QMT Features: January 2009
Global quality challenge
Global sourcing and outsourcing and the pursuit of quality - dream or nightmare? In a special report, Professor John Oakland of Oakland Consulting outlines three ways for companies to improve.

The siren call of cost savings available from offshored and outsourced manufacturing, back-office services and customer contact support in the “lower-cost workshops” of Eastern Europe, the Baltic States, and Asia-Pacific is alluring. Many large manufacturing organisations have successfully gone global over the last decade, and improved product quality in the process.

Bottom line improvements, new capabilities and access to potentially lucrative markets all add to the appeal.  But, managing quality on a global basis poses risks, as many companies have found to their cost. Too often, global sourcing success is balanced on a knife edge, with the businesses just one shipment away from a catastrophe of reputational damage and corporate or personal liabilities.

A survey conducted by the Economist Intelligence Unit in 2005 highlighted that the top reasons given for choosing global manufacturing were the pursuits of new markets and lower manufacturing costs.
Improving product quality and customer service ranked 4th and 5th respectively out of six key strategic priorities. Quality fared equally badly in the decision about where to locate production facilities; supplier quality standards only ranked 5th out of six key criteria, labour costs being the most important. Given that poor quality has the power to destroy value astonishingly quickly; these are, frankly, scary findings.

Outsourcing products by commissioning and buying from third party manufacturers has led to goods being increasingly made in multiple locations, with components sourced from multiple locations before being transported to markets all over the world. The logistics of getting raw materials to manufacturing plants in emerging manufacturing economies, then getting the finished product to the end marketplace, is a challenge, sometimes compounded by poor transport networks in some emerging manufacturing countries. Perhaps unsurprisingly, in the survey by the Economist Intelligence Unit, one in four CEOs rated supply chain complexity as their biggest challenge.

From direct experience of working with global manufacturers and within supplier quality management, Oakland Consulting, a leading quality and operational excellence consultancy, have highlighted three key areas of opportunity and risk that are common across both global Insourcing and Outsourcing:

A. Managing performance and exposure to risk: getting value from measurement
B. Getting organised for success: moving from inspection to assurance
C. Delivering better value from your global supply chain: getting value (not just cutting costs) from central support

A. Managing performance and exposure to risk
Many companies invest heavily in inspection and quality control. It’s a strategy that is generally recognized as cost-prohibitive in developed economies, but is, illogically, judged to be appropriate in developing economies.

The fact is, inspection and quality control do not prevent poor quality happening, nor are they totally effective in preventing poor quality escaping to customers.

It’s all too easy to find that there is no clear view of risk across a global manufacturing footprint: there may be a lot of data and “noise”, but little in the way of real knowledge in a form that executives can digest and act upon.

Quick improvement actions to consider:

  • Start by focusing on the few key items that have the greatest influence on quality – “Critical to Quality” (CTQ) items.
  • Mobilise cross-business teams on improvement projects aimed at improving the capability of the processes that create these CTQ items.
  • Establish  clear accountability for the delivery of CTQ items and make the results visible at senior level

B. Getting organised for success
Building a global quality management capability needs leadership and a clear policy for managing quality on a global scale. The approach must integrate quality assurance, quality control and quality improvement techniques, such as Six Sigma and Lean Six Sigma, into an integrated approach to quality management. Pure reliance on quality control will not by itself eliminate the risk of producing poor quality products.

Without the right organisation in place, COO’s of global operations can find themselves exposed to a cost and quality “killer” … VARIATION. Research indicates that variation can add up to 30% to manufacturing and support costs. But hope is on the horizon because small improvements can multiply into big benefits.

Quick improvement actions to consider:

  • Start by creating a shortlist of key quality “must haves” that are linked to the business strategy
  • Identify the right mix of central and local activity to meet market needs, and clarify “who does what” in the core value chain
  • Move away from trying to “inspect quality into the product” and focus, instead, on building assurance through better operations capability

C. Delivering better value from your global supply chain
The ongoing management of quality on a global scale requires an appropriate balance of stewarding global quality performance, facilitating global improvement, and managing risk. It is also vital to ensure that quality is not solely seen as the responsibility of the Quality Department. Quality is everyone’s responsibility and should rank with equal importance with other critical areas.

  So how best to create a central team that genuinely will be regarded as a “value-centre” rather than a cost-centre?

Quick improvement actions to consider:

  • Be clear about the CTQ items and set clear standards of performance
  • Make the HQ functions value-centres rather than cost centres by engaging them in building improved local Quality Management capability
  • Focus on improving the quality management and improvement activities at local level rather than “policing”

Set early warning indicators rather than hoping the outcomes will come good

A. Managing performance and exposure to risk
Evidence that many senior executives do not regard the quality management practices of their suppliers as critically important is a matter of concern. It means that, in many cases, executives have little grasp of the current and expected performance of their organisations’ supply chains.

  Ever increasing competition and market needs require many CEOs to push the boundaries of possibility in their supply chains. The quickening pace of change creates opportunities for real competitive advantage. However, with great opportunity comes the risk of cutting corners and compromising standards.

  Quick improvement actions to consider:

Start by focusing on the few key items that have the greatest influence on quality – Critical to Quality (CTQ) items

  • Collect data on the capability of the supply chains for these CTQ items
  • Select a handful of key individuals from a range of business functions and equip them to analyse the data. Involve key individuals from the suppliers, who have the right skills and perspective to solve problems
  • Report summary trends for outcomes as well as “enablers” e.g. supplier behaviour

B. Getting organised for success
So how do you release this value that’s tied up in the extended supply chain? That’s where the use of a simple improvement methodology can have great benefits. By setting up a clear roadmap for improvement and involving your suppliers in joint investment/reward initiatives, you can set the bar higher for performance. Furthermore, you can establish some “competitive tension” in your supply chain to act as a catalyst for continuous improvement.

Quick improvement actions to consider:

  • Set simple but clear policies and standards for the critical aspects of any supply relationship
  • Create a simple process for compliance monitoring
  • Clearly identify the respective roles played by local and central supplier management
  • Use the central team as “value centre” and not a cost centre. Specifically, task them with establishing a common approach to supplier management and improvement

C. Delivering better value from your global supply chain
It is often said that a business trades on its relationships: well-established and nurtured relationships can be a source of real competitive advantage, especially in supply-constrained markets. But in the global arena, there are added challenges of distance, language and culture. How, then, can good relationships best be developed, without wasting resources and missing opportunities or overlooking risks?
A central Quality team, adopting a common business language through internationally-recognised standards and processes can be of inestimable value and can become a “value-centre”, rather than just a cost.

Quick improvement actions to consider:

  • Establish clear standards and guidelines for how you will mange relationships with key suppliers, i.e. those that deliver CTQ items
  • Clarify the standards by which you will manage and improve quality
  • Create a simple process for assessment and review data from the assessments and launch joint improvement activity

Failure to effectively manage quality in the new global market place of supply and demand can have disastrous consequences. The complexity of today’s supply chains requires a rigorous approach to quality management that integrates quality assurance, quality control and quality improvement. Quality is not just an issue for the quality department or quality management. It has a major strategic significance in delivering superior business results and enhancing shareholder value.

In a new special report on global Insourcing and outsourcing, Oakland Consulting have developed a simple checklist framework based on these three key areas of opportunity and risk that can be used in minutes to assess current operations, identify real areas of improvement and reveal where and how to get more value, fast.  This framework is based on their extensive experience of working with large complex organisations across operations in the UK, Europe, Asia, and North America. 

To receive a the free report , visit: oaklandconsulting.com
or  e-mail:  contactus@oaklandconsulting.com


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