eqms the role of orm in quality management

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2014 LNS Research. All Rights Reserved

November 2014

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While Quality Management

was once locked inside a

watertight compartment within

the enterprise, this is no longer

the case. Increasingly, global

market-leading manufacturers

understand that proper Quality

Management has direct and

collateral impacts on all other

areas of business performance,

from suppliers and customers,

to Environment, Health and

Safety (EHS) management

Manufacturing Operations Management (MOM), Asset Performance Management

(APM), and beyond. As a result, Enterprise Quality Management Software (EQMS)

is becoming an increasingly integral tool companies are adopting to boost

performance and close the loop on Quality Management.

But just as Enterprise Quality Management pervades so many aspects of overall

business performance, so too does risk pervade the entire enterprise. The recent

evolution of compliance requirements and performance standards has invited

global manufacturers to better integrate all aspects of their internal management

systems and supplier quality systems to improve product and service delivery,

better align with customer mandates, and ultimately achieve operational

excellence.

In this Research Spotlight, LNS Research will discuss the evolving integration and

alignment of Operational Risk Management (ORM), closed-loop quality processes,

and supplier quality management and what this means for global manufacturers

today. Specifically, LNS will explore:

An overview of EQMS

Best practices for progressing Quality Management from a risk perspective

and closing the loop on Quality Management

How ORM affects all aspects of Quality Management and corporate

performance

The increasingly fundamental role of integrated software models to improve

interaction between ORM, EQMS, and other aspects of business

performance management

Research Spotlight

EQMS: The Essential Role of ORM in Quality Management

Increasingly, leading manufacturers understand that proper Quality Management has direct and collateral impacts on all other areas of business performance, from suppliers and customers, to Environment, Health and Safety (EHS) management Manufacturing Operations Management (MOM), Asset Performance Management (APM), and beyond

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Quality Management Challenges

According to LNS Research data collected through over 1,000 completed surveys,

the top quality challenges continue to be centered on metrics, culture, and

disparate systems. In interviewing and working with these companies, there are

many root causes for these challenges, including a lack of executive focus on

quality, a lack of robust quality management processes, and legacy technology

systems without a clear migration strategy. Next after these Big Three, comes

No formal risk management process, with it impacting just over one-third of the

market.

Top 5 Quality Management Challenges

However, risk management may not be the first challenge area where companies

should look to gain quick wins. As companies become more mature with the

people, process, and technology capabilities supporting quality management; risk

management is the logical next step. As culture improves, visibility into

performance is established, and as systems are harmonized, incremental gains

become the name of the game and improving the risk profile is one important way

to achieve these gains.

One of the factors at play in the equation is the need to manage risk both implicitly

and explicitly as part of the quality management system. The implicit approach

involves the fact that almost everything we do in quality is to reduce risk but is

often unaccounted for. Evaluating CAPAs based on how they will impact an

organizations risk profile, or auditing suppliers and facilities independently based

on risk factors is in much better alignment with the risk reduction goals of these

As companies become

more mature with the

people, process, and

technology capabilities

supporting quality

management; risk

management is the

logical next step.

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processes than a standard first in first out approach. Explicit risk management

involves using standardized risk tools and processes to directly identify, quantify,

prioritize, and mitigate risk factors, separate from the activities occurring in the

standard quality management processes. However, these explicit risk tools are

critical for implicitly managing risk within quality processes and the overall system

benefits when managed in a single system.

Evolving Quality Management Models

Like other management systems disciplines, quality management used to live

within a box. Issues related to quality management were just thatmatters that fell

within the realm of quality management were assessed as quality management

issues alone, and managed by the corporate quality department almost

exclusively, with input and feedback from executive leadership.

Enterprise Quality Management Architecture

Within the last two decades, the game has changed entirely. Computer and Web-

based systems have brought quality management to the next level, and we are

It is not uncommon for

a company to have

three or more CAPA

systems in engineering,

manufacturing, and the

field. EQMS also allows

for the harmonization of

critical quality

processes.

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now witnessing an unprecedented level of access and visibility into quality

management metrics and performance, in some cases on a real-time basis.

As can be seen in the above figure, EQMS is a central hub for both process

automation and document management. By managing quality at the enterprise

level, it minimizes the opportunity for silos to be created, where different groups

and systems are managing the same process. For example it is not uncommon for

a company to have three or more CAPA systems in engineering, manufacturing,

and the field. EQMS also allows for the harmonization of critical quality processes

at the enterprise level, such as CAPA, Audit Management, and Risk Management.

EQMS ensures that the right versions and releases of documents are being used

in a compliant way and that new technology best practices are built into the

platform for reporting, analytics, mobility, and more. Finally, it should be noted that

there are multiple approaches to delivering the capabilities described as EQMS;

many companies choose purpose-built standalone software that is integrated with

other enterprise applications, while some companies choose to use other

enterprise applications like CRM, PLM, MOM, EHS, or ERP as an EQMS. There is

no one approach that is right for all companies.

Qualitys Intrinsic Relationship with Risk

Just as we have established that there is an embedded and intertwined

relationship between quality management and most if not all other areas of

corporate performance, it is also worth underlining the fact that operational risk,

broadly, ought to be an all-encompassing performance aspect that pervades all of

the above-mentioned areas of corporate performance. Just as quality was once

relegated to the sidelines of corporate performance, risk, too, used to be thought of

as an isolated aspect, perhaps pertaining solely to only the most immediate and

financially burdensome corporate activities and potential liabilities.

Now, just as with quality, that framework has evolved to a 21st century mindset.

For leading manufacturers around the globe, risk factors now rank as highly on

corporate balance sheets as factors like revenue and profit used to rank. And this

is sensible, for risk factors portend eventual successes or failures that financials

alone cannot hope to forecast.

So how does this manifest on the ground level? Between prioritizing CAPAs, to

building out audit schedules, to executing supplier evaluation, Quality and ORM

are now increasingly intertwined and continue to pervade all aspects of corporate

performance.

Just as quality was once relegated to the sidelines of corporate performance, risk, too, used to be thought of as an isolated aspect

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These relationships have always existed across the enterprise, but only now are

cultural assessments and technological tools enabling us to understand and

ultimately act upon these relationships in the name of improving quality and overall

corporate performance.

Example of a Risk Register

A typical starting point for risk management is the establishment of a risk register.

This framework categorizes risk factors across operations by hazard type and then

identifies the proactive controls that are in place to stop the hazard from causing an

adverse event. The risk register then ends by identifying the reactive controls that

are in place if in adverse event does occur, along with the anticipated

consequences of an adverse event occurring.

It is also important to note that many of the EQMS processes are in fact proactive

controls and the effectiveness of these process directly impacts the risk register

and quantification, including:

NC/CAPA

Internal and supplier audits

Standard Operating Procedures (SOP), Good Manufacturing Practices

(GMP), Hazard Analysis and Critical Control Points (HACCP)

Supplier Quality Management (SQM) and Product Part Approval Process

Explicit Risk Management Overview

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(PPAP)

Customer complaints management

It is also important to consider how risk runs right across all aspects of

performance management. If an asset underperforms, that presents a risk from

quality, EHS, asset, and financial perspectives, at the very least. As alluded, that

asset might be linked to a possible detrimental safety event, emissions, repairs,

and then all the associated factors linked to a quality non-conformance, including

rework, scrap, maintenance, and, eventually, possible.

Example of a Risk Heat Map

The next step in effective risk management is using the risk register to quantify the

potential impact of risk factors. The simplest way is with a matrix that evaluates

adverse events on two axes: likelihood and impact.

Although the math may not be too difficult in this model, for a global organization

the challenge is to have a comprehensive, standardized, and up-to-date risk

register. The next step is establishing the risk tolerance threshold, which should

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focus the organizations efforts on improving controls against those risk factors that

fall outside the threshold and limit the use of resources for these factors that have

acceptable risk levels.

The final stage of the risk management framework is continuously monitoring the

performance of critical processes as well as the results of those processes. For

example, in quality it is important to measure both the performance of the CAPA

processes, i.e. open CAPA, but also the result of the process, i.e. reduction in

scrap or recalls. By monitoring both process performance and health companies

can create concrete ROIs for investments in risk management based on ongoing

performance improvement connected to better process.

Example of Risk Monitoring

Risk, as it ought to be thought of, truly aspires to encapsulate an entire framework

that is less linked to the performance of an individual corporate function and

instead linked to overall corporate performance. While compliance may, for many

manufacturers, register as the mainstay or the bare-minimum of performance

management, only an operational-risk-based approach will take it to the higher

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level of Operational Excellence and, ultimately, holistic sustainability.

Implicit Risk Management Overview

With an explicit risk management framework established, it is important to support

these processes with software and start utilizing these processes and technologies

to better manage quality. This brings into the picture the idea of closed-loop quality

management. As established, so many various organizational programs that are

related to enterprise quality management are deeply tied together, in spite of the

fact they have traditionally been viewed as siloed elements of corporate

performance. Quality management data is too valuable to be left in silos, especially

within the manufacturing environment, as illustrated in the diagram below. Only the

right processes and technologysupported by an organizational culture that views

quality and risk as pervasive corporate matterswill enable an organization to

manage quality effectively from a risk-based perspective.

Closed-loop quality both integrates the quality processes with each other, as

shown below, but also begins to integrate quality processes and data across the

value chain.

Interconnecting Quality Processes

For many companies a closed-loop quality management approach is the ultimate

goal, in that it breaks down silos, integrates quality processes with each other,

integrates quality with other areas of the business, and connects everything that

happens in quality with risk.

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Unfortunately, not many companies today have created a true, closed-loop quality

management environment; in fact only about 22% of companies report such

architecture.

Although, it is important to note that 40% are planning to implement such an

environment, which is not surprising given the performance benefits so many

companies are seeing from the approach. LNS Research data also shows

companies with closed-loop quality processes consistently outperformed those

without closed-loop processes, across the board.

Evaluating Suppliers According to Quality and Risk

One important example and use case of closed-loop quality management is

evaluating suppliers according to quality and risk. It is one thing to extend the

considerations we have discussed here across the enterprise. It is quite another to

consider how we apply the quality, risk, and sustainability management

expectations we have established for ourselves across our supply chain and

vendor base.

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Quality, risk and sustainability need to be more tightly integrated across the

enterprise and its entire supply chain. Functionally, this calls for manufacturers to

improve their capacity to evaluate and monitor suppliers on an ongoing basis

according to quality, supply chain, and operational risk factors. Businesses

increasingly need the ability to rank both supplier quality management and supplier

relationship management according toabove and beyond qualityrisk-based

metrics that can actually be accumulated through the right analytical tools. But this

involves properly connecting interrelated tools across the enterprise.

The key to effective supplier management is in using the quality and risk

management best practices above. Suppliers should be a key risk factor in the risk

register, supplier quality management processes should be evaluated as the

critical proactive controls for supplier hazards when assessing risks and thresholds

the impact of suppliers should be evaluated fully, and finally, when monitoring the

performance of quality and risk processes, visibility into supplier processes and

performance is critical.

Actionable Recommendations

Fundamentally, just as EHS, quality, APM, MOM and other aspects of corporate

performance cannot be managed in silos, operational risk simply has to pervade all

aspects of corporate activity. ORM ought to be viewed as less of an independent

realm of enterprise management and more as a key pillar that ought to be a factor

in every decision an organization makes, from determining where materials are

sourced from, to ensuring ongoing regulatory compliance.

Risk needs to be applied to the entire lifecycle of quality management and product

delivery, from conception and design, to development and creation, supplier

selection, and through delivery. It also has to build collected analytics into models

to reduce risk, improve product quality, boost customer satisfaction, and achieve

better bottom-line performance, thereby establishing operational excellence and

holistic sustainability. Taking the following actionable recommendations will help

ensure your organization is building in best practices for risk and quality:

Implement enterprise quality, supply chain, and sustainability

solutions that integrate: While it may be easier said than done, factor

integration capabilities into all software solutions decisions. If you have

determined than an integrated risk approach will help improve overall

quality and supplier management capabilities, look for solutions vendors

that are able to easily integrate with and speak to other aspects of

enterprise performance management.

Establish closed-loop processes that link performance programs:

Since technology is only one factor in the equation that leads us to better

Companies with closed

loop quality

management

processes realize

dramatically higher

OEE, On Time

Shipments, and

Successful NPI.

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enterprise risk management, initiatives need to be supported by process

frameworks that clearly tie risk into quality management and, ultimately,

overall enterprise sustainability management. If a quality activity carries

aspects and impacts that are either directly related to other areas of

corporate performance, or can be correlated to other impacts across the

organization, ensure some process framework calls upon persons

responsible to manage these linkages accordingly.

Build a culture that supports a holistic approach: This point builds upon

the previous, insofar as quality processes are not an island and need to

extend outward across organizational activities to minimize risk and

improve product quality. If quality is a pervasive cultural aspect and not a

department as identified earlier in this document, then processes need to

support this. But that will only flow from an organizational culture that

neither establishes nor perpetuates existing cultural barriers between

aspects of organizational performance.

Align Key Performance Indicators (KPIs) that support an integrated

approach: In building the right culture, processes and technology that can

support an approach that puts quality and operational risk on a level, having

the right KPIs, both proactive and reactive, will help motivate such a

program.

Implement Closed-Loop Quality Management processes and

supporting tools: Quality Management can inform enterprise risk

management, as we have learned. However, we need to move beyond

basic process performance metrics and establish more comprehensive or

explicit integrated risk and quality process frameworks. It follows that

cross-function governance is essential to the equation. Independent

functional silos need to be curbed in favor of applying enterprise need

across quality processes. Closed-loop quality risk management and ORM

processes with Failure Modes and Effect Analysis (FMEA) that establishes

failure causes, evaluates the effects of failures, and applies detection and

diagnostic responses.

Finally, it is important to realize that Quality Management Systems are a starting

point, not an end point. Businesses need to establish enterprise-wide EQMS that

incorporates both implicit and explicit risk management capabilities, and also

establishes quality and risk as both a centerpiece of corporate culture and core

competencies of leadership, and that management systems are essential aspects

of achieving actual results.

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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 & Principal Analyst, [email protected]

Paul Leavoy, Research Analyst, [email protected]

eqms the role of orm in quality management

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