Cincom In-depth Analysis and Review

Top Ten Reasons to AutomateManufacturing Compliance

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SIMPLIF ICATION THROUGH INNOVATION ®

Table of Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Reason 1: Improve Product Conformance at the Process Level . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Reason 2: Create a Culture of Quality in Your Supply Chains . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Reason 3: Synchronize Inspections and Audit Data to Supplier Rating . . . . . . . . . . . . . . . . . . . . . . . 2

Reason 4: Develop a Comprehensive Corrective andPreventative Action Strategy . . . . . . . . . . . . . 3

Reason 5: Create and Post Audit Benchmarks on Supplier Portals . . . . . . . . . . . . . . . . . . . . . . 3

Reason 6: Create a Compliance System of Record . . . . 3

Reason 7: Ensure Engineering Change Notice (ECN) and Drawing Compliance . . . . . . . . . . . . . . . 4

Reason 8: Use Compliance as a Catalyst for Process Improvement . . . . . . . . . . . . . . . . . . . 4

Reason 9: Transform Compliance Wins into Competitive Differentiators . . . . . . . . . . . . . . 5

Reason 10: Manage Government Regulations so They Don’t Manage You . . . . . . . . . . . . . . 5

Cincom In-depth Analysis and Review

By Louis ColumbusCincom Manufacturing Business Solutions

Top Ten Reasons toAutomate ManufacturingCompliance

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1

Executive Summary

Study the top-performing companies across allmanufacturing industries and a plain and simple truthemerges: the ability to produce consistently high-qualityproducts, regardless of the forces impacting demand,suppliers, pricing, or channels, is the key to accomplishingrevenue and profit goals. Manufacturing companiesdominating their chosen markets have as their corestrength the ability to deliver exceptionally high levels ofquality in their products on a consistent basis.

Compliance is the competitive strategy of making sureevery product produced every day will exceed customerexpectations and, as a result, drive up sales and profits.Compliance is the fulfillment of the commitment everymanufacturer makes to every customer regarding theirproducts’ benefits and value. Compliance strategies arethe means through which those commitments are kept to customers, and that clear truth pervades the highest-performing companies in all manufacturing industries today.

When considering why you should join the topmanufacturing companies that are automatingcompliance, realize that each product produced and soldcreates a moment of truth for every customer you have.Making certain that your products (and more importantly,the processes used to produce them) can consistentlydeliver the highest quality experience for your customersis what compliance is all about. Compliance to qualitystandards in your products is the ultimate competitiveweapon because it is critical to successfully exceeding dailycustomer expectations. Compliance is essential for anymanufacturer that wishes to go beyond survival and thrivein an increasingly competitive and turbulent global arena.

The top ten reasons manufacturers need to considerautomating their compliance initiatives and strategies areprovided in the following sections, and all have as theirfoundation the use of quality as a long-term competitivedifferentiator. Complying with customers’ expectations ismuch more difficult and it takes much more focus thanregulatory compliance. However, both together are actingas catalysts to companies that choose to capitalize onchange rather than avoid it.

About the Author

Former Senior Analyst at AMR Research, Louis Columbushas published 15 technology books and is currently amember of the ECQM Practice at Cincom. Mr. Columbus is also a weekly columnist for CRMBuyer.com andInformit.com, and teaches graduate-level internationalbusiness and marketing courses for Webster Loyola-Marymount University. Louis has also taught at theUniversity of California/Irvine, and California StateUniversity/Fullerton, in addition to onsite classes at Fordand Chrysler.

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Reason 1: Improve ProductConformance at the Process Level

Let’s face it, when products aren’t regularly conforming toquality assurance or customer standards, it costs the entirecompany lost time in firefighting toward a workaroundsolution and possibly reduced customer satisfaction.Instead of resorting to the quick fix that can drain revenue,manufacturers that have turned compliance into acompetitive weapon take these steps:

• First, they evaluate and in many cases re-define the supply chains, production processes, andquality-assurance standards to alleviate bottlenecksin the production areas.

• Second, entirely new approaches to measuringquality and compliance are often initiated toaugment procedures already utilized. Parameters arerigorously scrutinized. These steps give themanufacturing teams insight into which processesare under-performing and the circumstancesresponsible for these defective processes.

• Third, enterprise compliance and qualitymanagement software is used to selectivelyautomate those areas where manufacturers can getthe best return from this IT investment.

• Fourth, benchmarking and performance analysis iscompleted. Corrective and preventative action atthis point is no longer a firefighting exercise but onethat can be handled through exception reportingand fine-tuning the process itself. The result is thatwhen non-conformance is reduced, customersatisfaction increases and service costs drop.

Reason 2: Create a Culture ofQuality in Your Supply Chains

Many manufacturers marvel at the Toyota ProductionSystem (TPS), and envision it as insular, contained withinthe Toyota manufacturing plants with Six-Sigma measuresof production quality and efficiency. The foundation of thisworld-class production system is actually based on a veryhigh level of supply-chain quality standards that Toyotasuppliers need to consistently meet in order to continueshipping products to the auto manufacturer. Suppliershave said that participating in the TPS forces a culturechange first in their companies, then a re-alignment ofprocesses to better share knowledge in the ToyotaSupplier Network.

Compliance to the Toyota Production System (TPS)standards forces suppliers to create a culture of quality.The same is true for any manufacturer that initiates andmaintains a supplier compliance strategy that relies on aseries of key performance indicators (KPIs) that indicatewhen any given suppliers’ quality or delivery performanceis trending up, staying constant, or trending downward.Creating corrective-action strategies with suppliers basedon mutually agreed-to metrics produces the motivationneeded for change to happen. The bottom line is thatautomating supplier conformance strategies — and thisincludes the use of alerts, self-service portals, and contentmanagement systems to provide suppliers with theassistance they need — is part of turning compliance intoa competitive weapon.

Reason 3: Synchronize Inspectionsand Audit Data to Supplier Rating

When manufacturers rely only upon manual processes tocomplete inspections and audits, it is rare that theseresults are correlated back to supplier rating results.Maintaining the information in a centralized database,minimizing the possibility of error and automatingcalculations could in fact signal exceptional gains in theperformance of suppliers to quality standards. Theopportunity for a manufacturer to further increase theperformance of suppliers to quality, delivery, andperformance standards is lost because the supplier ratinginformation is not adequately calculated andcommunicated to the supplier.

For manufacturers that choose to automate theirmanufacturing compliance strategies using an ECQM-based approach, the potential exists for motivating eachsupplier to continually higher quality levels with acorrespondingly higher level of goals set for follow-onsupplier ratings.

The bottom line is that through first defining theprocesses that interlink inspection and audit to supplierratings, manufacturers can encourage each supplier toimplement specific improvement strategies and rapidlysee the results in new shipments.

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Reason 4: Develop aComprehensive Corrective andPreventative Action Strategy

Error detection and prevention is a hot-button issue today,and compiling accurate records of corrective actions iscrucial for maintaining a good quality system andpreventing the reoccurrence of defects. It is important tohave a closed-loop mechanism for initiating, implementing,and verifying the effectiveness of changes resulting fromthe non-conformance process.

Some problems may only need simple resolution, whichmay be closed in an exception or non-conformancerecord, whereas other types of problems may require theexception to be attached to an issue or action plan tocomplete the investigation. This is why it is important tohave a system that is customizable for your specific needsand for the requirements of your industry.

Early awareness of potential problems prevents escalation,and it saves corporate dollars and possible litigation.Additionally, integrating corrective action with otheraspects of a quality system maximizes the use of allinformation in the decision process.

Reason 5: Create and Post AuditBenchmarks on Supplier Portals

One of the best strategies for creating and sustainingcompetitiveness between suppliers regarding quality is topost their relative performance on portals and internalwebsites where all suppliers can see who is excelling, whois staying at a constant quality level, and who is falling interms of quality. Manufacturers that do this actively includeDell, General Electric, Hewlett-Packard, Toyota, and manyothers. Microsoft does this on its supplier portal calledMicrosoft Market, and internally this visibility into supplierperformance is called “rank and spank” strategy forensuring high levels of supplier quality.

Since the analytics required for quickly producing theserank and spank supplier reports originally comes out ofMicrosoft Excel, requiring an inordinate amount of time tomanually generate, manufacturers are turning to ECQMsuites of applications to automate the reporting process.However, typically manufacturers keep these analytics tothemselves, missing out on the opportunity to motivatesuppliers to higher performance through competition.Audit Benchmark performance needs to be visible oftenso it becomes part of both manufacturers’ and suppliers’cultures. What gets measured gets done. The bottom line is that manufacturers need to look at automating

compliance and integrating analytics tools so that thesereports can be quickly generated, published, and used forfostering higher levels of product quality from suppliersthrough competition.

Reason 6: Create a ComplianceSystem of Record

When manual processes dominate the qualitymanagement process workflows of a manufacturer, it iscommon to find disconnected or totally isolated systemsthat contain only a small proportion of the total qualitymanagement strategic performance of the company.Manufacturers that rely extensively on manual workflowshave only an anemic, fragmentary compliance system ofrecord. The majority of the fragmented data records are inMicrosoft Access, Excel or Word, or in any number ofother mostly PC-based database systems.

For any manufacturer to realize the benefits of pursuingquality management strategies, there needs to be greaterintegration across the many fragmentary databases, datasets, historical performance data, supplier audit results,non-conformance history and, corrective-action reports.Once these are organized into a single compliance systemof record, the manufacturer is able to effectively defineand execute quality management strategies. One exampleof this involves the historical analysis of suppliers and theeffectiveness of supplier management. Having acompliance system of record would show just whataspects of supplier management led to increased qualitylevels, that didn’t, and what the trends are in suppliers andtheir ability to meet quality levels.

The bottom line is that the successful manufacturer musthave a system of record which can be used to measureprogress. The compliance system of record is critical forsetting benchmarks for supplier, production, and processperformance.

Compliance is a competitive strategy ofmaking sure every product produced, everyday, will exceed customer expectations andas a result, drive up sales and profits.

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Reason 7: Ensure EngineeringChange Notice (ECN) and Drawing Compliance

The more complex the manufacturing environment, thegreater the impact of ECNs and drawing modificationsacross engineering, design, purchasing, production, andquality-management departments for a successfulcompany. Many manufacturers have had their ECNprocesses in place for decades. However, while theyoperate efficiently and have well over half a dozen coloredsheets with specific routing workflows designed (beforeVisio was ever visualized), the sheer volume andcomplexity of changes required is dramatically increasing.Design engineers working on the in-cockpit electronics forthe Airbus A380 recently remarked that at nearly threeinches thick, the ECNs for the A380 are now thicker than alarge metro telephone book. Admittedly, the A380 is oneof the most complex aircraft ever produced, and the in-cockpit systems rely on over two dozen integration pointsacross dozens of onboard systems. This example, however,underscores why even the most well-worn paths of ECNprocess workflows in manufacturers are increasinglyoverburdened with ECN volume and complexity, the likesof which they have never seen before.

The effectiveness of your business depends on your abilityto enforce standard operating procedures, shareknowledge, and document control process. There is noeasy way to properly control changes in products,processes, and master records. Change control is acomplex process. Failure to have an adequate change-control system can cause equally complex results.Inadequate change control can expose a company toproduct liability action resulting in product recalls, internalconfusion, and a violation of product, processes, andequipment regulations.

The bottom line is that the managing of change controlthrough a more effective approach to classifying, analyzing,and responding to ECNs electronically is critical to staycompetitive. Manufacturers that have grown throughacquisition face the daunting task of reconciling their ECNprocess from two or more systems, factories, and processsets. However, by automating compliance, the ability toautomate ECN workflows, including the allowance ofmultiple and often parallel signatures, can save hundredsof hours a year and ensure higher levels of productcompliance.

Reason 8: Use Compliance as aCatalyst for Process Improvement

Creating and executing a compliance strategy has to dowith redefining supplier qualification, management,incoming inspection, product non-conformance, andcorrective-action processes so that a consistently highlevel of product quality can be delivered. The impetus forprocess improvement is customer-driven quality standardsthat need to be met in order to keep sales levels up. Thisis certainly the case both in commercial and consumermarkets, where consistently delivering to a specific level ofquality can mean the difference between retaining orlosing a customer. Customer loyalty has a lot more to dowith product quality than any other aspect of themarketing or sales-execution mix.

The consistency or lack thereof of product quality sayseverything about a manufacturer: their commitment tocontinuous improvement and their commitment tofulfilling the customers’ expectations and delighting them.Process improvement is critical to the ability of stayingaligned with customers’ expectations of performance inorder to deliver them.

The bottom line is that those highest-performingmanufacturers are using quality initiatives as the catalyst tomake their production more centered on customers’expectations first, whether those expectations are in theform of an ECN, contract, or purchase order.

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Reason 9: Transform ComplianceWins into CompetitiveDifferentiators

Consider the GE culture and its transformational effect inthe Six Sigma concept or the Toyota Production Systemand its heavy reliance on compliance performancemeasurements, and the reasons for automatingcompliance become clear.

Once a manufacturer has chosen to automate complianceprocesses, one of the strategic objectives to consider ishow to position quality leadership as a competitivedifferentiator. For many organizations, this is the culminationof a quality-management strategy that begins withbusiness-process re-definition and progresses to supplierratings, corrective and preventative actions, and thenthroughout the managing of product and process qualityon a consistently high basis.

The bottom line is that instead of just relying on price,promotional activity, or channel strategies, considerturning your compliance strategies into a competitiveadvantage by underscoring product and service qualityperformance. Only by taking a more integrated view ofquality management strategies can this happen.

Reason 10: Manage GovernmentRegulations so They Don’tManage You

Quit looking at regulations for compliance as animpediment to getting your company’s strategies togetherand think instead of how compliance to these regulationscan become a competitive advantage. Responding to theintent of the regulation is critical and also leaves latitudeto structure your own customer-centered compliancestrategy, giving you competitive strength in the long run.

Making regulatory compliance work for your company startswith a clear definition of how you can make your productquality and product compliance strategies more alignedwith customers’ needs and less inwardly centric andfocused only on clearing the next regulatory hurdle. Beingmore customer-driven from a compliance standpoint putsregulatory compliance in its proper perspective, and this isanother reason why many manufacturers choose toautomate their compliance strategies.

The bottom line is that responding to regulatorycompliance requirements needs to be done within thecontext of market- and customer-driven quality initiatives.Don’t comply for the sake of complying; comply to find aunique competitive advantage on which you can capitalize.

Quit looking at government regulations forcompliance as an impediment to gettingyour company’s strategies together and thinkinstead of how compliance to theseregulations can become a competitiveadvantage.

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