Producing anything, including services, requires raw materials and equipment. The process through which you acquire these needs is your supply chain. Now, supply chain operations go beyond simply buying raw materials; it involves figuring out what you need, when you need it, how much you currently need or will need in the future, how long your current stock will last, when you should begin to make a new batch, how long it will take the needed materials to get to you, how long in advance you should place an order, who offers the highest quality of what you need, what is the cheapest possible price and if there any suitable alternatives.
What is Supply Chain Operations?
Simply put, supply chain operations includes every process that aids in either the management of the flow of goods and services, or the transformation of raw materials into finished goods. Ideally, supply chain operations should help you to maintain efficiency in your business, lower costs, improve product quality, strengthen customer and supplier relationships, enable you to keep up with demand, and so much more.
Supply chain operations can be broken down into six phases, the first of which is procurement. We covered this phase of supply chain operations in our article series on improving procurement. Next comes the material management phase.
What is Material Management?
Material management is a core supply chain function that is concerned with planning, organizing and controlling the flow of materials from their initial purchase through internal operations to their introduction into the manufacturing process.
The fundamental objective of the material management functions is the acquisition of materials and services of the right quality, in the right quantity, at the right time, from the right source and at the right price. It begins with the receiving and inspection of materials and ends with the issuance of the material to production to meet up with the customer’s demand as scheduled and at the lowest cost.
Inventory management and control goes hand in hand with material management because it helps keep track of raw material and specific products, which in turn minimizes costs to the organization and ensures maximum return on working capital.
In this article, we’ll discuss how you can make your warehouse operations more efficient through quality control.
Quality is never an accident. It is always the result of intelligent effort.
Quality Control As A Warehouse Efficiency Strategy
Achieving and maintaining warehouse efficiency is a delicate and multifaceted endeavor every business has to take seriously. Seeing as an efficient warehouse is also a profitable one, it is an endeavor that could make or break a business.
In business, perfection is often desired; however, it is rarely, if ever attained, so efficiency is settled for. One way to acquire such efficiency is through quality control, because despite our best efforts, product defects still occur and are relatively common. The cost of selling substandard or defective goods to customers might be damaging to your accounting books and your reputation. The latter is significantly harder to rebuild.
Quality control is the process by which product defects are effectively prevented or at least minimized and managed so that output quality is held at an acceptable level or even improved. In more technical terms, the quality control (sometimes also called quality assurance) function examines products and materials for defects or deviations from specifications. They record the results of their inspections through test reports and help to analyze and correct production problems. Quality-related information on order shipments from suppliers can also help to assess supplier performance.
An effective quality control system is composed of a series of techniques that run through the entire production length. It starts with choosing suppliers, and it doesn’t end until finished goods reach their destinations. Quality control in the warehouse includes all measures taken to ensure acceptable product quality before production begins.
5 Steps You Can Take to Achieve Efficient Warehouse Quality Control
Here are five steps to help optimize your warehouse receiving process and achieve maximum efficiency.
1. Set clear expectations when choosing suppliers
It’s important to let your potential suppliers know what you expect and how you intend to deal with any problems, such as product defects. Setting these expectations and discussing them beforehand will help you choose the best suppliers and eliminate the need for costly corrective actions later. Here are some of the things you need to determine with your suppliers before you choose them:
- Product requirements: Before placing an order for supplies, you should provide a detailed description of the specifications of the products you require. Many buyers choose from suppliers’ catalogue of ‘white label’ products to purchase with their branding, but you’ll have to send in detailed specifications if ordering a new design. Product requirements should include all functions, features and behaviors that the product must possess, so that it will be to your liking, efficient, easy to use, safe, low cost, etc. In other words – any function, constraint, or other property required to satisfy your needs.
- Acceptable quality limit: The acceptable quality limit (AQL) is a measure applied to products and defined in ISO 2859-1 as the “quality level that is the worst tolerable.” The AQL specifies how many defective products are considered acceptable during quality inspections. It is usually expressed as a percentage of the number of defects compared to the total quantity. For example, an AQL of 1% on a production run means that no more than 1% of the batch can be defective. If defects exceed 1%, the entire batch is scrapped.
- Define penalties for excessive quality defectsThis means determining what will happen if the product defects in your order exceed your set tolerance or your AQL. It’s paramount to set these penalties beforehand to avoid a tussle with suppliers over who will bear the costs for quality defects at a later date, disrupting your production schedule. These penalties can include:
- Chargebacks for Re-Inspection: Before the suppliers’ ship orders, it is common practice for the buyers to (at their own cost) inspect the orders to make sure they meet product requirements. If the goods fail this test, then another inspection will have to be made later when the supplier would’ve made the corrections. The supplier will bear the cost of this second inspection.
- Refunds: A partial or full refund could be agreed upon as penalty if a product order exceeds AQL and a significant portion of them are unsellable or unusable.
Suppliers are often held financially accountable for failing to meet quality standards. Still, it is best to set these penalties and have them agree to it before committing to any supplier. Some suppliers may still refuse to honor these agreements, and depending on where you are, it may be difficult to enforce them legally, but it is always better to set them because then the suppliers cannot feign ignorance. Setting penalties for quality defects also help to ensure that suppliers put extra effort to maintain quality as they’ll want to avoid those penalties and this can improve metrics such as your Materials Acceptance Rate and Undamaged Supplier Shipment Rate.
2. Audit potential suppliers’ quality management systems (QMS)
Before settling on a supplier, it’s essential to audit and vet their factories and quality management systems to ensure that they can deliver what they say they can. An audit of the supplier’s systems is necessary to ensure that they can deliver.
Suppliers with an ISO 9001-2015 certification are typically preferred because it signals an assurance of production capabilities and quality control processes. The International organization for standardization (ISO) says it has issued 883,521 valid certificates for 1,217,972 sites. Still, certifications like these are not always earned and can be bought through bribes in some parts of the world, so an audit is still necessary. You can audit suppliers yourself, but the cost of travelling to different locations may be draining, so third party Auditors based in the supplier’s location are hired to carry out the checks.
Again, a system tailored to your warehouse has to be designed in a way that enables quick and efficient loading and unloading of goods. What dock should raw materials be offloaded? What dock should perishables be unloaded? What route should personnel moving goods from dock 3 to storage take in order to avoid a jam? All these questions have to be considered and answered. Two such ways to optimize organization are:
- Personnel training
- Purchasing, which includes checking procedures for evaluating and approving sub-suppliers and setting acceptance requirements for production inputs
- Production and process control
- Inspection, measuring, and test equipment
- Nonconforming product control
- Labeling, packaging, handling, and storage
- Quality records, statistics, and analysis
Even after a supplier passes your audit and begins to work with you, you will still need to continually evaluate and re-evaluate them to maintain a standard you are happy with. Some of the metrics you can use to evaluate your supplier’s competency and determine if they are efficient are On-time Supplier Delivery Rate, which is the number of orders received from suppliers on or before the set delivery date divided by the total number of orders received from suppliers over the same period of time, as a percentage, Supplier Order Documentation Accuracy Rate, which is the total number of supplier orders received with complete and correct documentation divided by the total number of supplier orders received over the same period of time, as a percentage, and On-time Supplier Delivery Rate, which is the number of orders received from suppliers on or before the set delivery date divided by the total number of orders received from suppliers over the same period of time, as a percentage.
3. Negotiate price
Negotiating a fair price is key to ensuring that suppliers maintain the quality you desire. Like you, suppliers also want profit, so they’re conscious about the costs they incur. While they may seem happy to accept a low price, if they feel the price you’re paying is too low for the product requirements, they may try to cut costs by using cheaper alternatives which will impact the quality of your product negatively. The effects of this might not even be felt or discovered until after production, where they will be significantly more difficult and costly to correct.
Here are some things you can do to get the best price without forsaking product quality:
- Modify product design: Try to find a design that minimizes costs. Often the most elaborate designs require expensive components to create.
- Compare prices: Find out the prices different suppliers charge for the same products. This will give you an idea of the typical cost and help you determine whether a potential supplier’s price is the best for you.
- Request itemized pricing and a Bill of Materials (BoM): A BoM is a list of raw materials and all components used in the production of a product, and itemized pricing means stating the individual costs of all materials and procedures involved in the production. It reduces the possibility of inflated prices; often, the total cost in itemized pricing is less than the cost in general pricing as bogus costs are removed.
4. Establish a golden sample:
So you’ve sent in your product requirements and described what you want down to the last detail, that’s great, but this doesn’t mean nothing can go wrong. The supplier could still make mistakes, leaving you with an entire shipment of unusable products and huge losses. To prevent this, ask the supplier to send in product samples before mass production begins, this will help ensure that flaws are found and corrected. If the samples you receive are suboptimal, send feedback explaining the problem, do this until the supplier gets it right, and then you can establish a golden sample.
A golden sample is a sample produced by a manufacturer that is perfect in almost all ways, so that when evaluated by inspectors, it can be tested and receive a high standard review. It is the benchmark against which the rest of your products are measured to ensure quality control. It is a way to resolve any quality issues before production. If the supplier doesn’t send in a golden sample, then verifying that they understand what you want and are capable of making it is difficult and mass-producing without a golden sample poses a considerable risk. The golden sample gives you a chance to verify qualities such as parts and materials used, adherence to product specifications, proper functionality, and any complementary designs, branding and artwork for your product.
Insist that the supplier sends you samples, but depending on the type of product, this may be expensive. Like with auditing QMS, you can enlist the services of a third party to review the samples. This way, if transporting the samples prove to be a challenge, or if they require specialized or technical testing which you don’t have the facilities for, you can outsource that task to a third-party lab, saving valuable time and money. These independent labs can also use the golden samples to test how your product compares to similar competing products. For example, you’re producing a battery, you can have your samples compared and tested against your competitors’ to see if yours lasts longer.
Golden samples represent what a supplier is capable of making and what they believe fits your specifications. While they’re highly effective at reducing product defects, they’re not foolproof and mass-produced units can differ from the golden sample. This may be because the time and effort put into producing this one perfect specimen may significantly exceed the attention given to regular, mass-produced units.
Mass-produced units still need to be verified and inspected to make sure they’re golden sample standard. Now whether you’re conducting the inspection yourself or you’re hiring an independent firm to do it, ensure that whoever does do it has the golden sample in hand, this way, they can make accurate comparisons and report any deviations back to you. To ensure this, consider making more than one golden sample. Two samples would be ideal, one for the supplier to work with and one for external reviewers to use during inspections. It is very satisfying knowing that your mass-produced units are of the same quality and specifications as your golden sample. If they deviate substantially, then consider getting a new supplier.
Imagine you order a shipment of airbag components. You’ve sent in exact product requirements, so you don’t see the need for a golden sample, you produce airbags with these components and then months later, you find a fundamental flaw in your product that not only makes them unusable but also dangerous. Well, you don’t have to imagine, because similar things have happened. In late 2019, Japanese automotive parts company, Takata, which manufactures airbags for vehicles, had to recall tens of millions of vehicles with its airbags installed due to serious malfunctions which caused safety issues. The defective airbags had inflators that could potentially explode, the manufacturers successfully narrowed the cause down to a faulty seal. That defect was capable of either causing a delay in the deployment of airbags (which defeats the purpose of them) or an excessively aggressive deployment, which could lead to an explosion, injuring the occupants. Golden samples help prevent defects and problems like this by detecting them before they even go into production. Lastly, properly document your golden samples. This includes signing the proper time and date created and received, then labeling, packaging, and sealing them each in their cartons to ensure that they aren’t tampered with.
5. Inspect and address defects in raw materials:
A lot can go wrong with raw materials, from glaring physical damages to subtle deficiencies that only become visible after production. In every business, simple or complex, it is significantly cheaper and safer to find and fix defects before entering the production process. Suppliers may try to cut costs by using substandard materials or lower-cost alternatives to prepare your order. As the old saying goes, all it takes is one rotten egg.
PCI Synthesis, a full-service American contract development and manufacturing organization (CMDO), in a 2017 blog post about raw material quality, explained that it once found harmful blue ceramic pieces in some of its raw material, which significantly damaged it’s reactors before it was able to find and eliminate the problem. The cost of inspecting raw materials will always be less than the costs of fixing the damage they can cause. If it costs $100 to inspect faulty raw material, it would cost about $100,000 to recall finished goods if that harmful material makes it into the production process. Every dollar spent catching defects in pre-production is worth a thousand times more in post-production. A proactive approach is a proper way to ensure product quality.
Like cancer, product defects are easier to treat when they’re caught early. This is called Incoming Quality Control (IQC) and primarily involves inspecting raw materials and other inbound relevant components to make sure they’re to the exact specifications and quality required before utilizing them because low-quality raw materials will always lead to low quality finished goods. Raw material inspection not only guarantees quality products, but it also saves costs by reducing waste and production time. It also helps avoid difficult situations, like deciding what to do with rejects and how to handle customer returns and refunds.
You can use your AQL to determine an adequate sample size and subsequently, whether to accept a shipment of raw materials or not. Be sure to follow up with the corrective work done to defective materials to ensure correct changes are made to enhance quality and usability. This will make sure the problems aren’t repeated.
IQC is essential for many products and there are three ways it can be done, depending on the type of material.
- Component and material testing at a certified lab: this is essential for verifying the authenticity of jewellery, artifacts, or art. Depending on the product, this can be done through chemical testing and analysis, physical properties testing and measurement, mechanical properties testing and regulatory testing.
- Inspection of incoming material: For Instance, if you’re ordering metal components needed to build an electronic device, you might inspect the metal for quality defects such as rust. Suppose your inspection reveals significant rusting in your order, in that case, you can separate defective portions if there are enough unaffected metal components to begin production with, or you can buy replacement components if the rust affects a portion of the order too great to begin production with.
- Verifying documentation: Through documentation like Component Data Forms (CDF), you can outline precisely the materials to your supplier to make sure that inferior materials are not substituted in and used in the production of your order. A CDF typically contains information such as type/model, object/part number, approved manufacturer or trademark holder, technical data, including materials, voltages, securement methods and measurements standard, such as UL, IEC, EN and CSA standards, Mark(s) of conformity, such as UL, CE and CCC.
Inspection at this stage prevents quality fade, which is the gradual degradation of suppliers’ quality of products. Regardless of the track record the supplier has, inspect every shipment you receive. This subtle fall in quality may go unnoticed if you’re not vigilant and the fall in the quality of your products may affect your sales before you even detect it.
For optimal efficiency, ensure inspections are done as thoroughly and swiftly as possible, to prevent excessive delays to the production process. Preventing defective materials from entering the production process is best practice. It saves costs and improves your First Pass Yield (FPY) metric, which is the difference in units produced (output) by a manufacturing process over a certain period of time compared to the units that went into production (input) over the same period of time (i.e., output vs. input). If only the best materials begin production, then the possibility of faults during and after production are significantly curbed, thus earning you a more desirable Acceptance Rate of In-Process Products metric, Acceptance Rate of Finished Goods metric, and the Percentage of Orders Requiring Rework metric.
Product defects can be minimized through the steps explained, but even despite our best efforts, they are rarely, if ever, entirely eradicated. Try to think of them as unavoidable side effects to production, the cost of bringing great ideas to life. Regardless of the severity of the defects, the best way to manage them is by openly and directly communicating with your suppliers about them and using that information to prevent future defects or escalations of current ones.
In his 1987 book, ‘Poor Quality Costs’, James Harrington, wrote that the costs of poor quality control (CPCQ) are costs that would disappear if systems, processes, and products were perfect. These costs could be anything from dissatisfied customers to bans, fines and license revocation due to safety issues. We know perfection cannot be attained, so the cost cannot be zero, but if it is brought down to a low enough level that allows for efficiency, that is the next best thing.
Taking these steps to improve your material management phase of your supply chain operations can have major benefits for you and for your business in the long run. To find out more about supply chain operations, be sure to visit our blog. To learn more about how you can focus your priorities, measure your progress, and achieve your goals, be sure to visit Profit.co and try our product free today!