Benefits of a Supplier Quality System

A large industrial products component manufacturer was challenged to reduce supplier quality issues in response to changing market dynamics. The manufacturer faced increased competition in their core product segments and needed to reduce their overall costs and improve product quality to stay ahead. After a detailed analysis, the manufacturer identified supplier quality as one of the three key operational improvement opportunities.

The manufacturer had built a network of about 25 core suppliers and sourced 90% of their components from them. In order to identify opportunities for improving supplier quality, the manufacturer started evaluating their key supplier-facing product quality and delivery quality processes. The manufacturer discovered a number of issues from the analysis, including:

• Supplier quality issues and non-conformances were tracked in multiple spreadsheets by various stakeholders. As a result, it was very difficult for the manufacturer to get an accurate view of all open and recurring issues with a supplier to assess either the scope of quality-related issues from that supplier or to determine the effectiveness of previously identified corrective actions.
• The corrective action process was managed manually by the manufacturer. As a result, fewer Corrective Action Requests were created than warranted, resulting in recurring supplier quality issues for weeks before they were corrected.
• Supplier performance scorecard metrics such as PPM or on-time delivery were calculated manually from multiple spreadsheets, emails and paper documents, as well as from reports generated by other systems. As a result, the analysis was error-prone, usually performed on old data and often incorporated only partial activity with the supplier. Hence the supplier scorecards did not provide the manufacturer enough leverage in working with their suppliers to address quality-related issues.

  

  Figure: Example of a Supplier Scorecard
  (Please click on image for enhanced version)

• Cost recovery process was managed via spreadsheets, email and faxes. Supplier chargeback for each occurrence of non conformance were calculated manually and tracked in spreadsheets. Hence, calculations were error prone and usually included cost of supplier’s components scrapped or returned. Non-material costs such as line shutdown costs, rework costs, sorting and moving costs, expedited shipping costs etc that were incurred in the manufacturing process and directly attributable to poor quality of a component from a specific supplier were not tracked and charged back to suppliers. In addition, emails and faxes were used to resolve cost recovery disputes, leading to a long resolution cycle time.

All-in-all, the manufacturer did not have appropriate systems to manage and improve supplier quality in a repeatable and predictable manner. Hence, their overall profits suffered due to two key issues - higher scrap costs and lower manufacturing throughput - both attributed to poor supplier quality. The manufacturer decided to implement an automated supplier quality management system to address the above mentioned issues. After an initial analysis, the manufacturer identified the following requirements for their quality management system:

• Provide capability to track quality issues across all sites with all suppliers and implement closed loop corrective action programs
• Provide a scoreboard mechanism to measure and communicate quality metrics with suppliers and use it as a basis to drive continuous improvement in supplier quality
• Enable suppliers to easily access the system and integrate it into their operations for this customer. The suppliers should only be able to see the data about their own operations in the system.
• Allow the organization to implement an end-to-end cost recovery process that includes:
  • Identifying supplier quality issues that need cost recovery
  • Ensuring material and non-material costs and supporting documents are included in the cost recovery records and
  • Providing a basis for chargeback communication and dispute resolution with suppliers.
• Allow the manufacturer to configure the system easily for each site so that different quality processes can be deployed simultaneously at different sites to accommodate variance in process maturity levels
• Ensure that the system can scale to multiple sites and dozens of key suppliers with a centralized data repository.

(Please click on image for enhanced version)

The manufacturer selected and implemented a web-based closed-loop quality management system that met the above requirements. The solution provided integrated inspection/audit, non-conformance tracking, corrective action, change control, document management, user certification and analytics/dashboard capabilities, with scalable extraprise architecture, so the manufacturer could implement an end-to-end solution to manage quality processes for its supply-base.

The manufacturer saw the following benefits within a quarter after the system went live.

• The system provides a common repository across all plants to track issues, manage corrective actions and calculate metrics. The supplier scorecard with key metrics and detailed drilldown is now available to relevant stakeholders from the manufacturer and the suppliers and forms the basis for a close cooperation for improving quality.
• The manufacturer has seen more issues go through the corrective action process due to an automated CAPA system, while keeping the same headcount. As a result, supplier quality issues have been addressed at a faster rate, resulting in accelerated improvement in the PPM metrics, increase in percentage of cost-of-poor-quality (COPQ) recovery from suppliers, decrease in warranty reserves needed, reduction in MRB inventory, a drop in rework-hours from supplier component quality issues and reduction in #RMA processes per month. In addition, the collaborative capabilities in the automated system have increased employee productivity, leading to a reduced issue resolution time.
  
  

  Operational Metrics improved from Supplier Quality System
  		PPM of Supplier Components
  		% of Actual COPQ Recovered from Suppliers
  		MRB Inventory Levels
  		# of Rework Hours due to Supplier Components
  		# RMAs Processed per month
  		Issue Resolution Time
  		# of Customer Complaints on Product Quality
  		Warranty Reserves

  
  
• Non-conformance tracking process is now automated and all issues across all plants are tracked in the same system. As a result, one can quickly assess product quality issues from a supplier across all plants and product lines, as well as, their history over time and proactively drive appropriate actions.
• The supplier quality system is integrated with other systems within the company. Hence, supplier product non-conformance can automatically trigger material containment, cost recovery and RMA process, making the entire process streamlined.
• The cost recovery process itself is streamlined with an automated workflow for dispute resolution with the supplier. The system captures all relevant information for cost recovery at various levels of detail including total material and processing costs to be recovered, as well as detailed inspection data and documents that triggered the non-conformance. As a result, the cycle time for dispute resolution and for cost recovery collection has dramatically improved and a higher percentage of costs are recovered from the suppliers.
• The quality system has enabled the manufacturer to standardize its quality processes and operating procedures with all suppliers across all sites. It provides the manufacturer with a platform for continuous improvement across their supplier-facing operations. It also enables the manufacturer to train new employees quickly.

By implementing a web-based quality management system, the manufacturer was able to reduce its costs and improve product quality and preserve its market share and its customer base in the rapidly changing market. As a result it increased its overall margins and built a stronger foundation for its future.