Newsletter – January 2013

Poor Supplier Quality Is Like the Flu
How Is It Done Today?
Get More Data Earlier

Multi-tier Supplier Quality Issues Are Like the Flu

The cold and flu season is upon us. The Centers For Disease Control [1] recommends that people get their flu shots before the season begins to avoid getting the disease. What happens if you do not get a flu shot and catch the flu? You can infect your family, your friends and your co-workers. A rapidly spreading flu virus can even shut down a school. [2] The costs of the flu virus that spreads can be quite large, when factoring the time, effort and money spent to correct the situation as best possible. The virus did not originate with you, but you carry it with you wherever you go.

You cannot stop the spread of the virus before it reaches you. You cannot prevent your kids from playing with already infected children. People who have the flu in its early stages don’t walk around with a beacon on their head signaling that they have the flu. But you can take preventive measures by having you and your family inoculated.

Poor Supplier Quality Is Like the Flu

Flu MaskMulti-tier supply chains have very similar issues. Unless you have visibility into your supplier’s suppliers, you can be at risk for catching their "flu", as the second tier supplier's quality problems will eventually migrate into your factories, potentially costing you thousands of dollars in efforts to identify and contain the problem. From a mathematical standpoint, this is called propagation or proliferation of errors. Depending on the relationship between your various incoming materials and parts, errors caused by poorly managed suppliers and vendors can significantly impact your finished product quality.

Quality Resources – Where Are They Spent?

Given the amount of resources pulled into "quality assurance" activities, organizations like yours spend a large portion of their budget to control their internal quality, with a focus on finished product quality. This includes investment in quality engineers, testing activities and software programs to manage inline processes. But how many resources –– and what kinds –– are used to track the quality of inbound material from outside your company? I would imagine that the number is relatively small.

Ironically, the incoming material can represent, on average, 50% of the value of a finished good, in terms of total cost. In some industries, like Aerospace, the percentage can be 75-85% of the finished product that is outsourced. The suppliers of that content, like the flu, do not originate from zero but are also fed by suppliers for 50% of their product's content.

This normal business configuration is a multi-tier supply chain. In a multi-tier supply chain, small problems are magnified as the product is passed on from one producer to the next. Identifying and rejecting inconsistent material quality before it hits your factory and your supplier's factories can result in significant cost savings and risk mitigation. The sooner you know about it, the sooner you can contain the problem before it reaches your operations. An early warning system for your supplier’s is essential to efficient operations.

How Is It Done Today?

MulIn 2011, Gartner, Inc. found that most companies today track supplier quality activities using spreadsheets and by site visits. If recent national events have proved anything, data is a far better predictor of results than an on-site handshake and a little bit of data. You need to get lots of data (and have accessibility and visibility to it) to be able to improve your processes. Proactively reviewing data about your tier-one suppliers (i.e. direct suppliers) as well as tier-2 suppliers (supplier's suppliers) provides you with the ability to efficiently produce your finished goods. But it is not going to happen in a spreadsheet-based supplier quality program, no matter how well endowed with macros, pivot tables, and cascading style-sheets!

Supplier Quality and Efficiency

The question is not whether you need to do it, but how do you do it efficiently? In a 2011 report about outsourced manufacturing and multi-tier supply chains, Gartner, Inc. highlights that the issue is not inside the company, but between the various producers. How does this affect the final product? Assuming that errors follow a standard bell curve, the broader the bell curve, the more those errors accumulate, creating a condition where the final product is adversely affected by errors along the supply chain. To measure this, you need information from each step of the transformation of raw or finished goods to your final product, and how they are related to one another. (See PDF to determine how to calculate errors [3]). As a rule, the sooner you catch an error that propagates itself throughout a process, the lower the affects of the error will be on the final result.

Internal company applications and spreadsheets cannot easily be extended to include information from multiple supply chains without serious manual effort. Since gathering this information is important to your final product, then your homegrown solution is not a fit for your processes. Organizations must turn, therefore, to web-based applications that can gather data efficiently and present it in a cohesive and consistent format. Manufacturers need to be able to gain visibility between the data silos naturally created by different companies in a multi-tier supply chain. The data is there; manufacturers just need a way to harness it to improve visibility.

Get More Data Earlier

Data ManagementHow do you inoculate your suppliers and their suppliers with the benefits of a "supply chain quality" flu shot? GSQA provides the appropriate access, structure, data management and visibility into multi-tier supply chains to alert and stop material quality assurance issues before they hit your docks, no matter how globally dispersed. Manufacturers gain visibility into the potentially wild variations inherent in multi-tier manufacturing in other parts of the world. Access to data can drive operational decisions based on your supplier’s ability to create consistent products that you use in your manufacturing operations.

1. Centers for Disease Control and Prevention, Adult Immunization
2. Reuters, Amy Norton, Should schools close during bad flu outbreaks?, October 2012, New York
3. Propagation of Errors - Basic Rules, Physics 431, Summer 2012, University of Washington, Seattle, Washington


For more information . . .