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During the last decade we’ve seen the number of companies, especially in the consumer products sector, outsourcing such functions as manufacturing and packaging to streamline processes, reduce costs, and focus on core competencies. Although there are obvious benefits to outsourcing, there are complexities that come along with it.
No longer can you walk down to your manufacturing or packaging areas and check on whether quality or cleaning processes are being enforced, especially when you are headquartered in Chicago and your plant is in Tianjin City, China.
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You need to ensure that your entire enterprise’s operations and processes—including those at your contract manufacturers and suppliers—meet the required standards. This is especially important to a company that owns the brand because it will bear the brunt of regulatory, media, and consumer scrutiny if there are any quality issues or product recalls.
Successfully positioning your brand in front of customers is one of the first steps in achieving profitable growth. To that end, companies must develop a long-term trusted status with customers. That process is driven by product quality.
Poor quality affects product on multiple levels
It seems that every day we hear about another food recall due to contamination, undeclared ingredients, or foreign matter. Organizations dealing with a recall can be affected in several areas including reputation, increased costs, and lost revenue.
Reputation. Consumers are concerned about the safety of recalled products and quite possibly other products produced by the company. No longer is a recall announcement buried on a government website or posted at a retail location. Information is now instant and easily accessible, thanks to 24-hour news programs, the Internet, and social media. A company can go from famous to infamous in a matter of minutes.
Increased costs. The cost to remove, destroy, and replenish inventory raises production and freight costs considerably. There are also regulatory fines and lawsuits for any illnesses or deaths resulting from the recalled product.
Lost revenue. A company’s revenues will be lower than forecasted due to out-of-stock merchandise, reduced market share, competitive replacement, and a drop in stock price. Think back to 2011 when a series of quality-related issues forced McNeil Consumer Healthcare, a division of Johnson & Johnson, to recall 288 million Tylenol products from store shelves. The recalls cost the company $1.4 billion in sales and tarnished the reputation of one of the most trusted companies and its brands. The market share for liquid Tylenol before the recall was 34 percent, but after the recalls it dropped to 9.2 percent. Meanwhile, Advil, a competitive product from Pfizer, increased from 1.1 percent to almost 14 percent market share.
Product recalls affect every part of the consumer products industry, including food, beverage, personal care products, cosmetics, over-the-counter medications, baby products, toys, and electronics. And with product recalls on the rise, companies no longer talk about if a recall will happen, but when it will happen.
Be proactive
Consumer products companies source materials from hundreds of suppliers all over the world. They also outsource thousands of product SKUs to contract manufacturers and packagers every year. Managing these resources efficiently is difficult but important when protecting the company’s reputation, its brand, and most of all, its consumers.
One of the first steps to protecting your brand is to ensure that your suppliers’ quality and performance are meeting your organization’s requirements. By taking the time to select and qualify a supplier, and review its quality procedures, delivery performance, and customer references, you can collect valuable information to prepare a vendor scorecard to rate the supplier’s ability to meet requirements. Using scorecards, leading companies track their suppliers’ defect rates, quarterly corrective actions, average corrective and preventive actions (CAPAs), and overall ranking as a supplier.
Companies should also monitor progress and track the cost of poor supplier quality, which affects scrap and rework costs, line shutdown, increased shipping charges due to expedited deliveries, and recall costs to remove product from the supply chain.
By identifying and tracking performance in these areas, companies experience fewer surprises associated with product quality or supply issues. The added benefit of developing a long-term partnership with a supplier is a win-win for both parties. The company obtains a trusted partner that can provide information on new trends in the industry and the supplier can more accurately forecast production and revenue stream.
Recent best practices in supplier quality management
Years ago companies would audit suppliers through emailed questionnaires, relying on the supplier to provide accurate information on their certification and procedures. With brand integrity and consumer safety at stake, companies are now being more proactive about supplier management. One way to audit suppliers is through a standard operating procedures approach, where suppliers are audited every three years. This is a great way to standardize the process, but this method still considers all suppliers in the same way.
Even better, when companies implement risk-based auditing they can track and score suppliers accurately so that high-risk suppliers are audited annually rather than every three years. This allows companies to use their valuable resources wisely and focus on the supplier accounts where more oversight is required.
Share your knowledge
What good is knowledge if you don’t share it across the enterprise? Too often, quality management is done by sifting through paper-based files, spreadsheets, or in disparate point solutions. Using an enterprise quality management software (EQMS) solution can automate data collection and act as a central repository so users can track quality issues, audits, and supplier performance for better visibility and flexibility to meet changing business requirements. An EQMS integrates with enterprise resource planning, manufacturing extension systems, and other enterprise IT systems to provide more accurate data for your global enterprise. This allows companies to ensure that departments as well as overseas operations are in compliance with operating requirements. One system allows you to define, track, manage, and report on the core activities and processes vital to managing your quality processes. An EQMS solution keeps manufacturers in better contact with suppliers, which minimizes the need for periodic supplier audits because of the constant visibility within operations. This protects brand reputation and balances increased costs by minimizing lost revenues.
Knowledge is power, but ROI is king
To stay competitive, companies must streamline processes and reduce internal resources (e.g., employees), but more work and fewer employees can be disastrous if shortcuts are taken in quality processes. By automating quality and approval processes, many companies have seen increased efficiencies while maintaining the high compliance standards needed for audits and regulatory requirements.
Likewise, companies need to proactively manage external suppliers and vendors to make better business decisions. Automating data collection and recording to reduce errors, standardizing quality processes across the enterprise, and certifying safety and quality of product before it leaves the warehouse can protect both consumers and your brand. An EQMS solution will help you extend quality practices beyond the four walls of the enterprise. As a result you will be confident that the brand label is a true testament to the quality that’s inside every package.
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