Is Poor Supply Chain Vendor Quality Driving Up Your Costs?
I have never heard a customer tell me that they were willing to accept a low quality product – not even once. However, when asked about a current supply chain vendor’s performance; I often hear “it’s good enough” or “they generally do a great job for us.” The unsaid message is that the customer has unfortunately been conditioned to accept a sacrifice in quality of service.
In today’s ultra competitive business market, there is a continuous discussion and focus on price driving that all-important margin. While obtaining an acceptable price is obviously an important component to success; perhaps even more important to margin is a review of the costs of a particular process or program. Consider what is negatively impacting the effectiveness or efficiency of the process, as these impacts often lead to hidden, significant costs of poor quality.
The Cost of poor quality (COPQ) or poor quality costs (PQC) are defined as costs that would disappear if systems, processes, and products were perfect (1). COPQ has been a focus in manufacturing companies for several decades; however, companies often fail to account for problems in their supply chains which may lead to higher costs and potential lost opportunities for sales. The damages caused by poor quality in a supply chain are amplified, as the COPQ of individual suppliers participating within a supply chain has a cumulative effect (2).
COPQ cannot be avoided completely – there are really no perfect vendors, suppliers, or processes; and working a process to perfection can often be like counting grains of sands on a beach – it may be theoretically possible, but is the time and effort worth it. Companies may not be able to live with such uncertainty especially when it comes to costs and timeliness. Notwithstanding; a focus on COPQ within your supply chain can reap significant benefits.
Reductions in the cost of poor quality can be attained by selecting a supply chain partner that has a well developed and implemented quality management system (QMS); providing an integrated and closed loop corrective action process (3). When deviations, nonconformance and quality incidents or customer complaints occur, corrective and preventative actions need to be initiated to remedy the problems (2).
It is critical to use a supply chain partner that deploys a closed-loop, integrated quality management system, rather than a set of loosely connected programs. Integration ensures the information flows out the corrective action process with a high degree of accuracy and velocity without falling through the cracks. It also ensures the entire change control process is auditable end-to-end; a critical requirement to support customers shipping regulated materials such as FDA or DEA regulated products.
Key questions to ask:
- How are service failures and issues identified and tracked?
- Is there a formal, documented process for reviewing service issues and failures?
- How is corrective and preventative action implemented and measured to verify if the issue is solved?
- Is the supplier’s QMS integrated with their other systems and software?
- What reporting is available to the supplier and the customer?
Cost of poor quality results in millions of dollars in lost earnings every year, yet most executives cannot accurately state the COPQ from their organization (4). Organizations must develop processes to measure and track COPQ, and select supply chain providerswith integrated quality management systems to systematically reduce their COPQ.
(1) [H. James] (1987), Poor-Quality Cost, American Society for Quality, ISBN 978-0-8247-7743-2, OCLC 14965331
(2) [S. Archambeau] (2004), qualitydigest.com/inside/quality-insider-article/what-your-companyrsquos-cost-poor-quality
(3) [C. Vishwanathan] (2012), blog.simplilearn.com/quality-management/cost-of-poor-quality
(4) [R. Slone, J. Mentzer & J. Dittmann] (2007) hbr.org/2007/09/are-you-the-weakest-link-in-your-companys-supply-chain/ar/1