You can ensure product integrity through supply chain certification and contracts.
By Suzie Trigg
The marketing team wants to say that your products are “Made in USA,” “ethically sourced” and “craftsman made.” Can you say these things? Sure! Can you say them without receiving a regulator’s inquiry or a potential lawsuit for false and deceptive advertising? That depends on how well you prepare to respond to questions about the products and their components and manufacturing.
It is well understood that proper supply chain management is essential for efficient manufacturing and distribution, particularly as supply chains continue to become larger and more complex. The multifaceted nature of supply chains requires a management program that includes many different components, such as conducting proper diligence on potential players like suppliers, negotiating clear and protective agreements, and implementing thorough vendor certification programs (VCPs). This article focuses on how the implementation of a strong VCP can increase the safety and quality of products as well as support other organizational goals, such as ensuring products are consistent with claims made in advertising and promotional materials.
A VCP allows a company to systematically track the performance of its vendors to verify compliance with specified requirements. The first step in developing a VCP is to define clear objectives and to understand whether, and to what extent, the VCP supports broader goals, such as being able to support specific claims about products. Next, to establish a VCP in line with such objectives, the company must have a thorough understanding of the processes and products in the supply chain and how products move through the chain to identify where in the supply chain performance tracking measures should be utilized to maximize improvements in safety and efficiency or to document information that might be needed later. A VCP ideally has inspection procedures and/or certifications in place for each step, or link in the supply chain.
Supply chain failures are often very public and have a significant, lasting effect. For example, in 2016, when the electronics company Samsung released its Galaxy Note 7 cellular telephone, due to a battery manufacturing defect, the telephones were spontaneously catching on fire and exploding, causing the company to recall over 2.5 million Galaxy Note 7s only a month after they were released. The defective batteries were manufactured by both Samsung’s primary and backup suppliers. Samsung failed to inspect and identify the battery defect at the point of manufacturing before it was incorporated into the telephones, an error that may have been prevented had a proper VCP plan been in place at the part manufacturing level. Additionally, Samsung had no recall management plan in place, which presented additional challenges when a recall became necessary. If the applicable supply chain agreement between the battery suppliers and Samsung had provided for recall procedures, this could have streamlined the recall process and clarified who was responsible for the costs associated with the recall. In response to the failure, Samsung implemented an eight-step quality control program that increases the frequency of supplier engagement and monitors problems with batteries.
While supply chain failures that result in significant delays or faulty products are the basics of what supply chain management professionals work every day to prevent, it is the author’s experience that supply chain professionals may have a more limited role in helping ensure that every claim that is made in a product’s labeling or advertising is verified through the VCP, specific contracts or specific written certifications. Moreover, a supply chain executive’s understanding of “industry practice” may differ from the take-away that a consumer may have when looking at a product claim. The company may then find itself the target of a regulator’s inquiry or a potential legal demand or lawsuit related to the company’s failure to ensure that its sourcing and manufacturing practices meet the legally required standards of advertising.
For example, as attorneys, we are frequently asked whether a product that is “made” at a factory in the United States can feature an unqualified “Made In USA” claim. For many products, the answer is “no” because the Federal Trade Commission (FTC) standards for the use of a non-deceptive “Made In USA” claim also include that not only the product, but virtually all its components, also be from the United States.
With respect to certain categories of food, apparel and electronics, it is next to impossible for a marketer to lawfully claim that the product is “Made In USA” without qualification because certain ingredients or components cannot currently be sourced in the United States. A supply chain professional should keep in mind that while the headline grabbing lawsuits often involve household brands (e.g., the lawsuit against Chipotle for representing its food as non-GMO when the animals from which the meat and dairy were sourced were likely fed GMO feed), many involve other types of products. For example, an FTC lawsuit against Chemence alleged that its “Made in USA” claims deceived consumers as to the origin of its cyanoacrylate glue products. Therefore, it is imperative that all companies beware that simple statements on packaging can create legal risk if the sourcing and manufacturing of the product is not consistent with the claim.
Once a company has determined that its supply chain sourcing and manufacturing practices do support the use of a product claim, the supply chain team should be part of determining how the company can best ensure that the underlying supply chain practices are consistently maintained – and documented. A VCP is one part of this, by, for example, requiring the use of specific raw material suppliers, the use of only approved facilities, or periodic third-party verification audits. Written supplier certifications or contractual representations and warranties are also helpful to support product claims and to provide the company with recourse if there is not ongoing adherence to a VCP.
The goal of successful supply chain management is to ensure that safe, quality products that meet all advertising and promotional claims are delivered to each end consumer, a goal which is essential to maintain brand integrity and consumer confidence. All players in a supply chain, including farmers, manufacturers, suppliers, distributors and retailers must work together to negotiate agreements and implement systems that create a unified, efficient and reliable supply chain that meets the needs of consumers and supports the success of the company.
Suzie Trigg is a Partner in the Dallas office of Haynes and Boone and co-chair of the firm’s Healthcare and Life Sciences Practices Group. She advises FDA regulated clients on regulatory and transactional matters.