One of the most challenging aspects of managing quality assurance is the constant question about where, on the balance sheet, investment in QA systems should appear. Is it a cost? Or is it a part of what increases profits? The reason for this conundrum is how difficult it is to place a value on what doesn’t happen but would have decreased profits had it happened. We are not wired to be sensitive to what doesn’t happen even when the costs – in multiple dimensions – can be great. From the direct damage, such as loss of life caused by a substandard product, to the indirect damage of a loss of reputation or lower stock market valuations, the cost of what was not prevented can be catastrophic, including jail-terms for executives.
Because of this difficulty, we can empathize with managers who do their best to lower costs, and try to avoid spending money for something altogether unless there is a clear projection of an increase in revenue or profits.
The question is, however, whether not tackling the supply chain QA challenge is a false economy.
False Economy defined
Wikipedia defines false economy as: “In economics, a false economy is an action that saves money at the beginning but which, over a longer period of time, results in more money being spent or wasted than being saved.”
In an article on MSN.com* the author points out that recalls have increased, but this doesn’t mean an increased level of safety, due to the difference in capabilities among retailers:
Public health officials try to detect foodborne diseases by studying geographic and temporal patterns in illnesses. The agency then contacts the company linked to the outbreak to request a voluntary recall, and the company is supposed to alert their grocers about the contamination. But not all retailers immediately pull the food off their shelves, as happened with Kellogg’s Honey Smacks. The FDA said the cereal was still being sold a month after it was supposed to be pulled.
While the Food Safety Modernization Act of 2011 gives the FDA the power to enforce a recall when companies fail to begin that process voluntarily, in order to avoid court battles they prefer companies pull products voluntarily. Rather than diminishing over time, recalls are increasing, and, most recently, affecting well known-food brands such as Ritz Crackers and McDonald’s restaurants. In addition, the National Highway and Transportation Safety Administration has put approximately 37 million cars under recall because of defective airbags made by Takata. **
The FDA can now demand that companies formulate plans for preventing disasters, including recall plans they can deploy speedily to get dangerous products off the shelves.
The questions that should be asked about this approach are:
- Is a recall plan a true “preventive measure,” since it doesn’t prevent the problem, only shortens the length of time the product is on the shelves?
- Is overstating its importance at the expense of investing in true prevention, e.g., measures taken before-the-fact, false economy?
Pulling together a plan seems reasonable, and requires little investment. Yet, no matter how detailed it is, it is still an after-the-fact reaction.
The consequence of not preventing a situation requiring a recall is called “reacting after the fact.” How is it a preventive measure? The only situation it prevents is keeping defective products on shelves even longer, not avoiding putting them there in the first place.
Prevention: Best Practices of Traceability
The question is, just how close can you come to true prevention? How convincing can you be in your promise that you know, at any given moment, what the consumer is buying?
Any commitment to prevention calls for implementing best practices of traceability. The basic requirements for traceability include the following:
- Model/map your supply chain
- Provide online, shared access for supply chain members
- Ensure consistent inputs for material movement and quality characteristics test results
- Enable instant validation against specifications and feedback
- Provide feedback reporting so that each supply chain partner knows where they stand
Statistical Process Control
In today’s supply chains, materials (and components) may flow from many sources to the place where they achieve their final, marketable form. Although these flows may seem impossibly tangled to allow for detailed oversight, systems such as GSQA® are designed to monitor these material flows through constant statistical analysis. The system examines electronic COAs (Certificates of Analysis) received from a company’s suppliers, and if necessary, the next tier’s suppliers. Co-manufacturers and even internal facilities/processes can have their material performance specifications verified. GSQA® rejects the ones that are outside specifications (the “assignable deviations”). All the results are fed into a powerful, dynamic database that allows for tracking material quality over time. This database becomes the basis for effective and speedy traceability.
Beyond being able to track potential problems on the day-to-day basis, GSQA® takes SPC and traceability to another level.
Management is alerted to what is trending towards specification limits that might prevent quality breakdowns and recalls. Managers can also monitor material variability via the Cpk and Ppk (process capability indexes) of materials, within the range of acceptable deviations. This is important because specifications themselves must be adjusted over time, when certain trends are detected.
For example, in the food industry, the freshness of an ingredient or a food product may deteriorate slightly as the season changes, or bad weather occurs, and the supplier goes farther afield to find it. Statistics provide a map showing the movement either towards unacceptability, or away from it. The key to preventing a disaster, however, is not merely the existence of statistics or maps, but the speed and accessibility of the information in a way that turns it into actionable knowledge.
That, in turn, gives the manufacturer a number of options: alert the supplier, move to a different supplier, adjust or tighten specifications. All of them may be options that help avoid out-of-specification shipments and the slowing or stoppage of production while waiting for a new supply of in-spec materials.
Instead of acquiring and constantly upgrading special software, processes take place outside the walls and firewall of the company, with no need to implement complex networking arrangements. Any supplier with access to the Internet can become an online “member” of the process that delivers quality assurance. All statistical information is online, secured, yet available to authorized users. Because the information is not a compilation of e-mails, faxes or filing cabinets across multiple facilities, it is immediately available in a clear, consistent, easy-to-read format across the entire supply chain, including the manufacturing facilities.
Once implemented, the system is spotting issues before they damage productivity, reputation and, most importantly, customers. Beyond that, the system is true economy; it offers a bird’s-eye-view of opportunities to adjust processes in a way that saves money.
The result of this approach is true prevention. Investing in an affordable system provided in the form of Software-as-a-Service (SaaS) stops substandard materials or products from ever reaching consumers or triggering a recall order.
Given the expense and wasted time and resources used to react to, and recover from, breakdowns that have already happened, spending money to implement best practice traceability is true economy.