Managing Automation - December 2007 - (Page 38) [ SPECIAL REPORT ] That’s beginning to change, however. According to AMR, quality management has been elevated to a concern of strategic importance for manufacturers across vertical markets and has become a key metric to measure overall supply chain performance. RESPONSIBILITY AND CONTROL disparate Intuitively, most people understand that responsibility should follow control. After all, if you weren’t driving the car, you should not be held liable for the accident. But this well-established legal principle breaks down in a world where fewer and fewer “brand owners” make their own Many brand owners in lower-margin indusproducts anymore. Just because tries, in fact, don’t even know the identiyou didn’t make the item (that is, control its manufacture) does not ties of all the parties in their supply chains. mean you will escape liability if — Tom Travis at Sandler, Travis, Rosenberg something goes wrong. This is a lesson hitting the consumer packaged goods found to market faulty medical devices — for companies particularly hard these days. example, pacemakers and defibrillators. But it’s not just consumer goods and food And automotive manufacturers have been at and beverage manufacturers that are plagued this longer than most, paying out warranty by costly quality problems leading to recalls. As claims of up to 5% of their annual revenues, aclongtime users of CM services, high-tech mancording to Warranty Week newsletter. The total ufacturers well understand the importance of cost of warranty is closely linked to quality, controlling quality. With the cost of scrap and with lean ace Toyota consistently paying out rework sky-high (not to mention the cost and the lowest warranty claims in the industry. public black eye of a recall), it is a common Automotive, high tech, and life sciences goods carry higher profit margins than consumer packaged goods. It remains to be seen whether low-margin industries, such as food and beverage, will be able to make the investments needed in people, processes, and PRIMARY REASON FOR CONTRACT MANUFACTURING technology to keep tight tabs on production Survey of 202 CMs and brand owners quality as the rate of offshore outsourcing continues to increase. LOWER LABOR COSTS Many brand owners in lower-margin indusBrand owner: 65% tries, in fact, don’t even know the identities of Contract manufacturer: 25% all the parties in their supply chains, according to Tom Travis, managing partner at Sandler, HIGH QUALITY Travis, Rosenberg, P.A., an international trade Brand owner: 18% and customs law firm. So, when things break Contract manufacturer: 43% down, it is very likely that the brand owner doesn’t even know which supplier — how CHEAPER MATERIALS many levels down — caused the problem. Brand owner: 8% “In many cases, people don’t know who Contract manufacturer: 3% they’re dealing with. They don’t know which company applied the base coat paint or did CLOSER TO MARKET the stitching on the embroidery,” says Travis, Brand owner: 5% author of Doing Business Anywhere: The EsContract manufacturer: 12% sential Guide to Going Global (John Wiley & Sons, Inc., 2007). HIGHER INNOVATION Since they don’t know which other comBrand owner: 3% panies make up their supply chain, these companies can’t take action to avert quality Contract manufacturer: 17% problems. “You have to know each link in the Source: AMR Research chain. If you don’t, you can’t ensure the in- practice among high-tech manufacturers to qualify suppliers and accept goods only from qualified plants. In the semiconductor space, “quality is overseen and managed by people whose only job is to do this,” says Anand Iyer, fellow at supply chain management software vendor i2. “They have a lot of visibility into where the product lot comes from.” The stakes are even higher in the pharmaceutical industry as lives could be jeopardized by sub-par manufacturing. Like the public, the FDA does not look kindly on companies, such as Boston Scientific, that have been views ma December 38 2007
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