Integrating Quality Management into the value chain
Written by Tom Becker, Veit Bütterlin and Carsten Kahner of Arthur D Little international management consulting firm
Increasing public awareness, rapid global media coverage of incidents and higher customer expectations are forcing manufacturers to take a fresh look at their Quality Management approaches.
How are companies responding? Over the last decade, driven by globalization, expanding consumer rights and higher customer expectations, product and service quality has become increasingly important.
Bad news on quality defects spreads more rapidly all over the world than ever before, and the immediate reputational and financial effects can be devastating. At the same time products need to be much more than just “defect-free”. Customers now perceive high reliability and full alignment of product characteristics with their expectations as a basic threshold requirement rather than a differentiator.
All this is driving companies to take a fresh look at their Quality Management function. Is it enough for Quality Management to focus on providing assurance and control that products and services meet their specified requirements, or can it provide more value to the business?
The changing role of Quality Management
In some leading companies there has already been an evolution in the role of Quality Management from a traditional business support function towards a role that is actively involved in shaping products and customer services that appeal to customers. Three typical stages can be identified.
Stage I – Assurance
Virtually all companies have passed through Stage I, where the focus is on achieving zero defects and reducing warranty and/or complaint costs through enhanced processes with clear responsibilities and KPIs.
This is the traditional role of the Quality Management function, but it has a number of drawbacks. For example, Quality staff may only be involved at the end of the process, so they have little or no opportunity to influence product and service design. They are often seen as “policemen” who are noticed only when they say no, further emphasizing the distance between Quality staff and the core business.
Stage II – Empowerment
Most organisations have by now also reached Stage II, where the Quality Management role has evolved towards empowering the whole organisation (not just the Quality function) to take on ownership and responsibility for quality in a more holistic way. This approach recognizes more clearly the value-adding potential of the Quality Management function and its role in support of the business.
The proactive use of Quality in customer management is also a feature of this role.
To drive accountability, empowerment and continuous improvement, the Quality function model often moves away from being a centralized and sometimes siloed organisation towards greater decentralization. For example, in a recent ADL study we found that more than 70 % of consumer goods companies have already implemented, or are moving towards, devolution of the Quality function into the business units.
Stage III – Customer Delight
In Stage III, Quality Management also acts as a central facilitator between Marketing & Sales, Manufacturing and R&D to ensure that product and service quality not only meets but exceeds customer expectations. In this role, and building on their understanding of customer feedback, Quality Management departments provide processes and tools that help support the transformation of customer demand into attractive products and services.
One of the key features of Stage III is that Quality Management becomes a key partner in the value chain, as opposed to being the source of hurdles to be overcome. As “designing in quality” from the beginning becomes more important, the role of Quality Management shifts more towards being a solution provider. This has profound implications for the required skillsets and behaviors of Quality Management staff.
There are some good illustrations of this evolution in the automotive sector. For example:
• Volkswagen’s Quality Management function initiated the People’s Car Project in the company’s main market, China. Using a web-based platform, Chinese customers can express their ideas for product features and become actively involved in the creation of new cars.
• During the past 10 years, BMW has made huge progress in reducing the number of warranty cases by more than 50 %, through integration of Quality within the entire value chain. Each Quality program, from Purchasing through to Production, Sales and After Sales, contributed to this success.
Automotive industry OEMs use Quality KPIs that measure not only defects, complaints and other negative performance attributes, but also customer appeal. This contributes significantly to overall product attractiveness.
There is good evidence that this results in a higher share of customers who are willing to buy or lease a car from the same brand again or to give recommendations to a friend, relative or colleague.
Quality Management also has a key role to play in the capture and interpretation of customer intelligence, including not only complaints but also the richer and more complex data that is now available through a variety of digital channels.
Quality Management can be effective in helping to ensure consistent treatment of this intelligence across different functions, rapid identification of regional and other trends, and enabling a consistent face to be directed towards the customer, with positive customer experience at every touch point.
For example, one leading global food company is currently looking at adapting the role of the Quality function to act as a facilitator to help align marketing, product development and supply chain activities to meet the needs of key food service client accounts.
Bringing about the change
Evolving Quality Management to the level of a value-adding business partner requires broad-based change in strategy, processes, organization and culture. The ultimate starting point is an inspiring Quality ambition for the company. What are we aiming for? How can Quality Management support the business and be seen as a partner? What are the competencies we can exploit? What are realistic targets and quick wins on our way?
We see three essential priorities in making the change:
• Redefine and recommunicate the role of Quality Management, emphasizing the extension of the role beyond assurance and safeguarding towards problem-solving, facilitating and enabling.
Ensure that this is underpinned by aligned senior leadership behaviors, appropriate elevation of Quality as a business priority, suitable behavior of Quality staff and clear business-related Quality KPIs.
• Find the right people who are competent and committed to assume the new responsibilities. This will require a shift in focus from the more traditional scientific and compliance skillsets to a more influencing, facilitating and business-orientated set of capabilities.
• Embed the mindset in the entire organization to deliver Quality beyond expectations. Focus on driving clear accountability for Quality Management into the business units.
Insights for the executive
In the past many corporate functions, such as Information Management and Human Resources, were seen as merely unavoidable overheads, part of the cost of doing business.
However, over the years they have evolved into key strategic assets, with important contributions to make to business success. What we are seeing today in Quality Management is in many ways no different. The next generation of Quality Management is holistic, strategic and value- adding. Quality is no longer the policeman; it has now become the business partner.
Thomas Becker is an Associate Director at the Arthur D. Little Munich office and member of the Automotive, Manufacturing & Mobility Practice in Central Europe
Veit Bütterlin is a Manager at Arthur D. Little’s Frankfurt office and member of the Automotive, Manufacturing & Mobility Practice in Central Europe
Carsten Kahner is a Partner at Arthur D. Little’s Munich office and member of the Automotive, Manufacturing & Mobility Practice in Central Europe
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”