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By JOHN CAVALLO, risk control product safety specialist, and DAWN ATCHISON, technology, risk control director, for Travelers

Horror stories about the failings of materials imported from overseas are easy to come by. Headlines are quick to spread the word about recalled products, particularly if their use has caused injury or death. The tale often left untold, however, is the huge number of companies in medical and other industries that rely--safely and without mishap--on foreign-supplied components or offshore-manufactured goods.

Often it is the same approach to quality control that is widely recognized as the key to any type of business success. Risk managers for companies that deal with foreign products--ranging from importers and distributors to end users--can play a critical role in limiting exposure to liability by implementing a four-step strategy for assuring quality.

THE FOUR STEPS

The challenges faced by a company importing finished medical devices to use in patient care may be different from those involved when a company contracts with an overseas supplier for components to use in the manufacture of sophisticated equipment. Nonetheless, there is a general approach that can be customized to fit specific business needs.

The following four steps are a helpful framework for addressing import risks:

1. Stay on top of federal regulations and product standards.

Not only is it important for U.S. companies to know what is expected of them, but it is also critical that they share and enforce those expectations with their overseas suppliers. The federal Food and Drug Administration is an obvious source for regulations, guidance and standards when it comes to medical industry imports.

Currently, the FDA is working with federal colleagues in the Department of Homeland Security, Consumer Product Safety Commission, Department of Agriculture, Department of Commerce, Department of Transportation, Environmental Protection Agency and Office of the U.S. Trade Representative to finalize industry guidance regarding good importer practices.

A draft issued in January 2009 is available at the FDA Web site and can serve as a good resource for risk managers.

2. Know your partners--even the hidden ones.

It is not enough to review the qualifications and capabilities of the foreign company shipping goods to the United States. The careful risk manager also looks at the quality of the foreign company's supply chain and its stability, requiring notification when vendors change or supply sources are substituted. Check out the company's reputation and track record with others in the industry.

In addition, it is important to understand the business context in which the overseas firm operates. Is the exporting country's political, economic and legal environment sophisticated and mature enough to ensure credible business practices and reliable transactions, backed by an effective legal system?

3. Nail down quality with a documented process.

One importer of pharmaceutical equipment from Europe has earned a solid reputation by taking ownership of the responsibilities that would normally fall to the manufacturer. This includes thoroughly inspecting equipment when it arrives, with rigorous attention to the details of how U.S. requirements are met, providing on-site technical help and instruction once the product is delivered to the customer, and carefully documenting any issues that arise.

While that level of direct involvement may not always be feasible, it is important for risk managers to be proactive about requiring a documented quality assurance process. They should assess their supplier's commitment to quality, stated methods for ensuring problem-free products and capability of delivering on those promises.

As the draft guidance on Good Importer Practices notes, this requires that the risk manager understand the specific vulnerabilities associated with an imported product, including being aware of the hazards that may arise during the lifecycle of the product and that may change or develop as the product ages or is used.

4. Arrange for adequate, appropriate insurance.

All of the above steps may not be enough to avoid a problem. Therefore, a company that imports materials or products will want the protection that comes from having appropriate insurance in place. Typical U.S. insurance policies may have exclusions for foreign transactions that will leave a company exposed to liability in other countries. In addition, a company may have unanticipated exposure if it sends employees overseas to work with its foreign partners or invests in an offshore facility.

Risk managers may also want to consider contingent business interruption coverage that can provide protection in the event of an unexpected disruption to the supplier's ability to deliver goods. By working with an agent or broker who is knowledgeable about global insurance needs, risk managers can address coverage gaps before problems arise.

The FDA reports that close to 7,500 foreign companies exported medical devices to the United States as of mid-2008. While the economic crisis has dented global trade, many American companies are continuing to rely on overseas partners for materials and finished products. Risk managers who use the four-step framework can help their companies take advantage of the benefits of overseas sourcing without opening the door to unexpected liability.

April 15, 2009

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