It might be coincidence that we happen to have two customers in different industries (aerospace and automotive) starting projects more or less at the same time to manage non-conformity in their inbound supply chains. Could it be that there is something else going on with wider implications?

Non-conformity is used here as a neutral term for things other people may call defects, issues, demurrage etc. and it's in general not the most positive corner of supply chain collaboration. We do quite a lot of ROI work with customers to analyze possible savings in their supply chain resulting from improved collaboration to justify the business case of our projects that include not only internal resources and costs but also those from other partners in the chain. We tend to find people quite comfortable documenting transactional style benefits related to avoiding double data entry, processing mails and phone calls and PDF's by electronic processes or discussing inventory level impact of supply chain visibility into other supply chain tiers.

If we quiz supply chain managers and other professionals however on what actually goes WRONG and how much money this costs their company, they are generally less confident. "Of course we have very good warranty conditions from our suppliers" and "Our black belt teams monitor quality constantly". Quite rarely however do we get conclusive financial data for the business case to justify how much money the customer will save if he reduces non-coformity related to supplier parts for example by 30% because processes are made transparent. 

In the Dutch building industry research has been done on what is called "Cost of Failure" (faalkosten) and this research has established that 20% of the cost price is actually spent on activities to detect and repair such mistakes. Can you imagine that in large internationally distributed supply chains this number would be comparable?

Getting to non-conformity however means more than getting to objective analysis of faillure: It also improves cultural and social sides.

  1. Who's to blame? Supplier, Logistics Service Provider, Internal problems?
  2. Where is the ownership? Procurement for selecting the cheapest supplier? Engineering for design specifications and requirements? Logistics for changing orders last minute or putting pressure on suppliers?
  3. Shoot the messenger? You don't tend to win promotions or logistics prizes chasing non-conformity. Not perceived as a thing that wins you many friends on LinkedIn.

Both programs mentioned in the introduction were started on the back of an existing supplier collaboration process we helped these customers get in place around the "procure to pay" process. Basic process control on orders, deliveries including performance dashboards and alerts on deviations were in place so a good lot of the "low hanging fruit" from transactional style savings was being harvested. The supplier portals and related dashboards provide a "single version of the truth" and created basis of trust created by visibility on the transactional side.

So we did not come with the "stick' so to speak to start beating up the suppliers. We already had their buy-in. Nevertheless, Murphy's law applies. And things do go wrong...Both supply chains fell back on traditional mechanisms: Phone calls, e-mails, attachments, more phone calls, MS Excel workbooks and it wasn't possible to tie non-conformity in our supplier scorecards in the collaboration solution. There was a lot of "externally induced waste" at our customers' organizations to handlle these non-conformities and I can assure you that not all of this was covered by warranty claims or credit notes. 

We could link non-conformity management to existing Organizations, Purchase Orders, Parts etc. and avoid a lot of data re-entry. We could relate back-orders, re-orders, re-issues of material to the original process and this allows for a lot of Root Cause Analysis together with suppliers and feed into a continuous improvement program.

We get some very interesting views on how non-conformities evolve over time, how quickly they get resolved, which ones are still open in the dashboard. Probably the ROI's on these initiatives were achieved in less than 6 months and it hasn't killed the supplier relationships.

Are you beyond shame? Do you have similar experience in getting to the not-so-low hanging fruit?

Let us know what you find!

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