Global State of EQMSMatthew LittlefieldPresident and Principal Analyst

#GlobalEQMS

EQMS Adoption

Major adoptions of EQMS is coming.

#GlobalEQMS

Agenda

• About LNS Research

• Why Quality Matters

• Benchmark Data

• Strategic Objectives

• Our Biggest Challenges

• Building a Model of Operational Excellence

• EQMS Best Practices

• Recommendations for Success

#GlobalEQMS

Understanding LNS

LNS is research and advisory firm that helps clients innovate and achieve operational excellence.

We deliver the market intelligence and thought leadership needed to capture the value of technology through:

Experienced analysts

Primary research

Deep industry contacts

Interactive data visualizations

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Global Quality Advisory Council

Starbucks - VP of Global Quality and Regulatory Affairs

Onyx Pharmaceutical - VP of Global Quality

Whirlpool - Director of Quality

Lindt Chocolate – VP R&D and Quality

Oriflame - Corporate Quality Lead

Champion Technology - VP Quality and EH&S

Gurwitch Products - VP Research and Quality

Newell Rubbermaid - Director of Quality

Hygia Health Service - VP of Operations

Discount Tire - VP of Quality

Daikin McQuay - Director, Corporate Quality

Bio-Rad Laboratories – Director of Quality Assurance

Owens-Illinios – VP of Global Quality

Harley Davidson – Director Corporate Quality

Alcoa – Director Corporate Quality

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Research Model

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Research Demographics

• 450+ Respondents to LNS Research Quality Survey from June 15, 2012 – March 31, 2013

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Why Quality Matters

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The Changing Customer and Speed of News

Changing preferences regarding where news is received, where research is conducted, and how opinions are formed

LA Times, Boston Globe:For Sale

Google Reader:Shuts Down

Facebook and LinkedIn:News Feeds Transformed

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The Changing Customer

Social Proof is the New Paradigm

• People are starting the buying process online

• Everything is ranked, rated, and reviewed

• Buyers are interested in what others are interested in

• They trust other people in their network

• Good and poor quality are hard to hide

Breaking News: Company X Recalls 1,000,000 Cars in U.S.4/4/13Boston, MA – After several incidents, Company X has decided to recall model 302z from its 2010 fleet. Ownersare asked to return their automobiles to dealers for faulty

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Global Scale for Products and Operations

275 subsidiary companies, in 60 countries with 146 manufacturing sites

250+ brands, 26 Billion Dollar brands, 100+ manufacturing sites, consumers in 180 countries

50+ manufacturing sites in 25+ countries with almost 10,000,000 units sold across 70 models

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Top 5 Financial Objectives

• Growing revenue is top for the majority of all companies

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Top 5 Operational Objectives

• Improving manufacturing efficiency is top but not well aligned to financial goals

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Top 5 Quality Management Objectives

• Quality goals are synched with operations but not necessarily financial goals

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Top 5 Quality Challenges

• The top challenges are around Culture, metrics, and systems - all important elements of Operational Excellence

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EQMS Explained

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Why Enterprise Quality Management Software

• Disparate systems and business process

• Lack of visibility into performance, compliance, and risk

• Nearly impossible to collaborate across departments, trading partners, or the supply chain.

• Quality and non-conformance data, as well as best practices, are not shared across the organization

• Connecting Risk and Compliance as part of a quality platform

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Current System Landscape

• ERP – Financial data, inventory data, production routings, recipe management

• BI – Reporting, Analytics, Visibility

• CRM – Customer complaints, trade promotions

• PLM – Labeling management, packaging management, quality specifications, sampling plans

• LIMS – Measurements and testing of Fats, solids, bacteria counts, etc.

• MOM – In line and at line testing, statistical process control, manufacturing non-conformances

• SCM – Supplier risk scorecards, delivery scheduling, inspection

• EHS – Carbon management, energy management, reporting

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EQMS Architecture

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Adoption of ERP

• ERP is well adopted across the industry

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Adoption of BI

• BI is emerging, complements data and reporting in ERP

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Adoption of EQMS

Major adoptions of EQMS is coming.

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Adoption of EQMS of Functionality

• Because, Life Sciences companies view functionality as disparate systems: Doc Control, CAPA, Compliance, Risk and more

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Interconnecting Quality Processes

Identification Investigation Escalation Correction Prevention Efficacy

Assess Quantify Prioritize Mitigate

Establish Criteria Assessment Reporting Communication Follow up

Design Monitor Control

CAPAProcess

RiskManagement

AuditManagement

GoodManufacturingPractices

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Proving the Value of EQMS – Metrics that Matter

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Understanding a Box Plot

Box plots help to easily visualize the distribution of benchmark survey data

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PROCESS HEALTH

Use of FMEA and ECO

Supplier Audits

Product Compliance

CAPA Closure

Customer Complaints

Leading and Lagging KPIs

PROCESS RESULTS

Engineering Change Orders

Supplier Defect Rate OEE On Time

ShipmentsSuccessful

NPI

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The Cost of Quality

• CoQ = CoGQ + CoPQ

• More than just failure costs

• Measured as a share of revenue for benchmarking purposes

• Can be thought of as an optimization problem – non linear

• Is a major contributor to operating margin

©LNS Research 2013

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The Cost of Poor Quality

©LNS Research 2013

• CoPQ = IFC + EXC, where:

• IFC = Internal Failure Costs = Scrap Costs + Rework Costs

• EFC = External Failure Costs = Returned Product Costs + Warranty Costs + Product Recall Costs

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The Cost of Good Quality

©LNS Research 2013

• CoGQ = AC + PC, where:

• AC = Appraisal Costs = % of labor, software, and equipment costs focused on appraisal activities

• PC = Prevention Costs = % of labor, software, and equipment costs focused on prevention activities

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The Cost of Poor Quality

©LNS Research 2013

• Measured as a % of revenue.

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The Cost of Good Quality

©LNS Research 2013

• Measured as a % of revenue.

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Overall Equipment Effectiveness (OEE)

• Measures availability, efficiency, and quality (differs by company)• Must be put in context of supply chain

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Improving OEE

• Establishing quality as a top executive priority improves median OEE by over 9%

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Improving OEE

• Establishing real-time visibility of quality metrics in manufacturing improves median OEE by >7%

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Improving OEE

• Establishing closed-loop processes to connect quality across the value chain improves median OEE by >9%

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Improving OEE

• Implementing EQMS improves median OEE by >7%

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Complete and On-Time Deliveries

• Percentage of products delivered on time with no errors or re-promise dates

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Improving On-Time Deliveries

• Ability to identify risk factors across operations improves median OTD by >3%

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Improving On-Time Deliveries

• Establishing closed-loop processes to connect quality across the value chain improves median OTD by >3%

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Improving On-Time Deliveries

• Collecting quality data automatically through a web-based portal improves median OTD by >3%

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Successful New Product Introductions (NPI)

• Measures the number of new products introduced hitting time, volume, and quality targets

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Improving New Product Introductions (NPI)

• Establishing a formal risk management framework improves median successful NPIs by >32%

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Improving New Product Introductions (NPI)

• The ability to identify risk factors across operations improves median successful NPIs by >24%

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Improving New Product Introductions (NPI)

• Including suppliers in design for quality initiatives improves median successful NPIs by >9%

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Improving New Product Introductions (NPI)

• Establishing real-time visibility of quality metrics in manufacturing improves median successful NPIs by >16%

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Percentage of Products in Compliance

• Measures effectiveness of internal education programs/SOPs

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Improving Products in Compliance

• Easily understood compliance processes improves median Products in Compliance by >5%

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Improving Products in Compliance

• Establishing closed-loop processes to connect improves median Products in Compliance by >3%

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Improving Products in Compliance

• Establishing a formal NC/CAPA process improves median Products in Compliance by >3%

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Improving Products in Compliance

• Establishing a formal audit management process improves median Products in Compliance by >3%

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Recommendations for Success

• Define the role of quality in your company’s strategic objectives.

• Identify the relationships between leading and lagging KPIs across the value chain

• Benchmark performance in KPIs and track progress

• Create closed-loop quality management process with EQMS

• Integrate quality business processes, like: CAPA, Audit Management, Risk Management, and more

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Thank You!!For More Information -

Contact:Matthew LittlefieldPresident and Principal Analystmatthew.littlefield@lnsresearch.com