Solving Supplier Management Problems with CMMI V2.0
By Ron Lear, Director of IP Development and Chief Architect of CMMI Products and Services
The development of complex global supply chains has delivered enormous benefits for manufacturing companies—including the ability to bring new products to market faster at lower cost. But managing those supply chains also brings a broad range of challenges, from logistics to product quality.
Today’s technology-advanced products may incorporate hundreds or even thousands of components from many suppliers across the world, making it extremely difficult to trace the source of problems that affect the final manufactured product. Notably, some of the most-publicized product recalls in recent years have been caused by defects introduced in the manufacturers’ supply chain, from the tires and airbags used in popular cars to toxic paint in children’s toys.
In my experience, supply-chain management presents universal challenges, impacting large and small manufacturers and system integrators alike. For example, I’ve worked with large aerospace companies that operate with exceptionally robust processes for continually assessing their suppliers, including teams that perform on-site inspections of supplier facilities. Yet one of those teams worried that they weren’t doing an adequate job because problems were still slipping through. They were shocked to learn they were actually much better than many of their peers.
The Spiraling Cost of Supply-Chain Problems
Problems due to faulty components can have serious financial consequences, due to the immediate cost of fixing the problem and potential longer-term impacts such as reputational damage and reduced customer satisfaction. Once defective components are incorporated into products, the cost of detecting and correcting the resulting problems often far exceeds the cost of the components themselves. And the longer it takes to find problems, the greater the expense: the widely used 1-10-100 rule says that the cost of fixing a problem swells ten-fold each time it escapes detection during successive stages of the production process.
That was the challenge faced by one leading maker of large, complex transportation machinery I know. The company discovered that despite its efforts to minimize the number of defective components arriving from its suppliers, it was still spending too much money on rework to correct problems caused by faulty parts. The company’s products were becoming increasingly complex, incorporating sophisticated technology to provide new features, automate operations and check the health of various subsystems. One product line used components from 17 different suppliers, each of which provided many different parts. And as the products became more complex and the number of components increased, so did the potential for hard-to-detect quality problems and associated costs.
Cutting Defective-Component Costs with CMMI V2.0
Fortunately, the company fixed the cost issue with the assistance of
CMMI V2.0’s Supplier Management model view, which it had been using for a broader initiative to optimize its supply chain management and other business processes. CMMI V2.0 Supplier Management is an integrated set of best practices developed specifically to address the universal supply-chain management challenges that companies face. It improves an organization’s capability to identify and manage suppliers and vendors in a way that maximizes supply chain efficiency, meets growth demands, keeps pace with change, and reduces risk.
The company actually uncovered its cost-of-rework problem using the CMMI V2.0 Performance Report, a new feature in CMMI V2.0 that links process improvements to specific business objectives, enabling companies to focus their improvements on the areas that are most critical to their business. In this case, the performance report pulled together information from different corporate groups, enabling the company not only to evaluate how effectively it was managing component defect rates but also the cost of fixing the problems. As a result, executives discovered that even though the company was meeting its goals for minimizing the number of defective parts, it wasn’t meeting its cost target of $275,000 per month because it was spending so much on tracking down problems and reworking its products to correct them.
Armed with that information, the company used the CMMI Causal Analysis and Resolution practices to analyze the problem at a deeper level. It found that 80 percent of the defects originated with three of the 17 suppliers; by focusing on those suppliers, it was ultimately able to eliminate the problem and drive down the repair costs to target levels. As is often the case, once the company had uncovered and removed the problem using CMMI, it was encouraged to continue looking for more ways to drive out cost from its manufacturing processes, using additional techniques such as Lean Six Sigma.
Continuously Optimizing the Supply Chain
In today’s dynamic business environment, supply chains are more than just global and complex; they’re also continuously changing. Which means that if organizations don’t stay engaged with, and keep tabs on, their suppliers, they increase supply-chain related risks such as quality issues, product shortages, and shipping delays. CMMI V2.0 Supplier Management is designed to mitigate those risks, helping companies uncover and correct supplier-related problems and continuously focus on optimizing business performance.