2018 is drawing to a close, and it’s time to start working on your 2019 supplier quality management strategy. Our main advice is that you should focus on creating a management and organisational structure that puts quality firstTo illustrate the importance of this, we go back to 2017 – the year when Japan Inc was engulfed by a series of quality scandals.
2017 – The Japan Inc. Quality Crises
In October 2017, it was found that Kobe Steel’s employees had deliberately falsified quality data on its aluminium, copper, steel, and other metal products. This meant that industries with exceptionally high quality standards, like aviation, automobiles, railways and nuclear power, could have been working with defective materials. Matters got worse – on December 5 it was revealed that workers at one of Kobe Steel’s aluminium factories had been falsely applying the JIS (Japanese Industrial Standards) certificate to their products even when they did not meet customer specifications. On December 21, it was announced that three executives at the very top knew that the product quality data was being manipulated.
Mitsubishi Materials Corporation, Nissan, Toray Hybrid Cord
At the same time Mitsubishi Materials Corporation stated that three of its units had falsified data on their products. Earlier, Nissan Motor Corporation said that it conducted vehicle inspections that didn’t comply with regulations for almost four decades, and Subaru Corporation said that they allowed uncertified workers to make final safety inspections on vehicles before they were shipped. There was the major Japanese chemical fibre manufacturer, Toray Hybrid Cord, which was found to have falsified data. Outside Japan, other well-known companies like Audi, Hyundai, Kia, IKEA, and Westinghouse also had quality problems and had to recall their products.
Our analysis of what went wrong
Lack of accountability
How could things go terribly wrong in these companies who once had unshakeable reputations in quality management? One critical factor we feel is that they, especially Japanese companies, typically keep their quality management practices to themselves and are very resistant to involving third parties. ‘Protecting trade secrets’ and ‘we can handle things just fine by ourselves’ are the commonly given reasons. However, a lack of third party oversight reduces the sense of accountability the company’s management and employees have to their customers. It also allows companies to go easy on themselves when it comes to enforcing their own standards of conduct. Compliance costs money. Manufacturing products at the highest levels of quality costs money and drive up customer prices, something that companies are loath to allow when customers are extremely price sensitive. The business logic is simple – why would companies spend on something they can get away with?
For similar reasons self-certification is also a problem. Nowadays OEMs rely on suppliers to certify their own products, but as the Kobe Steel incident demonstrates it is all too easy for supplier’s employees (especially the internal quality control team) to wrongly apply certificates or pass products even when they have not met the required quality standards or customer specifications. As pointed out earlier compliance and rejected products represent added costs for suppliers, and they are not about to reject or rework their products unless they absolutely cannot get away with it. It highlights the need for customers to employ two preventative measures– first, a third party presence at the supplier’s premises to be an adjudicating presence and check that quality certifications and inspections have been properly carried out. Second, extremely robust incoming materials quality inspection processes to check the products before they are used in production.
Are IoT and automation the solutions?
Some of the affected companies have said that they will invest in IoT (Internet of Things), automation, and robotic technologies in order to reduce the risk of human tampering with production data. While this is certainly true and needed, we feel that this sidesteps the main issue at hand. What these technologies do is to increase data accuracy and at the end of it there will still be a human factor involved who decides what to do with the data. And that was what went wrong in all the quality scandals – managers and employees made deliberate, conscious decisions to falsify quality data. Involving technology cloaks the situation as a technical problem whereas what it really was, was a management and company stewardship problem. Technology is only as good as what we make it to be, and it’s simply no good to deploy all these technologies when the company mindset is to simply ignore what the data is telling them.
Our concluding thoughts for 2018 and advice for 2019? The basic principles of quality and organisational management need to be reinforced. These are:
- Impartial oversight is critical to ensuring the integrity of any company’s operations. A complete cycle of accountability must be created, one that begins with a company’s internal operations and extending outwards to all stakeholders in the supply chain.
- Supplier self-attestation or self-certification should not be relied on completely.
- Technology should be deployed strategically in companies but should not, by any means, be regarded as magic bullets to solving fundamental management problems.
- Quality management is a never-ending process that requires the commitment, knowledge, and active implementation by top managers. All employees must realise that they are individually and collectively responsible for quality and there must be measures in place to monitor their work and hold them accountable.