Five Ways to Use Strategic Audits to Reduce Costs

Part 5: Audits Help with New Product Launches

In this series: Part I, Part II, Part III, Part IV, Part V

Quality Manager Joe Stein had a new product launch coming up which included parts shipped overseas from Chinese suppliers. He was very pleased with the potential cost savings these new suppliers offered. In fact, their sub-component pricing enabled him to create a very competitive Assembly Package Quotation that landed the job for his company, Tall Oaks Metals.

But Joe was worried. Very worried.

He'd heard stories about the different quality levels seen after the first perfect prototype sample parts were received. Tales of how the quality dropped in shipments from China, and the problems and the delays they caused. After talking to other engineers and hearing stories with the words "Disaster", and "Horror Story" in them, he knew there was ample reason for concerns, with the tight customer shipping schedules and low inventories.

With parts in Seatainers out on the Pacific, the pipeline was long and there was little, if any, safety net for parts shortages created by poor initial quality at product launch. Tom Smith, the manager of the steel plant nearby, told him, "With the 19 days on the ocean + the transport time to my plant, I was four weeks away from any new shipments — and that was IF they had in-spec steel sitting on the dock ready to go."

But the cost savings from Asian sources literally gave him the only competitive edge he could find to hit his customer pricing targets, and land the job. He was caught between noncompetitive US pricing (no new work) and the customer's demand for the cost savings of Globalized sourcing.

What to do?

When Ralph Conway in Logistics came in that day with something new, Joe thought his prayers were answered.

Value-Added Distribution

Ralph explained the concept. "There's the off-shore supplier over here," he said, pointing to the north end of Shanghai. "And here is the Value-Added Distribution Center," pointing to a town in the Midwest," here at the other end. They bring in the parts and they AUDIT them before warehousing. Every new shipment gets AUDITED in the Quality Control/Quality Assurance area. Only approved components get to the warehouse where they are kept until we need them. If a non-conforming part is detected they do the 100% Inspection at the Distribution Center, and send the bill to the Supplier."

Joe looked up and said, "Do they 100% inspect everything?"

Different Levels of Audits with Quality Approval Release

"No," replied Tom. "They just AUDIT and check the first shipments for the critical characteristics needed. That's important because you don't want to pay for a lot of Inspectore time checking non-critical areas. After a series of initial shipment Audits of flawless consecutive shipments coming in, the Audits are still done, but the Audit Level drops another level, and after a few months it drops to random Audits, just to insure parts stay in spec in those critical areas. After 4 months the Supplier can apply for Quality Approval Release and start shipping directly to us. They just have to pass a one time per year random Audit, and keep sending us Quality parts. We all want the minimum Quality costs needed to stay on top of things, so that we can preserve the savings of off- shore sources."

Full Inspections only as Required

Joe realized that this was truly the insurance policy he needed for new launches from Globalized Suppliers. He also started thinking about the other Suppliers he had with long problematic track records. They could be sent to this Value-Added Distribution Center as well. The Audits only check for the critical characteristics and the 100% Inspection is only done when warranted. "We get the protection we need, and the supplier can get the ability to self-certify their parts when they earn a Quality Approval Release."

Joe started to relax, and worry less, and that was a good thing. As a Manager, he had enough stress within his own four walls managing his own processes, let alone dealing with the added problems of bad parts from Suppliers. He could actually feel his blood pressure starting to drop, and put his trusty bottle of Tums back into his desk drawer.

Continental Quality Engineering has created a Value-Added Distribution Center that is geographically positioned in the Midwest for optimized Distribution locations. We have the combination of location, infrastructure and skilled labor to do parts Audits and to confirm the quality of the parts you need, when you need them. We can create a model that provides kitting or can pack to your specs. For more information, scroll down to email us today, or call (800) 875-4557.

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