By Andrew K. Reese
The average global manufacturer manages nearly 40 contract manufacturing relationships, according to figures reported by the manufacturing technology gurus at AMR Research. In their study "Demand-Driven Manufacturing," released in January, the analysts Colin Masson, Alison Smith and Simon Jacobson note that in response to shortening product lifecycles and increased product complexity, "90 percent of brand owners outsource some amount of manufacturing, and more than half expect to increase their use of contract manufacturing over the next two years."
Shifting production to third-party partners can help a manufacturer respond more quickly to demand variability while reducing inventory exposure by making the supply chain more agile. But AMR notes that outsourced manufacturing "isn't without its dark side." In handing over manufacturing responsibility to partners, companies also are handing over a share of the responsibility for maintaining their brand equity. After all, consumers with defective products don't care where the quality problem originated in the supply chain. They just know that their new gizmo isn't delivering the promised instant gratification, and they'll take their frustration out on the brand owner, not the contract manufacturer.
This topic came up in a recent conversation I had with Steve Wise, a long-time quality guru in his own right who currently is a vice president at InfinityQS, a provider of statistical process control solutions. Wise cut his teeth in manufacturing as an industrial statistician at the Boeing Airplane Company, where he coauthored an industry quality standard for Boeing suppliers. He later became the Advanced Quality Systems manager at Honeywell Aerospace before he joined InfinityQS. Today he focuses on helping companies across industry segments implement real-time production for statistical process control (SPC) and advanced statistical tools.
Wise believes that as brand owners and original equipment manufacturers (OEMs) shift more production onto the shoulders of contract manufacturers, they must meet the quality risk challenge head-on by developing what he calls "a quality system for the entire value chain." The fact is that companies no longer can afford to wait for a shipment to arrive at the receiving dock with a certificate of analysis on it and then verify the analysis before accepting the goods or sending them back. "Companies need to manage the risk by getting better access to quality records at their suppliers, maybe at the moment that something is being produced," Wise says. Ideally, that would mean putting in place processes and systems to monitor quality, in as close to real time as possible, not only within the "four walls" of your own enterprise but on your suppliers' plant floor as well.
Here, however, the imperative to manage quality at that supplier level would seem to run counter to the need to operate an agile, "plug-and-play" supply network that allows contract manufacturers and their various facilities to come in and out of the supply chain as necessary in response to changes in demand. But Wise believes that the growing use of Software-as-a-Service (SaaS) applications — which require no software to be installed behind a company's firewall, and no significant technology infrastructure within the enterprise — is making it possible to drive quality management down into the supply base. Suppliers today can set up data feeds from their existing plant floor and enterprise systems into their customers' on-demand applications relatively quickly and easily, allowing a brand owner or OEM to gain access to firsthand quality data without imposing too heavy a burden on the suppliers' IT departments. InfinityQS' eSPC solution is already being utilized by Quickie Manufacturing, among others, in this fashion. As more manufacturers grow comfortable with the idea of using SaaS applications to manage key processes, they may well start to press their suppliers to provide this sort of access as a condition of doing business.
This move toward greater dependence on quality data flowing in from the supply base will present its own challenges, of course, as Wise explains: "Companies will become more dependent on summary statistics from their suppliers for making make/buy, ship/don't-ship, use-as-is/scrap decisions based on those numbers, and they've got to be very confident in the accuracy and veracity of those numbers. But even with SaaS, there is no guarantee that those numbers are 100 percent reliable." As a result, Wise foresees a need for third-party auditing services that could verify and vouch for a supplier's quality data, and then assume responsibility for any problems that occur from relying on that data. Ultimately that could drive up the brand owner's costs, but the impact on the bottom line would still be far less than the damage that would be done to a company's reputation and customer goodwill should defective products make it into the hands of unforgiving consumers.
Are you worried about maintaining quality levels even as your company becomes more reliant on contract manufacturers? How is your company ensuring quality throughout the value chain? As always, please feel free to send your thoughts to me at [email protected]. I'll look forward to hearing from you.