Compliments of Kelly Savage, Esq., Associate Sedgwick, Detert, Moran & Arnold LLP and Genese Dopson Esq., Special Counsel Sedgwick, Detert, Moran & Arnold LLP
Rising costs are forcing many domestic manufacturers to look in new production locations for cheaper labor and materials. Therefore, domestic makers increasingly outsource elements of production to foreign suppliers and contractors (vendors) in less regulated markets. Nevertheless, several recent events underscore that as domestic companies grow more dependent on third-party vendors in less regulated markets, they also become exposed to new quality control issues and liabilities. In fact, many companies are discovering that the links in their global supply chain are not nearly as reliable as they had thought and that they might ultimately be liable for their foreign vendors' actions - a product or service can be outsourced, but the risk associated with it cannot.
In just one recent example, a well-known U.S. and European drug company were subjected to nationwide scrutiny (and enormous legal liability) because of the importation of contaminated batches of heparin from a "poorly controlled" Chinese production affiliate. Unfortunately, similar incidents are frequently reported. For smaller companies, even one incident like this can destroy their entire business. Therefore, good sense mandates especially detailed risk management planning and execution when using foreign vendors from less regulated markets. Domestic companies purchasing materials and services from overseas must develop quality control standards that ensure compliance with current Good Manufacturing Practices (cGMPs), and can anticipate, prevent and detect quality threats. Doing so is vital for any U.S. company forced to defend itself against product liability claims associated with using a global supply chain.