Research Spotlight

EQMS: The Essential Role of ORM in

Quality Management
While Quality Management
was once locked inside a
watertight compartment within
the enterprise, this is no longer
the case. Increasingly, global
market-leading manufacturers
understand that proper Quality
Management has direct and
collateral impacts on all other
areas of business performance,
from suppliers and customers,
to Environment, Health and
Safety (EHS) management
Manufacturing Operations Management (MOM), Asset Performance Management
(APM), and beyond. As a result, Enterprise Quality Management Software (EQMS)
is becoming an increasingly integral tool companies are adopting to boost
performance and close the loop on Quality Management.
But just as Enterprise Quality Management pervades so many aspects of overall
business performance, so too does risk pervade the entire enterprise. The recent
evolution of compliance requirements and performance standards has invited
global manufacturers to better integrate all aspects of their internal management
systems and supplier quality systems to improve product and service delivery,
better align with customer mandates, and ultimately achieve operational
excellence.
In this Research Spotlight, LNS Research will discuss the evolving integration and
alignment of Operational Risk Management (ORM), closed-loop quality processes,
and supplier quality management and what this means for global manufacturers
today. Specifically, LNS will explore:

An overview of EQMS

Best practices for progressing Quality Management from a risk perspective

and closing the loop on Quality Management

How ORM affects all aspects of Quality Management and corporate

performance

The increasingly fundamental role of integrated software models to improve

interaction between ORM, EQMS, and other aspects of business
performance management

November 2014
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Increasingly, leading
manufacturers
understand that proper
Quality Management has
direct and collateral
impacts on all other
areas of business
performance, from
suppliers and customers,
to Environment, Health
and Safety (EHS)
management
Manufacturing
Operations Management
(MOM), Asset
Performance
Management (APM), and
beyond

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EQMS: The Essential Role of ORM in Quality Management

Quality Management Challenges

According to LNS Research data collected through over 1,000 completed surveys,
the top quality challenges continue to be centered on metrics, culture, and
disparate systems. In interviewing and working with these companies, there are
many root causes for these challenges, including a lack of executive focus on
quality, a lack of robust quality management processes, and legacy technology
systems without a clear migration strategy. Next after these Big Three, comes
No formal risk management process, with it impacting just over one-third of the
market.

Top 5 Quality Management Challenges

As companies become
more mature with the
people, process, and
technology capabilities
supporting quality
management; risk
management is the
logical next step.

However, risk management may not be the first challenge area where companies
should look to gain quick wins. As companies become more mature with the
people, process, and technology capabilities supporting quality management; risk
management is the logical next step. As culture improves, visibility into
performance is established, and as systems are harmonized, incremental gains
become the name of the game and improving the risk profile is one important way
to achieve these gains.
One of the factors at play in the equation is the need to manage risk both implicitly
and explicitly as part of the quality management system. The implicit approach
involves the fact that almost everything we do in quality is to reduce risk but is
often unaccounted for. Evaluating CAPAs based on how they will impact an
organizations risk profile, or auditing suppliers and facilities independently based
on risk factors is in much better alignment with the risk reduction goals of these

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processes than a standard first in first out approach. Explicit risk management
involves using standardized risk tools and processes to directly identify, quantify,
prioritize, and mitigate risk factors, separate from the activities occurring in the
standard quality management processes. However, these explicit risk tools are
critical for implicitly managing risk within quality processes and the overall system
benefits when managed in a single system.

Evolving Quality Management Models

Like other management systems disciplines, quality management used to live
within a box. Issues related to quality management were just thatmatters that fell
within the realm of quality management were assessed as quality management
issues alone, and managed by the corporate quality department almost
exclusively, with input and feedback from executive leadership.

Enterprise Quality Management Architecture

It is not uncommon for
a company to have
three or more CAPA
systems in engineering,
manufacturing, and the
field. EQMS also allows
for the harmonization of
critical quality
processes.

Within the last two decades, the game has changed entirely. Computer and Webbased systems have brought quality management to the next level, and we are

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now witnessing an unprecedented level of access and visibility into quality

management metrics and performance, in some cases on a real-time basis.
As can be seen in the above figure, EQMS is a central hub for both process
automation and document management. By managing quality at the enterprise
level, it minimizes the opportunity for silos to be created, where different groups
and systems are managing the same process. For example it is not uncommon for
a company to have three or more CAPA systems in engineering, manufacturing,
and the field. EQMS also allows for the harmonization of critical quality processes
at the enterprise level, such as CAPA, Audit Management, and Risk Management.
EQMS ensures that the right versions and releases of documents are being used
in a compliant way and that new technology best practices are built into the
platform for reporting, analytics, mobility, and more. Finally, it should be noted that
there are multiple approaches to delivering the capabilities described as EQMS;
many companies choose purpose-built standalone software that is integrated with
other enterprise applications, while some companies choose to use other
enterprise applications like CRM, PLM, MOM, EHS, or ERP as an EQMS. There is
no one approach that is right for all companies.

Qualitys Intrinsic Relationship with Risk

Just as we have established that there is an embedded and intertwined
relationship between quality management and most if not all other areas of
corporate performance, it is also worth underlining the fact that operational risk,
broadly, ought to be an all-encompassing performance aspect that pervades all of
the above-mentioned areas of corporate performance. Just as quality was once
relegated to the sidelines of corporate performance, risk, too, used to be thought of
as an isolated aspect, perhaps pertaining solely to only the most immediate and
financially burdensome corporate activities and potential liabilities.

Just as quality was once

relegated to the
sidelines of corporate
performance, risk, too,
used to be thought of as
an isolated aspect

Now, just as with quality, that framework has evolved to a 21st century mindset.
For leading manufacturers around the globe, risk factors now rank as highly on
corporate balance sheets as factors like revenue and profit used to rank. And this
is sensible, for risk factors portend eventual successes or failures that financials
alone cannot hope to forecast.
So how does this manifest on the ground level? Between prioritizing CAPAs, to
building out audit schedules, to executing supplier evaluation, Quality and ORM
are now increasingly intertwined and continue to pervade all aspects of corporate
performance.

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Explicit Risk Management Overview

These relationships have always existed across the enterprise, but only now are
cultural assessments and technological tools enabling us to understand and
ultimately act upon these relationships in the name of improving quality and overall
corporate performance.

Example of a Risk Register

A typical starting point for risk management is the establishment of a risk register.
This framework categorizes risk factors across operations by hazard type and then
identifies the proactive controls that are in place to stop the hazard from causing an
adverse event. The risk register then ends by identifying the reactive controls that
are in place if in adverse event does occur, along with the anticipated
consequences of an adverse event occurring.
It is also important to note that many of the EQMS processes are in fact proactive
controls and the effectiveness of these process directly impacts the risk register
and quantification, including:

NC/CAPA

Internal and supplier audits

Standard Operating Procedures (SOP), Good Manufacturing Practices

(GMP), Hazard Analysis and Critical Control Points (HACCP)

Supplier Quality Management (SQM) and Product Part Approval Process

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(PPAP)

Customer complaints management

It is also important to consider how risk runs right across all aspects of
performance management. If an asset underperforms, that presents a risk from
quality, EHS, asset, and financial perspectives, at the very least. As alluded, that
asset might be linked to a possible detrimental safety event, emissions, repairs,
and then all the associated factors linked to a quality non-conformance, including
rework, scrap, maintenance, and, eventually, possible.

Example of a Risk Heat Map

The next step in effective risk management is using the risk register to quantify the
potential impact of risk factors. The simplest way is with a matrix that evaluates
adverse events on two axes: likelihood and impact.
Although the math may not be too difficult in this model, for a global organization
the challenge is to have a comprehensive, standardized, and up-to-date risk
register. The next step is establishing the risk tolerance threshold, which should

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focus the organizations efforts on improving controls against those risk factors that
fall outside the threshold and limit the use of resources for these factors that have
acceptable risk levels.
The final stage of the risk management framework is continuously monitoring the
performance of critical processes as well as the results of those processes. For
example, in quality it is important to measure both the performance of the CAPA
processes, i.e. open CAPA, but also the result of the process, i.e. reduction in
scrap or recalls. By monitoring both process performance and health companies
can create concrete ROIs for investments in risk management based on ongoing
performance improvement connected to better process.

Example of Risk Monitoring

Risk, as it ought to be thought of, truly aspires to encapsulate an entire framework

that is less linked to the performance of an individual corporate function and
instead linked to overall corporate performance. While compliance may, for many
manufacturers, register as the mainstay or the bare-minimum of performance
management, only an operational-risk-based approach will take it to the higher

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EQMS: The Essential Role of ORM in Quality Management

level of Operational Excellence and, ultimately, holistic sustainability.

Implicit Risk Management Overview

With an explicit risk management framework established, it is important to support
these processes with software and start utilizing these processes and technologies
to better manage quality. This brings into the picture the idea of closed-loop quality
management. As established, so many various organizational programs that are
related to enterprise quality management are deeply tied together, in spite of the
fact they have traditionally been viewed as siloed elements of corporate
performance. Quality management data is too valuable to be left in silos, especially
within the manufacturing environment, as illustrated in the diagram below. Only the
right processes and technologysupported by an organizational culture that views
quality and risk as pervasive corporate matterswill enable an organization to
manage quality effectively from a risk-based perspective.
Closed-loop quality both integrates the quality processes with each other, as
shown below, but also begins to integrate quality processes and data across the
value chain.

Interconnecting Quality Processes

For many companies a closed-loop quality management approach is the ultimate

goal, in that it breaks down silos, integrates quality processes with each other,
integrates quality with other areas of the business, and connects everything that
happens in quality with risk.

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Unfortunately, not many companies today have created a true, closed-loop quality
management environment; in fact only about 22% of companies report such
architecture.

Although, it is important to note that 40% are planning to implement such an

environment, which is not surprising given the performance benefits so many
companies are seeing from the approach. LNS Research data also shows
companies with closed-loop quality processes consistently outperformed those
without closed-loop processes, across the board.

Evaluating Suppliers According to Quality and Risk

One important example and use case of closed-loop quality management is
evaluating suppliers according to quality and risk. It is one thing to extend the
considerations we have discussed here across the enterprise. It is quite another to
consider how we apply the quality, risk, and sustainability management
expectations we have established for ourselves across our supply chain and
vendor base.

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Quality, risk and sustainability need to be more tightly integrated across the
enterprise and its entire supply chain. Functionally, this calls for manufacturers to
improve their capacity to evaluate and monitor suppliers on an ongoing basis
according to quality, supply chain, and operational risk factors. Businesses
increasingly need the ability to rank both supplier quality management and supplier
relationship management according toabove and beyond qualityrisk-based
metrics that can actually be accumulated through the right analytical tools. But this
involves properly connecting interrelated tools across the enterprise.
The key to effective supplier management is in using the quality and risk
management best practices above. Suppliers should be a key risk factor in the risk
register, supplier quality management processes should be evaluated as the
critical proactive controls for supplier hazards when assessing risks and thresholds
the impact of suppliers should be evaluated fully, and finally, when monitoring the
performance of quality and risk processes, visibility into supplier processes and
performance is critical.

Actionable Recommendations
Fundamentally, just as EHS, quality, APM, MOM and other aspects of corporate
performance cannot be managed in silos, operational risk simply has to pervade all
aspects of corporate activity. ORM ought to be viewed as less of an independent
realm of enterprise management and more as a key pillar that ought to be a factor
in every decision an organization makes, from determining where materials are
sourced from, to ensuring ongoing regulatory compliance.

Companies with closed

loop quality
management
processes realize
dramatically higher
OEE, On Time
Shipments, and
Successful NPI.

Risk needs to be applied to the entire lifecycle of quality management and product
delivery, from conception and design, to development and creation, supplier
selection, and through delivery. It also has to build collected analytics into models
to reduce risk, improve product quality, boost customer satisfaction, and achieve
better bottom-line performance, thereby establishing operational excellence and
holistic sustainability. Taking the following actionable recommendations will help
ensure your organization is building in best practices for risk and quality:

Implement enterprise quality, supply chain, and sustainability

solutions that integrate: While it may be easier said than done, factor
integration capabilities into all software solutions decisions. If you have
determined than an integrated risk approach will help improve overall
quality and supplier management capabilities, look for solutions vendors
that are able to easily integrate with and speak to other aspects of
enterprise performance management.

Establish closed-loop processes that link performance programs:

Since technology is only one factor in the equation that leads us to better

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enterprise risk management, initiatives need to be supported by process

frameworks that clearly tie risk into quality management and, ultimately,
overall enterprise sustainability management. If a quality activity carries
aspects and impacts that are either directly related to other areas of
corporate performance, or can be correlated to other impacts across the
organization, ensure some process framework calls upon persons
responsible to manage these linkages accordingly.

Build a culture that supports a holistic approach: This point builds upon
the previous, insofar as quality processes are not an island and need to
extend outward across organizational activities to minimize risk and
improve product quality. If quality is a pervasive cultural aspect and not a
department as identified earlier in this document, then processes need to
support this. But that will only flow from an organizational culture that
neither establishes nor perpetuates existing cultural barriers between
aspects of organizational performance.

Align Key Performance Indicators (KPIs) that support an integrated

approach: In building the right culture, processes and technology that can
support an approach that puts quality and operational risk on a level, having
the right KPIs, both proactive and reactive, will help motivate such a
program.

Implement Closed-Loop Quality Management processes and

supporting tools: Quality Management can inform enterprise risk
management, as we have learned. However, we need to move beyond
basic process performance metrics and establish more comprehensive or
explicit integrated risk and quality process frameworks. It follows that
cross-function governance is essential to the equation. Independent
functional silos need to be curbed in favor of applying enterprise need
across quality processes. Closed-loop quality risk management and ORM
processes with Failure Modes and Effect Analysis (FMEA) that establishes
failure causes, evaluates the effects of failures, and applies detection and
diagnostic responses.

Finally, it is important to realize that Quality Management Systems are a starting

point, not an end point. Businesses need to establish enterprise-wide EQMS that
incorporates both implicit and explicit risk management capabilities, and also
establishes quality and risk as both a centerpiece of corporate culture and core
competencies of leadership, and that management systems are essential aspects
of achieving actual results.

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EQMS: The Essential Role of ORM in Quality Management

LNS Research provides advisory and benchmarking services to help Line-of-Business, IT, and Industrial Automation
executives make critical business and operational decisions. LNS research focuses on providing insights into the key
business processes, metrics, and technologies adopted in industrial operations.
Authors:
Matthew Littlefield, President & Principal Analyst, matthew.littlefield@lnsresearch.com
Paul Leavoy, Research Analyst, paul.leavoy@lnsresearch.com

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