Overview of principles and tactics for measuring quality at suppliers, assessing their commitment to quality, and establishing a culture of quality that better represents your interests

1. +
Subcontracting Quality
Tim Rodgers
March 18, 2014

2. +
Creating a Culture of Quality
Internal Production
External Suppliers
Directly measure and
monitor the process
Production processes are
off-site, control is indirect
Technical supplier
quality management:
what to measure
Raise awareness and
provide incentives through
performance measures
Supplier not necessarily
aligned with your success
Business supplier
management: how to
provide incentives

3. +
Levels of Supplier Engagement
Catalog Part
Custom Part
Subassembly or fullyassembled unit
Design input
Define functional
requirements
Create complete
part drawing with
detailed specs
Define assembly
processes, tests, critical
functions
Supply chain
management
Match with
standard parts
available from
leading suppliers
Provide drawings
and specs, obtain
quotes
In-depth supplier
qualification
Quality tools
Test/measure
samples vs.
published specs
First article
inspection (FAI)
vs. critical
performance
characteristics
(CPCs)
FAI, DFM, FMEA, on-site
process audits

4. +
How We Measure Supplier Quality
Field failures or
customer reported
incidents are trailing
indicators
Incoming inspection is
resource-intensive and
limited (< 100%)
Test
results at
supplier
Production
yields (RTY,
FPY) and EOL
tests/audits are
a proxy, but
requires good
test design
Outbound
inspection
Incoming
inspection
Outbound inspection
only slightly better (not
your resources)
Test
results at
receiver
Field
failures

5. +
Typical Improvement Cycle
10
8
6
4
2
Improvement Plan
Owner
Date
0
Pareto of Root Causes
1.
2.
3.
4.
12
10
8
6
4
2
0
A
B
C
D
E
F
Measure performance
Identify negative trends
Determine root causes
Develop improvement
plans to address leading
causes
5. Hold owners accountable
for improvement
6. Measure, verify, repeat

6. Results: Part Quality Improvement
4000
3500
Leadership of kaizen projects
at this critical supplier reduced
inspection and rework costs
by 45%
3000
Defect PPM
+
2500
2000
1500
1000
500
0
Goal

7. +
Results: Lower Cost Production
Monthly
Net Yield
Target
Jun-2010
Jul-2010
Aug-2010
Sep-2010 Oct-2010
Nov-2010
Dec-2010
Jan-2011
88.02%
91.80%
92.87%
93.18%
94.81%
95.49%
96.65%
97.01%
96.95%
95.00%
95.00%
95.00%
95.00%
95.00%
95.00%
95.00%
95.00%
95.00%
yield
Net Yi el d
98.00%
94.81%
96.00%
92.87%
94.00%
95.49%
96.65%
97.01%
91.80%
Design change to
provide greater
assembly tolerance
90.00%
88.02%
86.00%
84.00%
Mfg process change to
reduce defects for
critical subassembly
82.00%
Tar get
93.18%
92.00%
88.00%
Feb-2011
Assembly jigs to reduce
variability during part
installation
96.95%
Better ESD protection
for critical
PCAs, eliminating
accidental discharge
during assembly
Increased production capacity by 10%
Reduced operating expenses per line
Estimated savings = US$1.1M per year
80.00%
Jun-2010
Jul-2010
Aug-2010
Sep-2010
Oct-2010
Nov-2010
Dec-2010
Jan-2011
Feb-2011

8. +
The Goal is Prevention

Regardless, these are all report cards to show how you’re
doing, identify what to work on after it’s happened

How do you prevent quality issues?

It’s not about preventing bad parts from being shipped …

It’s about preventing bad parts from being built in the first place

9. +
Quality Maturity Model
Prevention based on proactive
analysis of the design
Increasing Cost
Effectiveness
Control parameters that are critical
to product performance, out-of-box
quality, and reliability
Analyze failures to understand causes
Improve design, part quality, and
production processes to make failures
less likely
Internal failures
Improve test & inspection
Corrective action
External failures
Corrective action

10. +
Driving Quality Upstream
Upstream in the product development process
Design-in quality and verify before ramp
Design
Factory
Product
Suppliers
Upstream in the value delivery system
Hold suppliers accountable for quality
Cost to
address
quality
issues

11. +
What the Design Team is
Accountable For
Maximum level of
quality as
determined by
the capability of
the process
Maximum level
of quality
determined by
the design
Actual quality due
to process
variability
“Improving
quality” by
relaxing the
spec limits
Improving
quality by
reducing
process
variability

12. +
What the Supplier is Accountable
For
Operators
Jigs/fixtures/tools/molds
Incoming materials
Process variables
All
sources of
production
variability
Environmental
conditions

13. +
Not All Sources of Variability Are
Equally Important
Product characteristic
(e.g., functionally critical
dimension)
FAI approval:
“You showed
that you can
build one …”
“… but can you
build many?”
Production process
parameter (leading
indicator)
Process capability to
consistently meet
specification
Process control to
reduce variability

14. Example: China Factory Rework
Problem:
Excessive rework on
subassemblies from China
factory
Rework cost
Possible solution:
Outbound inspection
$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
W17
W18
W19
W20
W21
W22
W23
W24
W25
W26
W27
W28
W29
W30
W31
W32
W33
W34
W35
W36
W37
W38
W39
W40
+
Better solution:
 Raising awareness of costs
with local managers
 Training
 Team incentives
 Work instructions in local
language instead of English

15. Example: Molded Plastic Supplier
Supplier provided large quantities of
injection molded plastic parts
Problem: inability to consistently meet
critical dimensions and cosmetic
requirements
Flash
Pressure
+
Shorts
Melt temperature
Optimum temperature and pressure had
been defined for the part, but the supplier
had failed to conduct a window study to
determine the allowed ranges, or account for
mold wear and cavity variations
Performance improved after the supplier
established process control limits and regular
sampling from cavities with support from the
customer.

16. +
Example: Plating Thickness
Supplier provided gold plated contacts for
printed circuits.
Problem: gold thickness varied outside the
spec limits
Control chart for gold thickness indicated a
process that varied outside 3 sigma limits.
Concentration of gold in the plating tank was
not monitored regularly and chemical
additions were made based on rough
estimates.
With support from the customer, the supplier
implemented a regular laboratory analysis
and strict controls on chemical additions.

17. +
In-Process Tests and Measures for
Subassemblies
Don’t wait for
EOL test
results
Identify high-risk
processes
(FMEA, PFMEA)
Need intermediate tests
or in-process measures

18. Time to Achieve Quality
Target
Quality
+
Failure to meet
quality target at
start of
production
#1
#2
#3
Prototype builds
Start of
production
Design verification:
Production system verification:
Can you build one unit that meets
requirements?
(rapid prototyping)
Can you build many units that meet
requirements?
(early engagement with supply chain)
Additional cost
and loss of
production
capacity

19. Stable Design at Ramp
100
100
99.5
98
99
96
94
92
Target = 95%
90
88
Net EOL Yield (%)
Net EOL Yield (%)
+
98.5
98
97.5
Target = 98.5%
97
96.5
96
95.5
95
Insufficient attention to DFM and
quality during development
 Improvement after ramp required
repeated problem solving to determine
root causes and successfully eliminate
them
 Higher cost and delayed product
introduction until issues resolved
 Emphasis on design stability
 No design changes permitted after last
manufacturing readiness build
 Steady reduction in design-related defects
throughout the development phase
 Zero open waivers at ramp
 Daily tracking of yield and defects during
prototype builds

20. +
Business Side of the Relationship

All of this gives you a better basis for measuring and managing
the performance of a supplier, but also need to address the
business side of the relationship

Assess the supplier’s commitment to quality (they should
be, but may not be to the the level that you need)

Providing incentives (carrot and stick) to represent your
interests

21. +
Method: Supplier Audit Program
Competitive
quote from
RFQ
First articles
pass
inspection
Is the supplier capable of
sustaining performance?
Routine Audit:
• Management commitment
• Statistical process control
• Problem solving
• Incoming inspection
• Training, work instructions
• Preventive maintenance, calibration
• Specifications and document control
• Internal audits
• Record keeping
• Shop floor control & 5S

22. +
Assessing Supplier’s Commitment
Do they have an ongoing
program of quality
improvement, or do they
wait until you complain?
Do they have an
understanding of the
sources of variability in
their value stream?
Do they accept responsibility
for misunderstandings
regarding specifications and
requirements?
Do you find defects when
you inspect first articles or
samples from their first
shipment?
Has the supplier warned
you of a potential quality
problem discovered on
their side?
Does the supplier suggest
or contribute to DFM
improvements?

23. +
Supplier’s Perspective

Margins are small, suppliers are looking for any opportunity to
cut costs and will try to get away with it while you’re not looking

Recent examples of replacing parts and changing the design to
save money

24. +
Foxconn’sLonghua Facility

Guangdong Province, north of Shenzhen, approximately 45
minutes from the Hong Kong border

At its peak, 400k employees, over 50 factory buildings.

Major customers: Apple, Cisco, Dell, Nokia, Microsoft, Acer

Molded plastic, sheet metal, PCAs, top-level assembly

25. +
Contract Manufacturing
Management Models at Foxconn
$$$$
Apple
• Full-time employees on-site
• CM provides production labor only
Microsoft (Xbox)
• No on-site employees (except proto builds)
• Real-time, remote monitoring of factory metrics
Hewlett-Packard (printers)
• No on-site employees (except proto builds)
• Weekly phone conferences

26. +
Quality Culture Transformation
FROM
 Passive reporting of quality
issues
 Waiting to react to customer
escalations
 Corrective action to fix the
problem
 Issue closed when plan is
implemented
 End-of-line quality measures
based on testing and inspection
 IQC, sorting, testing, audits,
inspection
 Quality metrics required by the
customer
 Test plans developed and
provided by the customer
 Quality is the responsibility of the
Quality department
TO
 Leadership to closequality issues
 Proactivequality improvements
based on understanding
 Understand and eliminateroot
cause
 Issue closed when improvements
are measured
 In-process measures as early
indicators(SPC)
 Drive quality upstream(design
and parts)
 Cost of quality (COQ)and other
internal metrics
 Quality plans developed with the
customer in mind
 Quality culture in the entire
organization

27. +
Supplier Quality Maturity
DFM feedback from
understanding of
design requirements
Proactive warning of
supply issues
Preventive action to eliminate
root cause
Process management and
control
Less testing & inspection
Basic performance
Meets requirements
Rapid corrective action as issues are reported

28. +
Benefits of Partnership
Advertised relationship with well-known customer
(especially valuable for small suppliers)
Predictable demand for better asset utilization
Contractual commitment to fixed capacity
Technical capabilities that can be leveraged to
other customers
Unique market that provides balanced portfolio
Loss of business (balanced by
customer’s switching costs)

29. +
Favored Supplier Program
Favored suppliers (based on quality performance)
Favorable pricing and payment terms
Low inventory, ship-to-stock
Accelerated qualification of new part numbers
Audit inspection of incoming lots
Other suppliers
Incoming inspection charges reverted
(First article failures, defective parts found on the line)

30. +
Method: Analyzing Cost of Quality
Field repair, customer
support, and other warranty
costs
Design failure:
Design doesn’t meet
requirements or isn’t
robust under a range of
operating conditions
(often appears as a part
failure)
Tolerance failure:
Design fails to
account for natural
variation in part
characteristics and
assembly processes
Part
design
System
design
Internal yield
loss, scrap, and
rework
Production
process
design
Production process
failure:
Improperly assembled
from good parts, or
damaged prior to
shipment
Work
instructions
& training
Part failure:
Part did not meet
the performance
required by the
design
Supplier
performance

31. +
Results: Lower Cost Factory Test
Top-Level Assembly
100% end-of-line
testing
Rework
Improved yield
Fewer tests and consumables
Product quality &
reliability audit
testing
Packaging and
outbound audit
Reduced sampling for audits
Eliminated rework stations
Lower operating expenses
Faster throughput

32. Results: Eliminating Inspection
100
99.8
Net EOL Yield (%)
+
99.6
99.4
99.2
99
98.8
Target = 98.5%
Stable platform consistently
exceeding customer’s quality
goals
98.6
98.4
98.2
98
Excessive inspection reduced
margins
 Eliminated all in-process inspection, saving 5 people per shift
 Reduced incoming part sampling rate for most parts, and reverted cost of
remaining incoming inspection to suppliers, saving 8 people per shift
 Implemented SPC on critical factory processes to provide earlier detection
of quality issues and control

33. +
Method: WW Supplier Experience
Germany
France
UK
Ireland
Spain
Hungary
Czech
Rep.
US
Canada
Mexico
Brazil
China
Japan
S. Korea
Taiwan
India
Singapore
Malaysia
Thailand
Indonesia

34. +
Results: Cost Based Metrics
Shifting to a cost measure
focuses attention on the
opportunity for savings
The data is accurate, but
doesn’t inspire action
Production Yield
85%
80%
75%
70%
65%
60%
55%
50%
Cost of Quality
$6,000
$5,000
Jan
Feb
Mar
Apr
May
Jun
$4,000
$3,000
Defects per Unit
Scrap cost
Rework cost
$2,000
1.00
0.80
$1,000
0.60
$0
Jan Feb Mar Apr May Jun
0.40
0.20
0.00
Jan
Feb
Mar
Apr
May
Jun