Managing Hidden Supplier Quality Challenges Can Save Millions of Dollars

June 4, 2010
BI software can extract elusive, critical information

To prevent millions of dollars from walking out the front door every year, one plastic mold manufacturer used a BI front end to its ERP system which zeroed in and pinpointed poor supplier quality issues. It also automated a real-time supply-chain-wide communication system, which in turn gave people, regardless of location, the information they needed to make lucrative changes, sometimes on the fly.

Graham Packaging is a $2 billion company with 81 locations across multiple lines of business. Of course that means an expansive supply chain, with a lot of suppliers and therefore supplier quality issues.

When Graham started its supplier quality journey, the centralized supply chain manager didn't realize how much poor supplier quality was costing them. She didn't even realize that supplier quality was an area that should be top priority to assess because companies lose so much money. She also thought, at the outset, that poor supplier quality meant solely defective parts -- that it was all material costs.

It turns out the opposite is true. Most of poor supplier quality costs are non material. An AMR study shows that 67% of poor supplier quality costs are non material -- everything from trucks arriving late or going to the wrong location, to poor loading dock management, to Graham's own engineers missing their deadlines.

If those non-material costs end up causing the manufacture of defective products, the cost is even higher. The company will have to pay the extra overhead for producing the defective product, and then pay non-material costs again to start all over and produce a salable product. So the earlier quality issues are caught and avoided, the more money can be saved.

One important aspect to bear in mind is that extracting supplier quality data in simple, readable form that any loading dock manager can use is not for the purpose of having a weapon to leverage over a supplier. Many companies, like Graham, think of their suppliers as partners. It's simply getting the necessary information into the hands of people who would otherwise not get it -- for example, the manager who has to get on the phone and negotiate with the supplier. And in order to do that, that information has to be automated, delivered quickly, and reported in a manner that is understandable to a variety of people.

The BI Solution

When Graham put arcplan's BI front end on their ERP, they were actually able to extract the reporting they needed to get to the root of the supplier quality problems, and then fix them. Immediately, they saw a way to save $250,000 a year on just one supplier, and they have hundreds of suppliers. In short order, Graham was savings millions of dollars per year.

All ERP systems have the secrets of supplier quality hidden within, it's just that extracting those secrets is a manual, laborious nightmare. If you can even get at the data, it's often unintelligible to those who need to use it, it's piecemeal, and arrives too late.

Here's a short list of the problems Graham Packaging had and what its supplier quality initiative solved:

  • Extracting data quickly and in simple language. The reporting process is manual, which can take days, so if a supplier is late, or a piece of equipment arrives damaged, it can be meaningless by the time it is discovered.
  • Very difficult to see aggregate view. Often the data is not only in different places, but in different applications, so if a manufacturer with 80 locations over multiple lines of business needs to see an overarching view of supplier quality, good luck.
  • Getting information about poor quality from the field. Because it takes so long to extract data, operations managers in the field are reluctant to fill out the SAP data entry screen for reporting problems. They've been conditioned to enter data only to have nothing ever happen. So they won't bother.
  • Without meaningful data reported and therefore extracted in a timely manner, it's impossible to negotiate with suppliers, or fix internal problems (such as bad specifications from engineering, or rough handling of delicate products once they're delivered), which cause poor supplier quality.

Benefits of the BI Front End Solutions

First and foremost, the software automated the process of pulling information out of and ERP sytesm and putting it into an overall quality dashboard and individual supplier scorecards. You should be able to get updates every few hours. Yes, hours, not days.

The software was able to provide all the information needed to quickly see the supplier's quality compared to targets, the location of quality problems, if there is one supplier that is causing problems across plants or even lines of business, and show the cost of poor quality (which is calculated by the ERP system, not the BI solution).

Next, the software showed the aggregate view as easily as it did for the individual locations or individual suppliers. With this sort of reporting, Graham was able to decentralize their entire supply chain for even faster manufacturing and delivery times, as well as see the overall cost of doing business with national or international suppliers.

Graham was able to eliminate the job of global supplier quality director and move that person to other functions. Now they leave the supplier quality to the directors at different locations, or lines of business.

With the speed of automated extraction and decentralized reporting, the other two major supplier quality problems listed above are solved: The moment a field manager sees that there is immediate response when he or she fills out the online problem-reporting form, the system starts to work. That field manager will start to use the problem reporting system when a truck is late, or products arrive.

Once the field managers companywide use the system, the meaningful data needed for supplier negotiations is created, and real change can happen.

For instance, the field manager who is constantly getting the wrong product delivered now uses the data entry form. Within hours a report is generated. When that report is cross referenced with engineering specs, it is discovered that it wasn't the supplier's fault at all, but rather that engineering had delivered incorrect specs. Once that information is known, and known quickly, that field manager has the tools and the confidence to make appropriate calls and fix the problem.

This example is important because supplier quality isn't always about a sub-level supplier, and the reports aren't meant to be used as weapons against suppliers. It's meant to examine the entire supply chain and fix problems. Many companies -- not just in manufacturing -- consider their suppliers to be partners.

BI software enables productive conversations between a company and its suppliers, where blame isn't assigned, but rather responsibility is taken by the right people in an efficient manner.

Stefan Koch, Vice President, Product Management, arcplan ( arcplan is an independent business intelligence solution provider delivering timely, contextual, and actionable information that empowers businesses to improve business performance while leveraging existing infrastructure.

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