1. May 10, 2010
Copyright © 2010 by Q2 Management Inc. New market, Ontario, Canada. All rights reserved. No part of this publication may be
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Consulting Group: T.S.D. Scott, MBA, CMA; Jason Chan, MBA, CMA
Management Inc
THIRD PARTY INSPECTION SERVICES: SINGLE SOURCE OR MULTI SOURCE?
The purpose of this article is to provide the reader with an overview of approaches to utilizing
third party quality inspection service providers at vehicle assembly facilities. A comparison
matrix summarizing the advantages and disadvantages of each approach from the
Assembler’s perspective is provided at the end of this article.
There are two broad approaches to quality inspection service support currently implemented
at vehicle assembly facilities in North America.
1. The Single Service Provider approach
 One service provider sourced to deliver these services at the Assembler’s facility
2. The Portfolio approach
 Component Suppliers select from a portfolio of inspection service providers to
contain quality challenges at the assembler’s facilities
The Single Service provider approach at time of writing is utilized by many assemblers
throughout North America including:
 Mercedes Benz U.S. International; Tuscaloosa, Alabama
 BMW Spartanburg, South Carolina
 Honda of America Mfg assembly plants in Ohio
 Toyota Motor Manufacturing assembly plants in Kentucky and Texas
 KIA, Motors in Georgia
 Nissan Motor Manufacturing Corporation USA, 3 X facilities in Tennessee/Misissippi
The Portfolio approach is known to be utilized by the following assemblers:
 Hyundai Motor Manufacturing. Alabama
 Honda Manufacturing of Alabama
 Ford Motor Company Oakville, Canada
 CAMI, Ingersoll Canada
The Portfolio approach essentially provides the advantage of mitigating the risk of an
Assembler dealing with the challenges associated with a sole service provider ceasing
business operations. If a Single Service provider were to fail then the Assembler would
experience management distraction and productivity challenges associated with replacing
this Service Provider. There are transactional costs in time and resources related to
resourcing. There also exist costs associated with productivity impairment related to internal
Assembler staff distracted with conducting inspection activities until a service provider is
sourced. It’s important to note that Service Providers of this nature do not impact the
Assembler’s business operations as drastically as component suppliers. An unforeseen
stoppage of components from a manufacturing supplier could shut down an Assembler’s
supply chain within 24 – 48 hours and for an extended period of time until a replacement
manufacturer was sourced, tooled and ramped up production. Whereas impact on output
from the cessation of services from Quality Services provider is significantly less impactful.

2. Copyright © 2010 by Q2 Management Inc. New market, Ontario, Canada. All rights reserved. No part of this publication may be
reproduced, stored in a retrievalsystem, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording
or otherw ise, w ithout the w ritten consent of the publisher.
2/3
In early 2009 the Service Provider of inspection services to the Honda of America Mfg
assembly plants in Ohio ceased business operations. The initial response by the Honda
Assembly facilities was to immediately switch to an open “Portfolio” approach. Essentially,
component suppliers were permitted to select any Service Provider to contain their quality
challenges at the Honda assembly facilities. Within 60-90 days Honda of America reverted
back to the single provider approach. The inference is that a sole supplier becomes an
extension of the Assembler’s organizational culture as a whole - not just the quality or
production departments – and therefore shares the same pride in achievements which
contributes to overall product quality.
The overarching challenge with respect to the Portfolio Approach, from the Assembler’s
perspective, surrounds the interaction between competing service providers. As service
providers actively promote their services through internal Assembler staff and directly through
component suppliers each will pursue differentiators to attract opportunity. The tendency is
for unsophisticated Service Providers to attract business through low cost models. An easy
measureable for component suppliers is the inspector/operator hourly rate. Since the
component supplier is not directly supervising the inspection activity at the assembler’s
location, the supplier is unable to directly observe the responsiveness, effectiveness and
efficiency of the inspection activity. In the absence of observable differentiators the
component supplier tends to choose the “cheap” option.
There is a perception that the competitive nature inherent in the Portfolio approach will create
higher service standards at a lower price. From the Assembler’s perspective, there is a moral
hazard in allowing suppliers freedom of choice. Under the Portfolio Approach, and in
response to low pricing pressures, competing Service Providers are compelled to cut input
costs including employee wages, infrastructure costs, training expenses, supervision
capacities, communications, technologies, uniforms and equipment, and back office
functions. Typically, the “last competitor standing” in this microeconomic environment is the
least sophisticated competitor. Those Service Providers with more sophisticated inputs
(providing more value-added services) will be forced to pursue other opportunities and reduce
focus at the Assembler.
The Single Provider approach ensures focused commitment both strategically from the
Service Provider’s management team and operationally as day to day activities are fulfilled
by the Service Provider’s staff motivated by their respect for the opportunity to contribute to
the creation of quality products. Core learning and growth is mutually shared by the
Assembler and the Service Provider affording a robust continuous improvement curve. There
may be a perception that the Single Provider approach poses the risk that an assembler will
be “stuck” with a poor performing Service Provider. This risk is easily mitigated with
contractual performance metrics such as responsiveness in delivery, effectiveness and
quality of service standards. As discussed above the Service Provider that fails to respond
to the assemblers needs is far less cumbersome to replace than a component supplier. All
these factors should serve to motivate the Service Provider to delight the assembler
throughout the duration of the contract.

3. Copyright © 2010 by Q2 Management Inc. New market, Ontario, Canada. All rights reserved. No part of this publication may be
reproduced, stored in a retrievalsystem, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording
or otherw ise, w ithout the w ritten consent of the publisher.
3/3
APPROACH ADVANTAGES DISADVANTAGES
Single
Service
Provider
Training and integration with respect to OEM’s policies,
procedures and organizational requirements is
concentrated on one supplier.
Perceived lack of
competitive motivation with
single service providers
Strong commitment from service provider:
 Greater opportunity for Service provider.
 Service provider compelled to invest in
infrastructure and capacities to ensure unfettered
support under demand volatility characteristic in
quality services.
 Service provider committed to success to earn
future business
Eliminates confusion characteristic in managing multiple
suppliers.
 Determining responsibility and correcting errors
and omissions related to:
o Component suppliers’ complaints regarding
performance/response of service provider
o Confusing communications / accountability
Prevents challenges associated with competing service
provider staff working at cross purposes / infighting
derived from fear of reduced demand / job loss
Standardized access to technology for OEM staff and
supplier staff
 Documentation of inspection activity
 Real time outcome reports / non-conformances
 Single database location for historical activity
Portfolio
of
Service
Providers
Competition motivates service providers to perform Organizational confusion
with multiple contractors.
Rework and other
inefficiencies associated
with training and developing
multiple organizations.
Provides risk management in the event of a service
provider business failure
Shared demand for service
providers = diminished
demand for each service
provider
 Less investment in
infrastructure /
capacities
 Higher likelihood of
service provider failure
due to diminished
demand
Provides component suppliers choices Moral hazard as suppliers
will select lowest cost / least
sophisticated provider &
negatively impact OEM
COMPARISON MATRIX: SINGLE SERVICE PROVIDER / PORTFOLIO APPROACH