group failed to note that the material had been produced at an unapproved facility.

Evaluating Potential Suppliers

When it comes to evaluating potential suppliers, both the technical and financial capabilities of the vendor are subject to review. Typically, the food company’s purchasing group will be charged with evaluating the company financially. R&D and the food safety and quality assurance team will assess the technical requirements expected from each vendor with the objective of ensuring that purchased materials are safe and wholesome. Some of the technical capabilities that the food company should look for include:

1. Vendors must operate under a HACCP system or one that utilizes HACCP principles to define and identify potential risks and have been audited by a third party. Some companies conduct food safety audits themselves, which is a good idea as it does help to establish a working relationship between supplier and buyer.
2. Vendors should purchase from reliable producers and have their own vendor approval program in place.
3. Vendors must operate warehouse and shipping facilities according to current Good Manufacturing Practices defined in the Codex Alimentarius Food Hygiene document or a similar standard.
4. Vendors should have developed, documented, and implemented a traceability program that allows them to trace and recall items that they distribute.
5. Vendors must have a documented allergen management program in place that includes a master list of all foods containing the nine major allergens (i.e., milk, soybeans, wheat, eggs, fish, crustacean shellfish, peanuts, sesame, and tree nuts) that they may be distributing. Suppliers from outside the United States must have a similar list that includes allergens defined by that nation.
6. Suppliers outside the United States must also adhere to all regulations regarding imports promulgated by USDA and FDA, such as FDA’s foreign supplier verification program.

For many companies, the first step in the evaluation process is to send a supplier questionnaire to potential suppliers. A cover letter will be sent to the supplier outlining the buyer’s supplier approval program, which may include an on-site audit by the buyer. The letter will usually include a request to share a third-party audit or specifically mandate that the company has successfully completed a Global Food Safety Initiative audit. Now, the potential supplier may have questions about the document, so food companies should be prepared to work with the operation. When the questionnaire is returned, management shall review the document. If there are significant gaps in information, the supplier will be contacted directly with regard to potential concerns. They will be asked to address potential issues, and failure to respond could result in the operation being eliminated as a supplier or potential supplier.

Every potential supplier should be subjected to the processes highlighted above, even the smallest-sized vendors. One company with whom the author worked in the past had a vendor approval program that waived the requirements for suppliers from whom they purchased less than $5,000 worth of materials. Guess which company was responsible for a multimillion-dollar recall involving a waivered smaller supplier’s materials? That incident ended the buyer’s waiver policy.

Supplier Approval

Next, the management team will meet to discuss the approval of the potential supplier. This will include technical, purchasing, and financial personnel. If the vendor operation is to be approved, issues that must be addressed prior to finalizing the relationship will be determined and communicated to the potential supplier. The approved supplier will be notified, and the appropriate contracts forwarded. These contracts shall address financial, capability, and technical issues defined by the management team. As part of the contract, specifications for all items to be purchased will be provided.

Technical requirements of the contract will include providing certificates of analysis (COAs), updated specifications, and audit reports. The contract must also include language that requires the supplier to notify the buyer if significant changes are made to process operations. In the author’s experience, there have been numerous problems created thanks to uncommunicated process operation changes made by suppliers. In one case, when a food manufacturer modified the formula for a noodle product, the change affected rehydration. When the noodle product was incorporated into a canned product, it ended up creating a situation that led to under processing, which caused costly production and food safety issues. The contract should also highlight the buyer’s vendor quality program and define criteria for maintaining status as an approved supplier.

Vendor Assessment

The smart food processor’s vendor management program should include a means to assess each supplier’s performance. As part of their food safety management system (FSMS), the company should conduct a risk assessment for each ingredient, raw material, and packaging used. This assessment must look at the material itself, the material manufacturer, and the country of origin. To help assess risk on food materials, look to the FDA’s Appendix 1: Hazard Analysis and Risk-Based Preventive Controls for Human Food: Draft Guidance for Industry (FDA 2024). Do not forget country of origin in your assessment. Think of melamine and Chinese dairy ingredients (Gossner et al. 2009).

The potential risk level of the ingredient or material, plus elements such as on-time delivery, quality of material upon receipt, prompt receipt of COAs, and other issues may be incorporated into an overall assessment. Many operations rank their suppliers and what they purchase as high, medium, or low risk, and may even include a category such as pending or conditional. Suppliers are notified of the results, and based on their ranking, expectations in the relationship can change. A low-risk company might be audited once every three years whereas a high-risk outfit can expect a yearly audit.

A Final Note

The issues that disrupted supply chains cited at the beginning of this piece have all brought the supply chain into greater focus, especially the pandemic. Food processors were put in a position where they were forced to reassess where and how they sourced ingredients. Operators looked to diversify the areas from where ingredients are sourced. Could they get the ingredients or raw material domestically rather than rely on an overseas supplier? With the pandemic, you had disruptions in production, shipping and delivery, and unloading. Cargo ships stacked up at port cities awaiting delivery. As a result, smart processors are now looking to diversify their ingredient suppliers. This activity should go beyond simply approving suppliers. Vendors must be promised some business if they are going to be relied upon in an emergency, so establish new sources but make sure they are utilized—and understand that these new sources may cost a bit more.

So, the message is this: Build and maintain a solid program to identify, approve, and work with vendors that includes an evaluation system that benefits both vendor and buyer. Once the program is implemented, think continuous improvement, but source in such a way that your company will be able to operate in the event of an emergency. Diversify, but make sure that your program is designed so that you can verify that it effectively protects consumers, your products and ingredients, and ultimately, your business.ft