In an era of complex global supply chains and increasing regulation, maintaining a viable quality management strategy across a manufacturing organization can be a formidable challenge. Unfortunately the norm in many manufacturing organizations is a manual, departmental quality management approach using diverse processes, paper records, spreadsheets and other rudimentary tools. With such a fragmented approach, tackling and responding to supply, quality control, and regulatory issues can take tremendous amounts of resources and effort.
Deploying Enterprise Quality Management Software (EQMS) is an excellent way to centralize and automate quality management processes and information across an entire organization. Many manufacturers have already taken advantage of these systems to streamline supplier management, Corrective and Preventive Action (CAPA), compliance management, risk management, complaint handling, change management, auditing and many other quality control processes and content. These systems encourage consistency and collaboration across departments while integrating with corporate ERP, PLM, SCM, and other systems with a goal of providing a single version of the truth. So far, however, industry acceptance has been gradual.
A survey published by LNS Research shows only 20 percent of organizations claiming current EQMS implementations in 2013, with 25 to 30 percent in the planning stages, and another 7 percent allocating budget for such a solution. Almost half of those surveyed still had no plans at all.
This is likely to change soon. Increasing pressure from globalization and new regulations continue to be a driver; however, a new EQMS ROI/business case argument is now developing that promises to be more compelling than the one used commonly up to now.
Most EQMS ROI analyses focus on the potential for streamlining and cutting the cost of quality control processes, which makes a lot of sense. The problem is that many organizations have other, more urgent software investments to make, many of which fall under the same justification. It can be difficult and time consuming to quantify EQMS efficiencies to convince senior management that they’ll have a substantial impact on the bottom line.
An alternative, more compelling business case is now gaining momentum, driven by the potential of EQMS to slash risk and the high costs of quality failure, much as security software can protect an organization from an expensive and damaging security or data breach.
LNS Research outlines such a business case in its February, 2014 white paper “Building a Business Case for EQMS with the Cost of Quality.” Without delving into all its details, the paper suggests comparing a metric it calls the Cost of Good Quality (CoGQ) with the Cost of Poor Quality (CoPQ). CoGQ measures all the costs of ensuring good quality and preventing costly and damaging quality failures, including EQMS software, people and various other resources. The report points out that the cost of failure increases exponentially as the detection of quality issues moves closer and closer to the end user. See Figure 1.
From Building a Business Case for EQMS with the Cost of Quality, LNS Research, February 2014
Preventive actions early in the manufacturing process are many times less expensive than corrective actions such as recalls, scrapping products, etc. after the fact. Not to mention the reputational damage that can result once the failure affects the customer.
Some of the CoPQ metrics to measure include the cost of customer complaints, supplier defects, manufacturing scrap and rework, and warranty reserves. For some organizations these can represent a significant percentage of revenue. The report then suggests setting goals for improvement based on streamlined, centralized, more automated processes; better interdepartmental communication; and integration with other corporate information systems enabled by EQMS. Finally, compare the reduction in CoPQ with the investment required for EQMS. Senior management is more likely to respond to this type of risk reduction analysis than a typical ROI based on nebulous process streamlining. In a company in which quality failures represent a significant percentage of revenue, simply demonstrating that the rate of failure can be reduced by a few percentage points can make a significant impact on the bottom line.
In closing, not only can the benefits and ROI of implementing an EQMS system now be better justified, these types of solutions are also adding some interesting new capabilities, such as predictive analytics, mobile applications and cloud-based solutions for greater visibility and sharing of these valuable quality metrics. I’ll discuss these new capabilities in my next blog post.
Read more about EQMS in this blog post: How IT Disconnect Can Hurt Quality in Operations (and How to Fix It)