an enterprise approach to quality for smb discrete ... · pdf filerather than implementing an...

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© 2013 LNS Research. All Rights Reserved

July 2013

www.lnsresearch.com

The discrete manufacturing

industry, particularly for

those organizations

competing in the small-to-

medium sized business

(SMB) space, is well known

for its focus on the quick

introduction and effective

delivery of new products.

While the complexities of

these products tend to

prompt considerable

investments in product

lifecycle management

(PLM), it is often the case that resources allocated to quality are not considered in

the same light. As a result, robust engineering solutions deliver a capable product

development platform, while costly quality issues can surface downstream.

Because of the prior and sometimes considerable investments in PLM that exist for

SMB discrete manufacturers with complex products and processes, it is often

strategically optimal to leverage that enterprise platform for the management of

quality. Rather than implementing an entirely new quality solution, market leaders

are following this strategy, rolling out enterprise quality management software

(EQMS) functionalities as an extension of a mature and uniform existing PLM

platform. In this respect, organizations are able to build upon strengths that have

brought success in the past.

Many executives are asking two main questions: What are the best strategies for

building quality earlier into the design process? And also, How do you develop a

technology architecture that shares downstream quality process data with the

product development team, enabling an environment for continuous improvement?

This Research Spotlight aims to help executives answer those questions and

better understand how to use PLM as a platform for delivering quality. Specifically,

it will cover the following:

An Overview of SMB Discrete Manufacturing

Benchmark Data: Executive Objectives and Pain Points

The Role of Quality in the Extended Value Chain

Leveraging PLM as a Platform for EQMS

Research Spotlight

An Enterprise Approach to Quality for SMB Discrete Manufacturers

In the SMB discrete

manufacturing space,

it is typical for a

growing organization

to invest primarily in

its core competency

while implementing

point solutions for

point problems along

the way.

Research Spotlight

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Research Spotlight


An Overview of SMB Discrete Manufacturing

At a high level, it is beneficial to break the discrete manufacturing industry into

several subverticals, including medical devices, aerospace and defense,

automotive, electronics, and food and beverages. It is important to understand that

within each of these subverticals there are a number of large and small markets

that house a wide variety of competitors. SMB discrete manufacturers are often

engineering-intensive organizations, but may also carry out other activities,

including manufacturing, assembly, testing, distribution, and service.

Challenges Faced by SMB Discrete Manufacturers

With the dynamic nature of the SMB discrete manufacturing space, there are a

unique set of challenges and market drivers for these companies that relate to

people and leadership, orchestrating business processes across the value chain,

and effectively building and leveraging a cohesive IT architecture. Although the

finite details of each may vary between subverticals, at a high level the

organizations have to address a common set of challenges.

Short Product Lifecycles: Discrete manufacturing is often home to many

consumer products. For that reason, organizations tend to face the

challenge of changing market preferences and the need to optimize the

new product introduction (NPI) cycle. Quick and effective NPI cycles require

seamless integration of people, processes, and technology across the

value chain. Without the proper capabilities in place, attempting to expedite

the NPI process can result in considerable downstream quality issues.

Complex Global Supply Chains: In today’s economy, many organizations

have no choice but to rely on the global supplier network to deliver

competitively priced products. The risk this reliance opens up has to be

offset by strong quality capabilities that can track and trace quality process

data as it moves from source through disposal. In the case that a quality

defect is identified in the manufacturing process, for instance, it needs to be

communicated back upstream to both suppliers and the design team.

Shrinking Operating Margins: Today’s global economy has brought about

increased competition from developing nations. It has also nearly mandated

use of the global supplier network to deliver more competitively priced

products. As a consequence, organizations are facing difficulty with the

ability to both maintain and identify areas for improvement in operating

margins. Many SMB discrete manufacturers have to compete with larger

organizations with significantly more experience and capability in this area.

SMB Discrete

Manufacturers face a

unique set of

challenges:

Short Product

Lifecycles

Complex Global

Supply Chains

Shrinking

Operating Margins

Uncertain Demand

Dynamic

Regulations

Sustainability

Disparate Quality

Systems


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Research Spotlight


Uncertain Demand: While companies can predict the demand during

certain months of the year, there will always be challenges with staying

ahead of the tumultuous economy or quickly changing consumer

preferences. Adapting to and overcoming uncertainty in demand requires

cross-functional communication and coordination of different functional

areas across the value chain. Product development and design have to be

attuned to these changes.

Dynamic Regulations/Sustainability: SMB discrete manufacturers have

to continuously stay up to date on industry-specific regulations. Directives

such as RoHS or WEEE, for instance, dictate many decisions in the

electronics industry, impacting sourcing through disposal. Increasingly,

regulations are taking into consideration impact to the environment,

requiring that companies are more sustainability-focused in product

development and sourcing decisions. In many cases, tightening

environmental regulations are materializing as changes to materials and

quality requirements, and ultimately impacting the quality of products.

Disparate Quality Systems: While focus for SMB discrete manufacturers

can often be on product development and engineering, it is typical for less

capital to be allocated to quality. As a result, many quality management

processes and functionalities are manually carried out with the use of, for

instance, Microsoft Excel spreadsheets or other paper-based methods.

These processes generally are not standardized across the value chain and

are not meant to extend beyond a local site or business unit.

Benchmark Data: Executive Objectives and Pain Points

To put the challenges listed in the previous section in perspective for SMB discrete

manufacturers, it is often helpful to analyze benchmark data. LNS Research’s

2012-2013 Quality Management Survey does just that by asking executives a

number of questions regarding strategic objectives as well as top challenges as

each pertains to the quality management space. The survey was taken by nearly

500 executives responsible for managing and making decisions regarding quality in

their organization.

In one of the first questions in the survey, executives were asked what their top

quality management objective was for 2012. As depicted in the bar chart below,

executives from discrete industries were primarily focused on reducing the cost of

quality. Given the level of detail into the effectiveness of quality processes the

metric can provide, it is not surprising that it ranked as the top quality management

objective for most of these decision makers. Reducing the cost of quality was the

top objective for automotive (49%), electronics (46%), and aerospace and defense

(38%).


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Research Spotlight


Figure 1: Top Quality Management Objectives

While reducing non-conformances in manufacturing was the second most chosen

choice for aerospace and defense, automotive, and electronics, it was the first

choice for industrial equipment manufacturers (35%) and medical devices

organizations (28%).

The Quality Management Survey also asked executives what their biggest quality

pain points and challenges were in 2012. Each participant was not limited to one

response. In nearly all industries, executives stated that a top challenge was

effectively measuring quality metrics. The second most chosen response reflected

organizations having too many disparate quality systems and data sources.

Interestingly, both of these challenges connect with the top quality management

objective of reducing the cost of quality.

Without seamless integration across the value chain, it is typically too resource-

intensive to get a holistic picture of the cost of quality metric and to effectively

manage quality in general. The following section intends to discuss this further,

touching on the role of quality as well as its importance in the value chain.


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Figure 2: Top Quality Management Challenges

The Role of Quality in Extended Value Chain

The delivery of high quality products and processes requires a significant level of

collaboration and communication on quality process data and content from across

the value chain. While most organizations have a similar value chain, what varies

between industries and positioning in the supply chain within that industry is the

strength in the value chain. Regarding SMB discrete manufacturers, as mentioned,

the focal point in the value chain is often in engineering and design. As a result, it

is common for these organizations to develop deep expertise and functionality in

this stage.

When it comes to quality’s role in the value chain, the closer to the customer a

quality defect is identified, the greater the negative impact it will have financially as

well as in terms of reputation and overall business performance. While this is not a

new concept, it is one that executives are placing more focus on, especially given

recent advancements in quality management technology and enterprise IT. As

many SMB discrete manufacturers have developed deep expertise and

functionality that focuses on activities earlier in the value chain, often a lack of a

long-term strategic vision can create disconnect with quality process data and

content later in the value chain.

Without seamless

integration across the

value chain, it is

typically too resource-

intensive to get a

holistic picture of the

cost of quality metric

and to effectively

manage quality in

general.


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Figure 3: The Extended Value Chain

Market leaders today are working to ameliorate this disconnect by taking

advantage of advancements in technology that enable feedback loops between

different functional areas along the value chain. These feedback loops, what LNS

Research refers to as ‘closed-loop quality management,’ compound the

effectiveness of quality processes and functionality. For instance, a seamless

technology architecture may deliver the capability to easily build customer

complaint information into the corrective and preventive action (CAPA) process

that is used by engineering.

In addition to expediting and improving the corrective and preventive action

process, closed-loop quality can also help to continually improve product design,

manufacturing processes, work instructions, quality instructions, and risk and

reliability data found in failure mode and effects analysis (FMEA). While there are

many options for creating this technology architecture, for SMB discrete

manufacturers that have built strong capabilities in engineering, it can be beneficial

to leverage this platform as a mechanism for delivering enterprise-wide quality

management.

Leveraging PLM as a Platform for EQMS

Most large manufacturing organizations have generally deployed an ERP as the

enterprise IT backbone, using it for production scheduling, inventory management,

In developing the

enterprise IT

architecture, SMB

discrete

manufacturers have

traditionally neglected

building out quality

management

capabilities at the

global scale.


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and financials. For these companies it is also typical for there to be several

additional platforms, including PLM, customer relationship management (CRM),

manufacturing operations management (MOM), and supply chain management

(SCM). In the SMB discrete manufacturing space, given the limited IT resources

and complexities of products and processes, there is rarely more than one

enterprise application. Generally the SMB IT landscape is dominated by many

other disparate systems that may include custom databases, spreadsheets, and

paper.

Given the typical existing IT application architecture, SMB discrete manufacturers

have traditionally neglected building out quality management capabilities. Rather,

quality processes and functionalities are more likely to have been implemented

without a holistic perspective and are part of the homegrown, manual, and paper-

based systems described above.

In response to this challenge, many SMB discrete manufacturers are looking to

manage quality more holistically. The LNS architectural approach to EQMS can

help companies understand how quality fits into the existing IT landscape.

Figure 4: Architectural Approach to EQMS


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EQMS streamlines, standardizes, and centralizes quality process data and content

from across the value chain. It helps to create a platform for cross-functional

communication and collaboration on quality issues, and in many cases strengthens

traditionally siloed quality functionalities.

These functionalities include:

Non-Conformances/Corrective and Preventive Action

Compliance/Audit Management

Supplier Quality Management

Risk Management

Statistical Process Control

Failure Mode and Effects Analysis

Complaint Handling

Advanced Product Quality Planning

Environment, Health, and Safety

Hazard Analysis & Critical Control Points

Production Part Approval Process

EQMS automates traditionally manual processes, considerably helping to reduce

operational risk and instances of internal and external deviations. One of its most

important characteristics is its ability to enable closed-loop quality management. It

creates an environment for cross-functional interaction that would otherwise be

very difficult to obtain.

Despite the high number of EQMS functionalities, companies typically only

automate those that provide global synergies. There are processes that can benefit

considerably when adopted at the enterprise level, whereas others may be more

effective when kept at the local level. For this reason, methods for deploying

EQMS tend to be unique to each organization. With existing IT architecture playing

a role in the delivery model for EQMS functionalities, companies can now

implement EQMS as a standalone solution or as an extension to one of the

existing enterprise IT applications found in the figure above, such as ERP or PLM.

Benefits of Using PLM as a Platform for EQMS

Considering the extent of existing investments in and maturity of PLM and

engineering capabilities, many SMB discrete manufacturers are implementing

EQMS functionalities as an extension of the PLM platform. Not only does this help

to close the loop on quality management for engineering-intensive organizations, it

also facilitates quality integration with the new product development processes and

Given the extent of

existing investments in

and maturity of PLM

and engineering

capabilities, many

SMB discrete

manufacturers are

implementing EQMS

functionalities as an

extension of the PLM

platform.


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launch business operations. Using PLM as a platform for EQMS functionalities

allows organizations to utilize critical downstream data earlier in the value chain.

Although there are numerous reasons to deploy EQMS as an extension of the

existing PLM platform and engineering investments, one that stands out is the

ability to address the challenges and objectives noted by executives in the discrete

manufacturing industry. By using PLM as a platform for delivering EQMS, market

leaders are developing a unified information management system for managing

quality. This system connects a number of data sources and applications,

bypassing the traditional roadblocks of disparate solutions. This seamless

integration is also instrumental in effectively measuring quality metrics at the

enterprise level.

Catching and resolving quality issues before they become a larger problem is key

to maintaining a low cost of poor quality as well as improving the overall cost of

quality. Since the PLM process begins with a product idea, implementing a quality

system or solution at this time is imperative for business performance. This can be

accomplished by managing a quality system from within or leveraging system

interoperability by using EQMS. Regardless, the strategy involves having a

standardized system in place that can capture quality issues and resolve them far

before they reach the customer.

From a technical perspective, there are also several key benefits for deploying

EQMS functionalities through the PLM platform. PLM has strong capabilities for

workflow orchestration, collaboration, document management, mobility, reporting,

and interoperability with other enterprise systems such as MOM and ERP. Many

EQMS functionalities such as audit management and CAPA can benefit from

connection with these capabilities.

It is important to understand that many organizations are already using PLM to

deliver quality management functionalities in the engineering and design stages.

Examples may include the use of PLM to conduct risk management with tools such

as FMEA, using simulation tools to help companies quickly and cost-effectively

implement changes, employing design for reliability (DfR) to tie upfront quality (pre-

build) to the back-end (post-build) and enhance the overall quality process, and

change management capabilities that allow organizations to effectively manage

engineering and product data changes over time. Leveraging PLM to deliver

EQMS functionalities that streamline, standardize, and centralize quality process

data and content takes these existing functionalities to new levels.

By acting as a central hub for facilitating and delivering quality process data, the

enterprise PLM platform is critical for building closed-loop quality management

functionalities that significantly benefit the engineering and design process. Many

organizations are leveraging this approach to strengthen upstream activities,

identifying quality issues more toward the source to drastically improve customer

Many organizations

are already using PLM

to deliver quality

management

functionalities in the

engineering and

design stages.

FMEA

Risk Management

Simulation Tools

Change

Management


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experience, NPI cycles, the cost of quality, and long-term profitability. A critical

integration point that can be facilitated between quality and design regards

engineering having direct access to the voice of the customer, or feedback found in

the customer complaint management system.

While PLM can deliver benefits to enterprise quality management, there are also

several challenges and barriers organizations must understand. When extending

PLM in general, as well as PLM-based quality, many organizations view PLM as

the engineering organization’s system, which commonly results in engineering

organizations taking control and ownership of it. In addition, traditional PLM

vendors have built out the solution as well as pricing models tailored specifically to

fit within the structure of an engineering operation. In some instances, this has

been a roadblock for quickly deploying PLM across the enterprise.

There are, however, several PLM vendors that have taken steps to address these

gaps, including purpose-built EQMS functionalities on top of the PLM platform, as

well as licensing and deploying options specifically designed for these quality

applications. The following section will discuss a framework SMB discrete

manufacturers can take to ensure a successful deployment of PLM-based EQMS

while capitalizing on previous investments in engineering capabilities.

Building a Model of Operational Excellence and

Recommendations

To ensure a successful implementation of PLM-based EQMS functionalities, LNS

Research advocates for organizations to build a framework of Operational

Excellence. This framework enables a holistic, organizational approach to quality

initiatives. It focuses on three

key resources: people,

processes, and technology.

By aligning and then

optimizing these three

resources in the context of

strategic objectives,

executives can monitor, in

some cases in real-time,

measurable improvements

toward their company’s goals.

When deploying EQMS

functionalities as an extension

of the PLM platform, the

following steps are

imperative:


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People and Leadership

Position quality as critical to achieving company goals like revenue growth

and customer satisfaction by making it an executive priority

Put in place cross-functional teams to manage quality across design,

manufacturing, and suppliers

Include all levels of the organization, making quality viewed not just as a

policing function from a single corporate team but also as a shared

enterprise responsibility

Include quality metrics on the executive dashboard to determine quality’s

impact on different areas of the enterprise

Orchestrating Enterprise-Wide Business Processes

Identify global synergies in quality functionalities and processes while

avoiding having multiple systems across departments or business units

Connect processes together for improved efficiency; for example, change

management is an important part of a successful CAPA process, risk

management can benefit audit management processes as well as FMEA

Develop a formal EQMS process across the company for capturing issues

from each stage of the value chain— many companies only collect non-

conformances from a few areas like manufacturing or customer

complaints— but do not forget suppliers, engineering, or service

Enterprise IT Architecture

Assess existing IT architecture and applications to identify current strengths

and gaps in performance and technology regarding closed-loop quality

Build closed-loop EQMS processes capitalizing on current strengths,

enabling communication and collaboration across the value chain

Integrate EQMS functionalities and data sources from across the value

chain with existing PLM-based quality functionalities, such as FMEA,

change management, and work instructions

Move to improve real-time visibility of quality performance through

capabilities like role-based workflow orchestration, mobility, and analytics

Defining and Benchmarking Critical Metrics

An important aspect of any operational excellence model is its metrics program.

Without a strong metrics program, it is nearly impossible to make measureable

improvements toward strategic objectives. By delivering EQMS functionalities

through the centralized PLM-based platform, SMB discrete manufacturers will have


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a strong set of consumable, standardized real-time data that can provide the

granular level of quality data needed to support continuous improvements in quality

management. These metrics can be used to benchmark internally as well as

externally with close competitors and industry averages.

Several key metrics SMB discrete manufacturers may want to include on the

executive dashboard include:

Cost of Quality is an important metric that should be thought of as an

optimization of investments made in the cost of good quality and reductions

made in the cost of poor quality

First Pass Yield examines how effective production processes are and

how well re-work and scrap is eliminated

Successful New Product Introductions (NPI) is a holistic measure of

successful innovation, but should go beyond just hitting time and volume

ramp up targets and also include the time to hit quality specifications and

plans

Overall Equipment Effectiveness (OEE) can help companies understand

the impacts of quality, efficiency, and maintenance on overall production

performance, but it is important to put OEE in the context of the overall

supply and demand network

On-Time and Complete Shipments does not always include quality, but it

should; any quality issues associated with late, expedited, or returned

shipments should be reflected in supply chain metrics

Actionable Recommendations

SMB discrete manufacturers face a level of competition, warranting the need for a

strong platform for managing enterprise quality. Because numerous organizations

have implemented robust engineering capabilities to manage the complexities of

products and processes, deploying EQMS through the PLM platform is an optimal

strategy for many SMB discrete manufacturers. Provided that the PLM platform

has been adopted globally with the right level of maturity, managing quality in this

manner can have dramatic impacts on improving upstream costs and efforts.

It is critical to understand that effectively building quality earlier into the design

process takes an enterprise-wide effort, not simply an enterprise technology

implementation. This can be greatly facilitated by building a model of operational

excellence with intentions of aligning and then optimizing people, processes, and

technology in pursuit of progress toward strategic objectives. Organizations that

are taking this tactical and tiered approach to realize operational excellence are

experiencing greater ROIs on technology investments and many other tangential

benefits to overall business performance.

Many SMB discrete

manufacturers are

well-positioned to

manage enterprise

quality by building

upon existing

investments and

maturities in

engineering

capabilities.


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To ensure the successful management of enterprise-wide quality, SMB discrete

manufacturers should take the following steps:

Evaluate the current competitive advantages of the firm and invest in

an IT application architecture that complements these strengths. For many

companies, especially those focused on engineering, this will be PLM.

Establish quality as an executive focus for the enterprise and define

quality as an end-to-end value chain issue that is more than just a

compliance issue but delivers business value.

Support quality management with a robust continuous improvement

program that helps bring down stream quality issues back upstream for

future improvements and risk reductions.

Identify processes and functionalities that deliver synergies when

deployed across the enterprise. Standardizing these processes will be

integral to quickly and effectively identifying areas for improvement.

For companies with an existing PLM implementation, begin leveraging

PLM as a platform for deploying EQMS functionality. Special attention

should be paid to using existing product and process data, workflow

capabilities, and collaboration tools to enhance quality processes.

Focus on EQMS processes that can deliver the most value and

address immediate quality pain points. For many companies this pain

may be around CAPA or Audit Management. For more advanced

companies this could be around metrics or risk management.

Support any technology implementation with the right supporting

change management capabilities. Often this means using external

services to help with driving culture change and how quality is perceived in

the organization as well as proper training on the use of quality systems.

The distribution of this report has

been funded by:

http://www.omnifysoft.com/

LNS Research provides advisory and benchmarking services to help Line-of-Business, IT, and Industrial Automation executives make critical business and operational decisions. LNS research focuses on providing insights into the key business processes, metrics, and technologies adopted in industrial operations.

Authors:

Matthew Littlefield, President and Principal Analyst,

[email protected]

Mike Roberts, Research Associate, [email protected]


http://www.omnifysoft.com/

mailto:[email protected]

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