Quality Magazine

Achieving Quality ROI Across the Supply Chain

May 8, 2003
A Web-based supply chain collaboration system is paying dividends in reduced costs and improved quality for this Tier One automotive component manufacturer -- as well as for its suppliers.

Automotive customers are more demanding than ever -- challenging manufacturers around the globe to produce superior quality products at a lower cost, while delivering innovations at a faster pace.

That puts the pressure on automotive component and systems suppliers such as Garrett Engine Boosting Systems (Torrance, CA), a unit of Honeywell International. Garrett, a provider of turbocharging technology, must look for ways to improve operational efficiencies, while at the same time meet the challenge of managing an increasingly complex and diverse network of manufacturing partners. Achieving simultaneous optimization of cost, quality and speed requires new approaches to collaboration across the supplier network.

There is no doubt that quality must be a key consideration in any supplier initiative. When consistent processes rooted in quality are tied to every supplier inter-action, and when quality concerns are tightly coupled to supplier execution, then assembly disruptions will be minimized, waste and scrap will be reduced, productivity will increase and businesses can more effectively execute new product launches.

The cost of poor quality combined with the cost of quality administration can be significant- totaling 10% to 15% of sales for some companies. Cost factors include money spent to prevent errors, as well as the cost to identify and correct errors after they've happened. Internal costs of poor quality can include lost production time, rework and scrap, while external cost drivers may include warranty claims and charge backs because of defects. Still other costs are harder to quantify, such as the loss of future sales due to customer dissatisfaction and damaged reputation.

Snowballing dollars
Even more important is the snowball effect of poor quality as it moves up the value chain. Early prevention is everything. A quality problem that costs $1 to correct in the design stage costs $10 to correct if it reaches production, and escalates to a $100 cost if it must be corrected after the product reaches the field. For Garrett, the cost of just one defective part getting into the system can exceed the revenue gained from the sale of a complete boosting system. The aim must be to improve quality processes and achieve better results as early in the supply cycle as possible, avoiding more complicated and expensive problems downstream.

As a Tier One supplier to the automotive and heavy equipment OEM sector, Garrett relies heavily on a complex and multitier supplier network. In the face of a highly charged, yet unpredictable global environment, synchronizing Garrett's many suppliers in a concerted response to customer changes and demands has become the company's number one goal.

In March of last year, Garrett took a major step toward that goal by teaming with Apexon Inc. (San Jose, CA) to deploy a comprehensive, Web-based Supply Chain Collaboration (SCC) system for improving performance throughout the supply chain. Apexon's Supplier Relationship Management system enables Garrett to provide real-time, adaptive response to customer requirements, and is helping Garrett achieve greater external efficiencies and reduce internal costs.

With the new system, upstream supply and quality management is migrating from a largely paper-based, decentralized process to a completely "e-enabled," standardized system with a uniform set of business processes based on best practices. Garrett is using this system to manage interactions with more than 45 suppliers that represent more than 85% of its North American direct materials spend. And the approach is paying off. In just over one year's time, Garrett has already seen a return on investment (ROI) in the new system of approximately 90%, thanks to errors avoided, time and resources saved, and increased productivity and innovation.

The need for change was customer driven. In response to the requirements of OEM customers including Caterpillar, Volkswagen and International Truck Co., Garrett recently began expanding business and product capability from manufacturing turbochargers to the design and production of complete smart engine boosting systems.

Customer requirements for highly customized products at lower costs are increasingly demanding; it is not unusual for Garrett to be working simultaneously on more than 20 new product introductions, as well as various modifications of existing products. With customers making numerous adjustments to design, quantity, product mix or delivery dates, a finely tuned manufacturing operation involving strategic outsourcing at all levels of the product life cycle is critical.

In response to this challenge, Garrett initially added more suppliers to address the pace of business growth. But as economic realities drive Garrett to become more streamlined, the supply base is now being reduced, and outsourcing is focused within a core group of suppliers, requiring innovative and efficient approaches to collaboration.

Tricky business
The sheer complexity of communication needs among multiple partners working on multiple product introductions and ongoing production makes efficient quality management difficult, particularly given the need to maximize supply chain performance. As Garrett's customers pushed for reduced lead times, for example, communication relating to quality issues proved to be a major challenge. Many of the suppliers operate under an array of IT systems and software, further complicating matters.

Under Garrett's old system, a simple design change on a PPAP (Production Part Approval Process) often involved multiple phone calls, e-mails, faxes and even expedited postal services-raising costs and increasing the potential for delay, miscommunication and errors. A lack of an integrated approach to manage the quality processes between Garrett and its suppliers meant that coordination and execution suffered.

In rolling out a Web-based SCC initiative, Garrett's goal was to better align the supply base across the enterprise to develop greater speed, quality and profitability in the product introduction cycle. By adopting a system that leverages the Internet as a common, multicompany collaborative backbone, Garrett tapped into a cost effective, easy-to-implement solution that can work across a host of partners and supply chain functions.

Central to Garrett's plan was to extend discipline, consistency and enforcement of best practices for key processes that span execution and quality management throughout the supply chain. For a solution to have value, it must substantially improve execution and collaboration among suppliers, as well as eliminate recurring quality defects across all levels and types of supplier processes. With Apexon's system, structured and robust processes give the variation control and common language needed to deploy effective quality management.

Zap it
The new system has produced notable improvements in a number of areas. One example is PPAP. With Garrett's previous approach, a revision meant that a specification and drawing had to be printed out and delivered to the appropriate supplier, a process that could take up to several business days. With the new system, the same information is provided electronically to suppliers in real time, replacing time-consuming manual methods. Controlled distribution of documents directs information to the correct people for review. Garrett can link designs and specifications directly to part requests, for in-stance, and the system will automatically flag suppliers when there are changes, or when a particular stakeholder -- say, the quality engineer -- needs to take action.

On the supplier side, having real-time access to design updates minimizes the hours spent in preproduction and reduces the potential for key revisions to be missed. If a supplier wants to verify the most recent information, it is available online 24 hours a day, seven days a week.

A revised PPAP submission can add weeks to the schedule. With Garrett's new system, the enterprise can execute the process and deal with customer-driven changes more quickly and accurately, avoiding administrative costs and lost production time. The solution enables Garrett to cut time spent on the administration of the PPAP approval process by at least a week -- in some cases a 50% reduction -- freeing up more time for other quality engineering and preventative action initiatives.

For Garrett and other manufacturers, the ability to win new business is predicated not only on price and other traditional factors, but also on total supply chain performance. So the ability to track the quality performance of individual suppliers over time is important, enabling a company to select the right partners and minimize costly future problems.

To evaluate the performance of its supply base, Garrett places great emphasis on scorecards that track key quality metrics such as defects, nonconformance issues, standard compliance, on-time delivery and cost. With the new system, these critical scorecards are available online to both Garrett and to suppliers.

Real-time, reliable metrics serve a dual purpose. Internally, they help Garrett make smart choices, pinpoint the weak links in the network and reward suppliers for excellence. Externally, they let suppliers know how they are doing, enabling them to take needed corrective actions early in the development process, which benefits both Garrett and the suppliers.

For Garrett, one beauty of the new system is its ease of use for suppliers. The most technically advanced solution means nothing unless every supplier -- from the small, 20-employee metal stamping shop to the sophisticated billion-dollar component manufacturer -- actually uses and derives value from it. With the Web-based system, Garrett suppliers need only a browser and an Internet connection to get up and running. On Garrett's end, implementation took less than 90 days and value from the system was seen in less than nine months.

ROI: initial results
For Garrett, the implementation of a collaborative system guiding quality processes and supply chain execution has delivered value to its entire extended network. A number of time-consuming manual communication steps with suppliers have been eliminated through the automated exchange of data, the defect ratio has been reduced and overall supplier quality performance has improved.

Garrett's suppliers are likewise seeing improvements. One provider of precision machined castings reports a 50% reduction in the time it spends on each order. Another estimates that automated processes and access to real-time information have cut time spent chasing data by up to 70%.

In the past few years, Garrett's supplier nonconformance rate, measured in parts per million (PPM), has decreased by a factor of six. The level of nonconforming PPMs has decreased from 3,000 to 500 in key areas. Part of this is a result of a highly focused effort to realign and reinvent existing processes, including the launch of Web-based supply chain collaboration.

TECH TIPS

  • The cost of poor quality can amount to 10% to 15% of sales.
  • For Garrett Engine Boosting Systems, the cost of just one defective part can exceed the revenue from the sale of a complete system.
  • One key to managing quality across a supply chain is implementing a solution that is easy for suppliers to adopt. A Web-based system fits that bill.