Quality Starts with Me: The Journey from ISO …...time quality metrics across engineering, manufacturing, suppliers, and customer service is an excellent way to provide visibility

1 Page 1

© 2017 LNS Research. All Rights Reserved

March 2017

www.lnsresearch.com

Small and Mid-Sized Businesses (SMB) have many compliance requirements levied upon them by regulators, industry, and customers. While these requirements may result in improved outcomes such as improved quality or safety, the volume and variety of requirements add cost and complexity to operations. Personnel, financial, and other resources are limited, and each additional requirement necessitates reprioritization of established needs and objectives. SMB manufacturers have the difficult job of interpreting each requirement and deciding when compliance is enough, and when additional investment and effort are warranted.

One such requirement is ISO 9001 – the quality management backbone for many manufacturers - and the new ISO 9001:2015 update. ISO 9001 is a contractual requirement for certain industries and customers, and SMB suppliers to these industries and customers must be recertified to ISO 9001:2015 by October 2018. The effort to simply recertify can be extensive and costly, as there are many important changes in the updated standard. Additionally, LNS statistics show that while the market conformed to ISO 9001:2008, much of the market did not exceed compliance. Many LNS statistics can be cited as evidence:

• 77% of the market does not have a culture of quality;

• 37% of the market struggles to meet objectives due to ineffective quality metrics; and

• The median manufacturer has only harmonized 8% of its quality management processes, and so on.

Why should SMB manufacturers react differently to ISO 9001:2015? First, ISO 9001:2015’s fresh approach to the relationship between top management and quality presents a prime opportunity to reposition quality management with top management as a value center versus a cost center. Maximizing this opportunity is critical, as LNS data shows that companies with top management sponsorship average 2.6 times more best practices adopted than those without it. Secondly, there is compelling industry data that shows the clear correlation between mature quality management and performance. Quality leaders need no longer rely on axioms to discuss the value of mature quality management – LNS research published throughout 2016 quantifies this impact, providing the foundation for proving value. Finally, the market will become more competitive in the wake of ISO 9001:2015, as others seize this opportunity to improve.

Research Spotlight

Quality Starts with Me: The Journey from ISO 9001:2015 Conformance to Performance

http://www.lnsresearch.com/

2

Research Spotlight Quality Starts with Me: The Journey from ISO 9001:2015 Conformance to Performance

Page 2


March 2017

www.lnsresearch.com

Read on to discover:

• The current state of the market, and how the market will change post-ISO 9001:2015

• Recommendations that deliver improved operational and financial performance

• How to assess maturity and set a path to becoming an Innovation Leader

• Case studies, strategies, and data to aid in gaining top management sponsorship

Demographics The LNS Research Quality Management Survey has been completed by over 1200 executives and other senior leaders coming from a variety of company sizes and geographies across a range of industries. The survey questions drill down into the challenges and opportunities that companies face, strategic objectives data, and the most important goals currently being pursued around quality.

54.3% of companies were from Discrete Manufacturing, with the remainder coming from Food & Beverage/Consumer Packaged Goods, Life Sciences, and Process Manufacturing. Just over half were from North America, followed by just under a quarter from Europe. Almost half, 46.8%, were from small companies, with 38.0% from large companies, and the remainder from mid-sized companies.


3


Page 3


March 2017

www.lnsresearch.com

State of the Market One of several important changes in ISO 9001:2015 are its newly incorporated core principles. These are meant to continue ISO 9001’s decades-long shift away from conformance and toward a process approach and a focus on risk and performance.

ISO 9001:2015’s Core Quality Management Principles: • Customer focus • Leadership • Engagement of people • Process approach • Improvement • Evidence-based decision making • Relationship management

LNS’s long-running quality survey tracks the adoption of many best practices that align with these principles. The survey data confirms the importance of these principles, as those that adopt more best practices (those that better support these principles) achieve higher operational and financial performance that those that do not. Leadership is of particular importance.

So how does the market stack up against these quality management principles?

Let’s review the challenges that the market reports achieving quality objectives. These challenges indicate that many of the market’s top challenges connect to poor support of the quality management principles. In fact, the first three challenges closely relate to poor support for process approach and improvement, evidence-based decision making, leadership, and engagement of people.

Only 13% of the market has top management sponsorship, and those with top management sponsorship have adopted 2.6 times more best practices on average than those that without.

Dan Jacob Research Analyst


4


Page 4


March 2017

www.lnsresearch.com

By selecting best practices aligned with each principle, it is possible to gauge the market’s adoption of ISO 9001:2015’s core quality management principles. Best practices show that much of the market is far from supporting ISO 9001:2015’s core principles. However, those that do adopt them stand to gain significant competitive advantage. As published by LNS Research elsewhere (see “Quality in the Boardroom: The executive business case for EQMS,” and “Supplier Quality Management: SQMs Rightful Role in Your Enterprise”), adopting quality management best practices drives operational and financial performance. For instance, the median organization that adopted NC/CAPA processes across the corporation realized 1% higher Overall Equipment Effectiveness (OEE) and 8% higher On Time Delivery than those that did not.

Current Adoption of ISO 9001:2015 Core Principles ISO 9001:2015 Principles Gap

Customer Focus 62% do not have visibility into customer complaints

Leadership 87% do not have top management priority for quality

Engagement of People 77% do not have a culture of quality

Process Approach 79% do not have closed-loop quality processes across design, manufacturing and suppliers

Improvement 55% do not have NC/CAPA processes established across the company

Evidence-based Decision Making 89% do not have visibility to real-time quality metrics across functions

Relationship Management 12% median adoption rate of supplier best practices


5


Page 5


March 2017

www.lnsresearch.com

Recall that top challenges for quality are that quality is a department versus a responsibility and that engineering lacks feedback from quality. Applying the principles of “engagement of people” and “process approach” result in effective engagement of quality in New Product Development (NPD), and leveraging technology apply the “improvement” principle. Applying these principles results in hard benefits: LNS has identified that the median organization that automates Advanced Product Quality Plan (APQP) with software realizes a 31% lower warranty accrual rate than those that do not.

Of course, this is median data, and organizations can do better or worse than the median. In a recent LNS case study, a transportation manufacturer integrated quality into NPD using the APQP process. The R&D team was open to considering a new NPD process, and quality illustrated that by using APQP as that process, there would not be a separation of roles. The APQP process would naturally connect quality into NPD. Engineering was “engaged” with quality, they received feedback from quality, and together the process approach was applied to connect related development processes, such as engineering with Design FMEAs, Process FMEAs, Design Verification Plans, Control Plans, etc.

Integration of quality and engineering teams resulted in performance exceeding medians. In the pilot project for the newly integrated NPD process, the team developed new equipment that replaced a system that had been in service for over 20 years. While the organization had historically experienced higher initial failure rates following the launch of new products, the equipment developed with the new NPD process achieved 75% lower warranty costs per unit than the existing system after only three months in service – far surpassing expectations. It should be noted that APQP is not the only NPD process that connects quality with R&D, and others can achieve similar results.

Adoption of ISO 9001:2015 should not be regarded as a compliance event. SMB organizations are presented with a unique opportunity in ISO 9001:2015 to reset their relationship with top management and cross-functional leadership. Manufacturers that use this opportunity to address top challenges will achieve a quantifiable competitive advantage, while those that do not will continue to experience historical challenges.


6


Page 6


March 2017

www.lnsresearch.com

The Journey to Performance LNS Research surveys the market’s adoption of best practice across people, process, and technology. Manufacturers that are minimally compliant with ISO 9001:2015 will have adopted 6 of these best practices. LNS recommends that SMB manufacturers with comparatively simple supply chains adopt 23 best practices, and those with more complex supply chains or with high ratios of supplied content should adopt additional SQM best practices.

LNS selected the listed best practices to provide short-term guidance to SMB manufacturers that will result in operational and financial improvements. The median organization that adopts these best practices experiences operational benefits that can be used to justify continual improvement to quality management; This recommendation is not a final destination for quality maturity but will substantially improve quality management and justify continued efforts.

The recommended best practices exceed compliance to better align SMB manufacturers with ISO 9001:2015’s core practices. For instance, while a core practice is “evidence-based decision-making,” ISO 9001:2015 does not require real-time metrics. However, the median manufacturer that adopts real-time quality metrics connected across functions outperforms those that do not. Sharing real-time quality metrics across engineering, manufacturing, suppliers, and customer service is an excellent way to provide visibility into quality, allow these functions to become engaged with quality, and drive improvement.

Additionally, the recommendations make progress against quality management challenges. Returning to LNS’s real-time metric recommendation, this demonstrates progresses against challenges such as ineffective quality metrics, siloed quality departments, lack of visibility into supplier quality, and engineering visibility into quality. Real-time metrics compiled into an executive dashboard also help nurture executive sponsors; improving executive support. Other recommendations also address challenges. LNS’s recommendations to standardize risk management and automate processes with software improve consistency and cross-functional collaboration, as well as reducing the challenges of many disparate quality systems and data sources and lack of formal risk management processes. It should also be noted that for evidence-based decisions to be founded on accurate data, the data itself must be clean. Fragmented, dirty, and inconsistent data make poor evidence and can lead to highly inaccurate and damaging decisions.


7


Page 7


March 2017

www.lnsresearch.com

The table below identifies which LNS practices are required for ISO 9001:2015 compliance, and which are minimum recommendations. SMB organizations should treat LNS’s minimum recommendations as a roadmap to their quality maturity journey. Generally, processes should be standardized first, then technology and metrics, although this should be adjusted as needed to nurture top management and cross-functional leaders.

LNS Practices Required for ISO 9001:2015 Compliance

LNS-Tracked Best Practice Minimally Compliant

Minimum Recommendation

Closed-loop processes established to connect quality across design, manufacturing, and suppliers.

Compliance processes are easily understood and documented. Cross-functional teams in place to manage quality across design, manufacturing, and suppliers. Formal audit management processes established to understand current compliance status and identify area for improvement. Process established to share compliance processes across functional areas.

Quality is a top executive priority. Ability to identify risk factors across operations Ability to prioritize risk factors across operations. Ability to quantify risk factors across operations. Ability to track mitigation of risk factors across operations. Ability to visualize risk factors across operations. Formal risk management framework established. Has your company considered or completed an Enterprise Quality Management Software (EQMS) implementation?

Real-time visibility of quality metrics in customer service. Real-time visibility of quality metrics in engineering. Real-time visibility of quality metrics in manufacturing. Automated Audit Management with software Automated Change Management with software Automated Document Control with software Automated Employee Training with software Automated Non-Conformances/Corrective and Preventive Action (NC/CAPA) with software


8


Page 8


March 2017

www.lnsresearch.com

LNS-Tracked Best Practice Minimally Compliant

Minimum Recommendation

Automated Reporting with software Automated Risk Management with software

Results LNS has defined a model for quality management maturity, characterized the maturity of the market, and determined the median operational and financial performance correlated to these maturity levels. This research has evolved over several years, and the most recent research is captured here (“Supplier Quality Management: SQMs Rightful Role in Your Enterprise”). The maturity model is based on the adoption of people, process, and technology best practices. It provides a framework to understand a manufacturer’s current state and to effectively communicate the quality maturity journey.

In this case, it also provides a tool to compare the relative maturity of those that are minimally compliant with ISO 9001:2015 to those that follow LNS’s recommendations. Those manufacturers that are simply compliant with ISO 9001:2015 have six best practices adopted, which aligns with L2, or Controlled Maturity. Those that follow LNS’s recommendations adopt 23 best practices which is an L5, or Innovation Leader.

The maturity model is a living model, and the ranges associated with each maturity level change over time as the market matures. This update to ISO 9001 and its derivatives is expected to increase the maturity of the market, both because minimum compliance shift upwards, and because increased top management sponsorship results in an average increase of 2.6 times as many best practices adopted. Therefore, those that are Innovation Leader may not remain in this leadership position without continued progress. LNS recommends that companies continue to build on their success with continued improvements over time.


9


Page 9


March 2017

www.lnsresearch.com

LNS has previously demonstrated that increased maturity relates to improved performance. This work was refined to compare the performance of manufacturers that are minimally compliant with ISO 9001:2015 versus those that meet minimum LNS recommendations. The median performance of those meeting LNS recommendations outstrips those that are minimally compliant, both operationally and financially. SMB manufacturers should exceed ISO 9001:2015 compliance.

Impact of Operational Excellence Recommendations

Minimally Compliant

Minimum LNS Recommendations

% Successful NPI 62% 72%

First Pass Yield 93% 96%

Improvement in Operating Income (per $1B revenue) 0 $20M

SMB quality leaders should use this data in discussions with top management and cross-functional teams to re-position quality management within their organizations.


10


Page 10


March 2017

www.lnsresearch.com

Recommendations While SMB organizations have many requirements driven by regulators, industry and customers, they should prioritize ISO 9001:2015. Effective support of ISO 9001:2015’s core quality principles results in increased financial and operational performance. Quality leaders should leverage the frameworks and data in this report to shift perception of quality management from a cost of doing business to an activity that provides intrinsic value to the corporation.

The recommendations in this report outline a journey that will help quality leaders gain top management support, shift from a culture of compliance to a culture of performance, and build a case for continued maturity over time. This maturity journey will continue to increase in importance as the market’s aggregate maturity improves in the wake of its certification ISO 9001:2015 and derivatives, and those that do not adopt these recommended practices will find themselves at an increasing competitive disadvantage.

\

Author: Dan Jacob, Research Analyst Email: [email protected]

LNS Research provides advisory and benchmarking services to help Line-of-Business and IT executives make critical decisions. Our research focuses on the Industrial Internet of Things (IIoT), Digital Transformation; and providing insights into the metrics, leadership, business processes, and technology capabilities needed for achieving Operational Excellence. Learn more at www.lnsresearch.com.


mailto:[email protected]


http://blog.lnsresearch.com/acronym-quick-reference


Documents

Quality Starts with Me: The Journey from ISO …...time quality metrics across engineering, manufacturing, suppliers, and customer service is an excellent way to provide visibility