Successful supply chains measure key performance indicators (KPIs) to determine how well their organizations are performing to drive operational excellence, and have “open and honest” relationships with their suppliers and customers, according to a new report released by ASQ.
“Supply chain KPIs must be in line with the goals of your customers and that businesses need to better understand their buyers’ needs—especially from a global perspective and as companies and supply chains expand,” said Brad Feuling, CEO of Kong and Allan Consulting Co. Ltd. in Shanghai, China, in the report. “Supply chain is a collection of contributors, and aligning them is key to being successful, whether that’s reducing costs or time.”
The report covers two categories of KPIs - process efficiency and cost effectiveness - that monitor where supply chains can control and improve quality performance. Process efficiency includes finished-product, first-pass quality yield for primary products; percentage of defective parts per million, and warranty costs (repair and replacement) as a percentage of sales. Cost effectiveness is segmented into scrap and rework costs as a percentage of sales and total cost of quality per $100,000 in revenue.
The key to the finished-product, first-pass quality yield metric “is not how well the product or service is built, but can supply chain play a role in positively influencing the manufacturing process,” according to Jeff Varney, APQC’s business and performance management practice lead, in the report. “Can the supply chain organization source and provide high-quality products that lead to first-pass approval for key products within the product portfolio?”
APQC said defective parts per million should be tracked on some form of control chart with an upper and lower limit for most supply chains. What’s important to buyers is ensuring that they are sourcing the right parts to decrease the number of defective parts. “The supply chain team needs to understand how many of those defective parts were a result of the assembly of defective parts or bad materials vs. the incorrect use of part,” according to the report.
Both warranty costs and scrap and rework costs can have a big impact on organizations. According to the Global State of Quality 2 survey, 26 percent of respondents reported issues with overall cost of quality, including recalls, counterfeit, product defects, food safety, and supply shortage, while 46 percent of respondents reported product defects as a quality-related issue.
In addition to measuring specific supply chain KPIs, the report also recommends that buyers share their mission and vision with suppliers to help them understand how defects and delays impact their end customers. “Suppliers will be compelled to think differently—to help eliminate waste, improve efficiency and quality, and have products and services delivered on time,” according to the report. “This is critical because when you need the suppliers for exceptions, like spikes or reductions in demand, the suppliers will be more willing to work with you.”
The report offers insights into supply chain measurements and provides recommendations to organizations that don’t have metrics in place for their supply chain activities. It is one of two reports recently released as part of ASQ’s Global State of Quality 2 Research, which looks at the state of quality and continuous improvement worldwide.
ASQ also released a report on big data and its role in quality. It features interviews with Elmer Corbin, director and project executive, client success for IBM Watson and Watson Health, and Silvia Veronese, director, big data solutions for Hewlett Packard Enterprise Co.
“Internal alignment within the organization is a key factor for success. Big data touches everything, literally everything within an organization. This is not a project that is undertaken in just one business unit,” said Veronese.
“Discussion around big data strategies needs to happen at the C-level, as that is where you have the vision of all the components of the system. Having the buy-in at the corporate level and not falling into the company silos is key for a successful adoption,” she added.
The benefits of using big data as part of quality and continuous improvement efforts includes improving performance in several business processes, such as correlating performance metrics, predictive modeling, understanding supplier network performance, forecasting, developing unexpected insights, and analyzing real-time data for real-time decisions, according to the report.
However, the report finds that big data is not being used like it could or should be. For example, only 20 percent of respondents feel their organization is leveraging big data to gain a competitive advantage, and only 37 percent either “somewhat agree” or “highly agree” that big data is being used to identify and improve the understanding of their customer needs.
Both reports are available at globalstateofquality.org. The final report, “Discoveries 2016,” will be available May 16.