Taking Quality Outside Your Four Walls: Supplier Quality, Part 1
In today’s dynamic business environment, suppliers play an important role in bringing products to market. As businesses continue to evolve and improve efficiencies in the production process, the supply chain plays an ever-increasing role in ensuring business objectives are met.
Companies rely on suppliers to provide them with the components necessary to manufacture products and meet the pressures of demand. As a growing global market increases demand and specialization of products, more and more organizations rely on strategic supplier partnerships to help ease the costs of meeting such demands.
As a result of these partnerships, the supply chain often becomes very long and extensive, with suppliers manufacturing components in various countries and regions, each specialized to fit a particular niche required by the end user. In an effort to meet these demands, supplier quality is often overlooked or not maintained. This lack of visibility of quality into the supply chain can often have an adverse effect on the business, leading to poor quality of product, lost inventory due to quality issues, or even stock-outs of particular product lines.
How can companies streamline their supplier quality management to increase visibility into the supply chain, and incorporate their quality standards and practices down the supply chain?
Let's outline several key concepts into how companies can extend their enterprise quality management system to their suppliers, and effectively take quality outside their four walls.
Challenge #1 - Lack of Visibility: Simply put, a quality system is only effective if it produces a high-quality product. Many companies streamline quality operations within their company-improving processes, taking corrective action, maintaining compliance, and more. But as demand grows, these companies must outsource to suppliers to provide them with the components they need to continue to meet such demand. If supplier quality is poor, then the overall product suffers. Without visibility into the supplier’s quality system, it's difficult for companies to ensure a high-quality product.
Challenge #2 - Cost of Poor Supplier Quality: When a product fails to meet quality standards, it is often the parent company (or brand owner) that must incur the liability for such events. Companies will track the cost of poor quality (COPQ) within their organization, but often fail to track the full cost of poor supplier quality (COPSQ). While many companies will track material costs as they relate to suppliers, the non-material costs such as quality department overhead, inspection overhead, supplier communication, and administrative costs are often overlooked. As a result, the overall COPQ becomes inaccurate due to supplier quality issues above and beyond materials costs. Companies often attribute this to cost of doing business, leading to higher unit costs. Making suppliers liable for both material and non-material costs can help to recover costs due to poor quality.
Challenge #3 - Lack of Communication: When companies enter into a supplier relationship, certain procedures and practices are agreed upon. But without a continual auditing process, there is no way for the brand owner to effectively ensure that the agreed upon practices are being followed. Without constant supplier collaboration, processes such as nonconformance and corrective actions, can ultimately misalign the supplier’s practices with the brand owner’s, leading to quality gaps in the supply chain.
Challenge #4 - Technology Prevents Integrated Relationships: Often, technology plays an important role in how your systems integrate with those of your suppliers. If your systems differ, there may be technology hurdles to overcome. It's sometimes difficult and costly to bridge the technology gap, and many companies are either reluctant or do not find it cost-effective to make the effort to integrate. The result is gaps in communication from one system to the next, and the overall traceability of quality processes suffer. Being able to communicate with your supplier on a technology level is critical in maintaining a consistent system.
Challenge #5 - Security Concerns / Fears: Supplier relationships should be interconnected, but there is a certain level of fear, uncertainty and doubt (FUD) when allowing suppliers into your systems. While it is important for suppliers to be involved in your process, it can be a detriment if too much access is granted. So many companies opt to not integrate with suppliers; simply out of security concerns or fears they may “know too much.” While a valid concern, eliminating your suppliers completely from your system can harm your efficiencies in the relationship, increasing gaps in communication and limiting quick resolution of quality issues.
Lack of visibility down the supply chain can lead to increased cost of poor quality, limited liability in poor supplier quality, and a breakdown of best practices down the supply chain.
Closing the Gap with Suppliers
There is hope, however, in implementing a best-practices approach to Supplier Quality Management. Creating visibility down the supply chain can be achieved through integration of your quality management system to your suppliers. We uncovered some of the best practices to consider when integrating your quality management system with your supply chain.
In Part 2, we will take a look at the various ways you can overcome these barriers and challenges to build a Supplier Quality Management System that facilitates quality throughout the supply chain.