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Manufacturers: Risk is an Opportunity, Not a Cost Driver

July 9, 2018

As a fastener manufacturer, delivering high quality ensures (among other things) that scrap rates are kept low and first pass yield remains high. But did you know that it could also influence which business you’ll win next?

When awarding contracts, OEMs look to quality performance as one of the biggest factors when calculating risk ratings. Given that suppliers are generally ranked for selection based on these ratings, quality performance becomes a true business growth opportunity, not just another box to check to be considered.

So why are so many companies missing the link between risk and quality, instead looking to the latter as a way to contain costs?

According to LNS Research, manufacturers across the industry—from general manufacturing to food and beverage—may assume that meeting risk-based compliance obligations is the key to qualifying for new business.

“Compliance is a fundamental requirement [in risk management], but achieving it is not a differentiated strategy,” says Dan Jacob, practice director and principal analyst at LNS Research. “Suppliers looking to improve recurring revenue and bottom line performance should take the proper approach to quality and shift perspective from conformance to performance, from cost-prevention to designed-in quality.”

With conformance being just the beginning of a well-rounded risk strategy inherent to superior product quality, there are ways you can round out your company’s approach to make managing risk an asset to the business.

How to get started

Quite simply, think risk performance, not ISO 9001:2015 compliance.

LNS Research encourages manufacturers to think about compliance—and risk—from a different point of view. General manufacturers, including fastener manufacturers, are unique from other industries. Importantly, they have high quality compliance requirements but may have minimal risk requirements. For these manufacturers, managing risk becomes a key factor in operational excellence, not another requirement of doing business. 

According to LNS, manufacturers should take a proactive approach to align risk strategies with corporate objectives, and mark progress through operational and financial performance. LNS further recommends that companies look at their businesses holistically and determine which approaches to risk will yield the greatest benefit for the entire organization, long-term.

This is also where your ERP and MES system can help you meet those objectives. Factoring risk into your operational plans, including production planning, can help you gain greater control over your operations and give your team a real-time look at what’s happening on the shop floor. With one accurate, real-time version of the truth, your organization has a clearer view of activities that might pose risks and can make the changes it needs to adhere to risk mitigation best practices. 

Learn from peers

For more information from LNS on how leading manufacturers put quality first, and which seven risk-reduction best practices have the biggest ROI, read their latest research spotlight “Roadmap to Supplier Status: Think Risk Performance, Not Compliance.”

About the Author

John Dancoe Senior Product Manager, Plex Systems

John Dancoe, a charter member of the Plex Systems Product Management team, is responsible for the Quality, Engineering, and Program Management areas of the Plex Manufacturing Cloud. John joined Plex Systems in 1997 as a software architect, engineer, and implementation project manager. Prior to joining Plex John spent more than fifteen years in the manufacturing sector, holding positions including Chief Engineer, and Senior Process and Tooling Design Engineer, at two of the first companies to implement Plex ERP software.