Top 5 Costs of Not Addressing Your Current Production Chain Processes

May 28, 2023

The production chain process is integral to business operations, yet it’s often overlooked until something goes wrong. Because if it ain’t broke, why fix it…right?

In today’s marketplace, where consumers are hyper-aware and informed on everything from product quality to human rights, the risks are too great with this laissez-faire approach. Manual processes don’t scale with growing or changing requirements, yet even today, we see clipboards used to complete factory floor inspections.

The benefits of digital transformation are clear: less manual work, increased visibility, more effective communication, better decision-making, and improved supplier performance.

Forward-thinking supply chain managers currently have a “once-in-a-generation opportunity to future-proof their supply chains,” writes McKinsey. This future-proofing involves complementing traditional areas of focus like service, cost of capital, and quality with new priorities of resilience, agility, and sustainability.

Below, we’ll examine the top five costs of choosing not to address current production chain processes.

1. Productivity losses due to inefficient systems

Sourcing raw materials, moving products through the value chain, and distributing them to consumers are all complex processes vulnerable to inefficiency.

Common problems include poor workmanship, delays from occupational hazards, and bottlenecks, like excessive inspections, pen-and-paper processes, disjointed communication channels, and human workers having to perform tedious work that would be better automated. Many factories set their efficiency goals at 60 or 70% as a result — hardly promising when you consider these figures are targets and not necessarily the actual day-to-day performance.

Furthermore, inefficiencies tend to have a ripple effect, in which negative effects “ripple through the supply chain mainly in the downstream direction” and “can spread to other supply chains as well,” according to a 2021 supply chain study.

Digitally transforming your supply chain creates a centralized hub for all management operations, granting you full visibility of your supply chain so you can identify and address inefficiencies at the source. Without this oversight, you invite productivity losses to remain and fester.

“An efficient supply chain may feature reduced operational costs, lower lead times, and less time spent on management compared to an inefficient one,” writes Taulia.

Overall, it is difficult to fix the problem of inefficiencies and their resulting productivity losses without adopting digital technology. Supply chain management platforms provide cost-efficient, real-time visibility, all while AI-driven analytics mill raw data into keen insights to identify inefficient processes. Finally, automation dramatically reduces the amount of time and effort required to complete essential processes.

2. Loss of revenue due to delay in product deliveries

Don’t make the mistake of blaming last-mile shipping for product delivery delays. More often than not, the culprit lies in the production chain itself. Production delays are good for no one: they mean lost sales, damaged customer loyalty, greater stockpiles of inventory, and difficulty staying competitive.

In a 2021 survey, 93% of e-commerce sellers reported losing revenue due to delays in product deliveries, with many having to resort to selling whatever products were available in stock to mitigate the damage. In fact, nearly half of the large brands reported one- to four-month inventory delays during this time period.

Yet it doesn’t take a pandemic to cause production delays. In fact, most delays stem from problems such as:

  • Wrong estimates of production capacity, in which a supplier fails to evaluate their own capacity to meet production requirements.
  • Poor material planning, in which a supplier inaccurately calculates how much material is needed to fabricate orders.
  • Ineffective quality control during production leading to defects that aren’t caught in time and are discovered during Final Random Inspections, which causes delays and high costs.
  • Multiple communication channels, resulting in lost emails and difficulty fixing issues quickly.
  • Dependence on third-party inspections, which introduces multiple lags: making the booking, waiting for a response and a set date, waiting for the results of the inspection, and rebooking in the event of inspection failure.

Technology alleviates these difficulties. Solutions like Inspectorio Sight and Inspectorio Tracking allow for more effective pre-production meetings (PPMs) in which buyers and builders can agree on product specs, acceptable quality limits (AQLs), timelines, benchmarks, inspection touchpoints, quantities, and other crucial variables.

Such technologies enable real-time quality management to track inspectors as they progress through audits on their mobile devices. This allows you to deal with problems as they’re discovered instead of having to wait for those results to be transferred from clipboards to Excel spreadsheets and emailed to you. Automated CAPAs and rebookings allow this process to run on its own if no one is available to monitor inspectors in real-time.

Another critical feature of technological solutions is a robust communication hub that eliminates the need for any external modes of communication — everything should be in-app and traceable.

Finally, closer control over factory floor operations means inspections are more cost-effective. The ability to reward high-performing factories with self-inspection capabilities incentivizes them to improve — self-inspections save substantial amounts of time and money and have an excellent track record of maximizing quality.

3. Vulnerability to disruptions

According to Reuters, supply chain disruptions in 2020 cost brands an estimated $4 trillion in revenue — a loss roughly equivalent to the annual GDP of Germany.

The pandemic was a disruptive event unlike anything in living memory, but it is unlikely to be a rogue wave. Disruptions of 1 to 2 months are likely to occur every 3.7 years, wiping out 30% to over 50% of companies’ annual EBITDA. Unfortunately, these disruptions will almost certainly grow more frequent as the decade progresses.

If you entrust your manual production chain processes to weather such storms, you are setting yourself up for potential failure. Instead, build resiliency into your production chain today with digital tools that let you assess risks, take data-driven actions to mitigate those risks, and respond quickly to any issues that may arise.

“The best time to plant a tree was 20 years ago. The second best time is now.”

– Chinese Proverb

4 . Decreased quality and customer satisfaction

The cost of quality falls into two categories: the cost of poor quality and the cost of good quality. These can be thought of as the costs of reactive and preventive measures, respectively.

Cost of poor quality

Poor quality includes both internal and external failure costs. Internal failure costs incurred before the product is shipped to the buyer include the following:

  • The cost of scrapping or rejecting
  • Re-inspection fees
  • Waste due to storage, over-processing, etc.
  • Cost of failure analysis

External failure costs occur after the buyer receives the product and notices the defects such as:

  • Cost of repair
  • Processing buyer claims
  • Cost of returns
  • Reputational damage

Cost of good quality

Good quality, the less expensive option by far, involves both appraisal and prevention costs. Appraisal costs, which involve evaluating the product and manufacturing process, include:

Prevention costs, which are planned, proactive measures taken before the products fail, include:

  • Cost of the quality management platform
  • Planning and training
  • Quality assurance operations

Cost of poor vs. good quality

Good quality will always be cheaper than poor quality by a factor of 10 or even 100. It costs far less to proactively avoid problems than responding to problems with your products during or after production.

Supply chain managers and executives must have strategies in place to reduce the cost of poor quality, but more fundamental is taking steps to end the costly cycle of defects and remediations.

5. Missing out on new technology opportunities

There is always risk associated with being an early adopter. However, in the case of digital quality management platforms, the risk of missing out on new opportunities is greater — particularly with proven platforms.

If you decide not to adopt a network platform to fix problems in your production chain, you miss out on revolutionary new capabilities that your competitors may be exploiting.

Industry-wide collaboration

At this very moment, your competitors are collaborating with each other to solve common industry challenges — all without any one party gaining a competitive advantage. By using network platforms like Inspectorio,

  • Everyone benefits from the same pools of anonymized data.
  • AI algorithms supply insights based on data from the whole industry instead of your company alone.
  • Parties learn from each other’s failures and successes.

The result is a collective leap forward in visibility, cost efficiency, and decision-making power. Everyone wins as a result.

Centralized information

If your supply chain is like most, it uses different processes in different factories and regions. This is normal; the problem is that you likely lack a centralized hub for data and reporting.

This leads to one of the most stubborn relics of conventional supply chain management: silos. Try as you may; you will not be able to eliminate silos in any scalable way without adopting new technology.

Digital network platforms enable the collection of real-time data as well as autonomous analytics, thanks to all data being in one place. This includes quality and compliance information, ESG, documentation, and all past and present data points. Data input is streamlined, and pipelines are structured, letting all data interact with each other. This ensures you have truly eliminated silos instead of merely replicating them in digital form.

This gives you access to a new stratum of decision-making capabilities. Use built-in benchmarking and ranking analytics to monitor the performance of all network participants and comprehensive integration to capture maximum value from your supply chain.

Single-channel communication

Communication through emails, texts, document commenting, and messaging applications leads to duplicate efforts, human error, and inefficiency. You must be able to securely collaborate and share documents on a single platform — ideally, the same platform where the activities themselves are taking place.

Inspectorio centralizes all communication and processes, granting access to a global community of stakeholders and partners. Our platform features world-class UI/UX that makes ease of use and checks and balances integral parts of every feature.

Real-time data

Real-time data is the only way to truly know what’s happening on your factory floor. Without it, you it is difficult to accurately calibrate processes or address errors efficiently.

Mobile inspection applications make achieving consistent, accurate data input from your factory partners easier. Additionally, look for a solution with robust 24/7 support to prevent production delays. KPI dashboards are another important feature, as they help you take action when and where needed. A holistic integration interface lets you capture data from external sources as well as that in-platform.

If you are looking for digital quality management software to automate your communication with factories, capture factory-level data remotely, and ensure accurate input from suppliers, chat with us today

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