Manufacturing Executive - January/February 2009 - (Page 42) [ SPECIAL REPORT ] ma 42 38 That’s beginning to change, products anymore. Just because you didn’t manufacturers to however. Acpractice among high-tech make the item related expenses, such as warranty claims, supplier chargebacks, cording to AMR, quality managementcontrol its manufacture) doesaccept goods only from qualify suppliers and not mean you will (that is, has and disposal costs, can take a huge bite out of manufacturbeen elevated to a the strategic imqualified plants. In the semiconductor space, ers’ bottom lines, something that most can ill afford given concern of escape liability if something goes wrong. This is a lesson portance for manufacturers across vertical “quality is overseen companies particuhitting the consumer packaged goodsand managed by people pressures of globalisation and other economic realities. Many whose larly hard to companies that outsource productionmarkets and has costs in pursuit of lower become a key metric these days. only job is to do this,” says Anand Iyer, measure overall supply chain performance. fellow at supply chain management software But it’s not just consumer goods and food and beverage quickly find that the ultimate price of entrusting a third party with vendor i2. “They have a lot of visibility into manufacturers that are plagued by costly quality problems their brand is very high indeed. RESPONSIBILITY AND CONTROL where the product lot comes from.” leading to recalls. As longtime users of CM services, high“Managing supplier quality and in-process quality, those Intuitively, most people understand that reThe stakes are even higher in the pharmatech manufacturers well understand the importance of controlare huge challenges for manufacturers in a CM environsponsibility should follow control. After all, if ceutical industry as lives could be jeopardment,” says Simon Jacobson, senior research analyst for car, you should not you weren’t driving the ized by sub-par manufacturing. Like the public, AMR Research. “Autonomous facilities resist having accident. But this well-esbe held liable for the to the FDA does not look kindly on companies, march in the same line, so gettingtablished legal principle breaks down in a composite metrics across such as Boston Scientific, that have been plants is elusive.” world where fewer and fewer Ironically, CMs themselves seem to place more make their own Many brand owners in lower-margin indus“brand owners” emphasis on quality than do their customers. According to a recent because products anymore. Just tries, in fact, don’t even know the identisurvey by AMR, brand owners rank lowering costs asitem (that is, you didn’t make the a more important reason for using CMs than improving qual- not ties of all the parties in their supply chains. control its manufacture) does Tom Travis ity (see table, below). mean you will escape liability if — Tom Travis at Sandler, Travis, Rosenberg Sandler, Travis, Rosenberg That’s beginning to change, however. According to This is a something goes wrong. lesson hitting the consumer ling quality. Withfound to market faultyrework sky-high (not the cost of scrap and medical devices — for AMR, quality management has been elevated to a concern packaged goods companies particularly example, pacemakers and defibrillators. to days. of strategic importance for manufacturers across verti- hard these mention the cost and public black eye of a recall), it is a But it’s not just consumer goods and food And automotive manufacturers to qualify common practice among high-tech manufacturers have been at cal markets and has become a key metric used to measure and this longer than most, paying out warranty suppliers and overall supply chain performance. beverage manufacturers that are plagued accept goods only from qualified plants. In the by costly quality problems leading to recalls. As space, “quality is overseen annual revenues, acsemiconductor claims of up to 5% of their and managed by Responsibility and Control of CM services, high-tech manlongtime users cording to do this,” Week newsletter. fellow people whose only job is to Warranty says Anand Iyer,The total ufacturers well understand the importance of management softwareclosely linked to quality, at supply chain cost of warranty is vendor i2. “They have Intuitively, most people understand that responsibility with lean ace product lot comes paying a lot of visibility into where theToyota consistentlyfrom.” out should follow control. After all, ifcontrolling quality. With the cost of scrap and you weren’t driving the the lowest in the pharmaceutical industry. The stakes car, you should not be held liable rework accident.(not to mention the cost and are even higherwarranty claims in the industry as for the sky-high But this public black eye of a recall), it is a common Automotive, high tech, and life sciences lives could be jeopardized by sub-par manufacturing qualwell-established legal principle breaks down in a world goods carry higher profit margins than conity. Like the public, the U.S. Food and Drug Administration where fewer and fewer “brand owners” make their own sumer packaged goods. It remains to be seen does not look kindly on companies, such whether low-margin industries, such as food as Boston Scientific, that have been found and beverage, will be able to make the intovestments needed in people, processes, and market faulty medical devices — for example, pacemakers and defibrillators. PRIMARY REASON FOR CONTRACT MANUFACTURING technology to keep tight tabs on production And automotive manufacturers outsourcing Survey of 202 CMs and brand owners quality as the rate of offshore have been at continues to increase. paying out warranty this longer than most, LOWER LABOR COSTS claims of up to 5% of their lower-margin indusMany brand owners in annual revenues, Brand owner: 65% accordingfact, don’t even know the identities of tries, in to Warranty Week newsletter. The Contract manufacturer: 25% total the parties in their supply chains, according all cost of warranty is closely linked to quality, with lean ace managing partner at Sandler, to Tom Travis, Toyota consistently paying HIGH QUALITY out the lowest warranty claims in the industry. Travis, Rosenberg, P.A., an international trade Brand owner: 18% Automotive, high tech, and life sciences and customs law firm. So, when things break Contract manufacturer: 43% down, it is very likely that the brand goods carry higher profit margins than owner doesn’t packaged goods. remains to how consumer even know whichItsupplier — be CHEAPER MATERIALS many levels low-margin industries, such seen whether down — caused the problem. as Brand owner: 8% food“In many cases, people don’t make the and beverage, will be able to know who Contract manufacturer: 3% they’re dealing with. people, processes, and investments needed in They don’t know which company to keep tight tabs on paint or did technology applied the base coatproduction CLOSER TO MARKET the stitching on the offshore outsourcing quality as the rate of embroidery,” says Travis, Brand owner: 5% author of increase. continues toDoing Business Anywhere: The EsContract manufacturer: 12% sential brand owners inGlobal (John Wiley & Many Guide to Going lower-margin indusSons, Inc., 2007). tries, in fact, don’t even know the identities of HIGHER INNOVATION Since they don’t know which other comall the parties in their supply chains, according Brand owner: 3% panies make up their supply chain, these to Tom Travis, managing partner at Sandler, companies can’t take action to avert quality Contract manufacturer: 17% Travis, Rosenberg, P.A., an international trade problems. “You have to know each link in the Source: AMR Research and customs law firm. So, when things break brand owners lower“Manyindustries don’tineven know margin the identities of all the parties in their supply chains. “ disparate views disparate views chain. If you don’t, you can’t ensure the in- Manufacturing Executive e m b e r 2 0 0 7 D e c JAN/FEB-09
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