Supplier Management in Regulated Industries
There are many factors to consider when approaching supplier management n regulated industries like pharmaceutical production, automotive, and aerospace.
Manufacturing of any kind can be a risky business. Depending on industry, safety requirements can prove difficult to conform to - but they are absolutely imperative to comply with, whether you work in the medical device space or the construction industry.
Risk categories vary massively across regulated industries, but risk agencies such as EcoVadis and Dun & Bradstreet provide clarity on financial and sustainability hazards which affect the majority of organisations operating today.
Modern slavery, deforestation, and carbon regulations are also wide-ranging risks for manufacturers navigating tighter restrictions, greater consumer visibility into organisational processes, and the resulting growing pressure to operate responsibly and transparently.
Certification, Regulation, and Data Management
Most large manufacturers already have the policies in place to be able to address these issues - the issues manifest as gaps in in compliance capability.
Supplier data feeds the policies which hold up organisational reputations. To maintain that reputation, supplier data must be able to stand up to audits and regulations at the foundational level.
Visibility and transparency over your suppliers isn’t guaranteed while the underlying data needed to monitor compliance may be fragmented and stale.
Therefore, the priority for the procurement, supply chain, and quality teams who work together to onboard, manage, and assess suppliers throughout their lifecycle is accuracy.
With a clear process, and the right technology to support the teams operating at the heart of high-risk manufacturing organisations, data accuracy and compliance don’t need to be a source of stress.
“Only 29 percent of companies [...] [have] full upstream and downstream [master data management] integrations with source systems and business applications, as well as all governance or stewardship roles, in place.” - McKinsey, May 15 2024
Tier 1 Suppliers and Beyond
Having oversight of direct suppliers is the first step. Risks permeate throughout the supply chain, and you need to be able to prove due diligence.
As supply chains grow long and intricate, our oversight of suppliers may not be as clear. Operating with global supply chains is not uncommon in highly-regulated, complex manufacturing, muddying the waters further.
Ethical risks, as well as due dilligence requirements create increased pressure, and can be difficult to effectively track as businesses (and production) scales.
This means that managing what’s in your immediate control, like Tier 1 suppliers, is even more important.
The process of collecting all the necessary safety data and maintaining it to a sufficiently accurate standard can be a manual, constant endeavour.
This is one instance where technology can bridge the gap between suppliers and your organisation, providing a fuller picture than manually trying to trace information. Supplier management software, like ARCUS®, provides the channels through which you can access and organise supplier data efficiently, identifying risks before they can negatively impact your organisation.
“very few CPOs (18%) were formally tracking the risks that existed in their direct (tier 1) supplier base, and only 15% had visibility beyond that.” - Deloitte, 2021
EUDR
Despite delay, the EU’s deforestation regulations are in force from December 2026, affecting a number of companies who operate within the EU.
Though the legislation is European, the impact is global. It applies to wood, rubber, palm oil, soy, beef, coffee, and cacao.
The effect is far-reaching - the legislation reaches through Tier 1, 2, and 3 suppliers all the way to the geolocation origin. The burden of proof is on organisations, who must perform due diligence to ensure that no commodity entering or leaving the EU has been sourced from land which was deforested or degraded.
The legislation becomes enforceable for micro and small operators from mid-2027 - but for large and medium enterprises, compliance must happen before the end of 2026.
For highly-regulated organisations based in the UK, it is likely that some level of operation will occur in the EU, and therefore that the regulation will apply. The seven affected commodities impact a huge range of products, which increases the potential scope for manufacturers who operate in high-risk industries like hospitality, renewables & environmental, and healthcare.
Effective supplier management processes, and the ability to produce proof of compliance, are compulsory.
“Companies placing or exporting the affected products in or from the EU market will have to conduct due diligence to confirm that the products have not been sourced from land which was deforested or degraded after 31 December 2020.” - Forest Stewardship Council International