This post will discuss how market leaders are using an enterprise-wide Operational Risk Management framework to improve Supplier Quality Management.
In our last blog, we talked about metrics that can help corporate executives better understand the effectiveness of quality management strategy in their organization. In this blog, we will be discussing metrics that are a must for the dashboard of any plant manager. If you are involved in quality and operations decisions for manufacturing or supply-chain management, one of your most important responsibilities is to ensure that the final output of your plant is in compliance with internal and external quality standards.
This is not as easy as it sounds. There are many variables in this process to consider: are the suppliers delivering you good quality raw materials, is your process set up to consistantly manufacture superior quality products, are you understanding customer feedback/complaints and ensuring a closed-loop process by providing information back to the design group? Now consider this for multiple products and multiple production lines.
The 5 metrics below will help to showcase the current performance of quality in your plant, highlighting successes, gaps, and areas for improvement.
Metric 1: Yield
Yield is a metric traditionally measured by most organizations. Companies generally measure first pass and overall yield, as both metrics provide insights into the effectiveness of your quality management process.
First Pass Yield can be measured as the percentage of products produced that meet both quality and compliance standards without the need of re-run or re-work. A simplified Wikipedia definition of first pass yield is the number of units coming out of a process divided by the number of units going into that process over a specified period of time.
Overall Yield measures the percentage of products produced that may or may not require re-run or re-work to be within compliance and quality standards.
Metric 2: Scrap Rate
Similarly, another way of measuring quality is to understand the amount of scrap your company produces. The simplest definition of scrap rate is that it measures the percentage of raw materials sent to production that never make it into the finished product. However, depending on the maturity, an organization might even be measuring Defects per Million Opportunities or DPMO. DPMO measures the percentage of defects recorded in every million products produced. This is a highly accepted metric in operations that have a Six Sigma-based culture.
Metric 3: Supplier Defect Rate
Measuring supplier quality is a critical aspect in determining the final quality of a product. Supplier Defect Rate measures the percentage of materials or products received from suppliers that do not meet required quality or compliance specifications. This becomes more critical in industries that have a multi-tiered supplier-base such as automotive, electronics, and Aerospace & Defense. Organizations operating in such industries are not only responsible for managing immediate supplier quality, but the responsibilities also extend to measure areas such as the supplier’s supplier quality.
Metric 4: Supplier Chargebacks
Similar to supplier defect rate, supplier chargebacks has proven to be an important metric to measure supplier performance. Supplier chargebacks measure the amount of money charged back to suppliers for products that don’t meet quality and compliance specifications. Depending on policies, some organizations might only charge the cost of non-conforming material back to suppliers. Other organizations that have more stringent supplier policies might charge non-material costs such as late delivery and employee time, which in some cases might be more expensive than the material cost itself. This metric, along with the supplier defect rate, constitutes an important part of the cost of poor quality and must be used while calculating the cost of quality metric.
Metric 5: Customer Complaints
While managing quality processes, it is paramount for every organization to establish a closed-loop process. This can be done through effectively communicating customer feedback, using it to improve the overall quality of a product. Similar to supplier chargebacks, there are many ways companies measure customer complaints. The simple way is to measure the number of customer complaints over twelve months. In addition to measuring just the number of customer complaints, organizations should also measure metrics such as number of customer complaints resolved, time taken to resolve a customer complaint, and also metrics related to measuring overall customer satisfaction.
Finding Trends in Operational Metrics
Many plant managers today are probably already measuring yield or scrap, many more probably aren't measuring customer complaints, supplier defects, or chargebacks. By measuring all five of these metrics, plants managers get a much more holistic picture of plant operations.
If you are interested in learning about how to use these metrics to imporve opeartional and business performance, read our latest report on Enterprise Quality Management Software Best Practices Guide. You will have to share your experience in quality management to gain annual access to the Research Library. If you are interested in understanding your organization’s strength in this area and areas of imporvement, gain access to the library by creating your account.
Join the webcast, on Thursday, June 16, 2016 @ 1:00 will provide senior leaders with best practices for building a business case around quality and the foundational framework needed to gain executive commitment.
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