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Outsourcing the Quality Management System

QMS Sourcing®: Outsourcing the Quality Management System

By: David A. Lalain – President, Omnex Quality Culture, LLC

Abstract:

Your company, like many others, has no doubt discovered the cost advantages and flexibility of outsourcing. The focus has been on non-core functions and economies of scale but the range of outsourcing has continued to grow and now includes IT, HR, accounting, purchasing, engineering, call centers and many more areas. The newest offering in outsourcing is just beginning and involves the company’s Quality Management System.

QMS Sourcing® makes good sense. Who better than a dedicated independent team of highly trained specialists to ensure that goals are being met? Especially since quality is so fundamental to Customer and bottom-line success. It is time-consuming and expensive to attempt to develop all the skills you need in this area and deal with constant turnover--as people move through their careers. QMS Sourcing® provides consistency, expertise, third party objectivity and zero hassles.

“If you are not best-in-world in doing something, and are doing it in-house, you are giving up competitive edge. You could outsource to the best in the world, up the value and lower the cost.” Dr. James Brian Quinn

Introduction

Harvard Business Review has identified outsourcing as one of the most important management ideas and practices of the past 75 years.

This paper will explore the latest offering in this arena, QMS Sourcing®, outsourcing your quality management system. We will explore answers to the questions of Why, What, Which, Who, How, and When relative to this critical business decision.

One client had a real wake-up call when management finally tallied up what it was costing them to just maintain their quality system certification. This included document control, internal and external quality audits and calibrations. With global net sales of nearly $2 billion, this division spent over $7 million, including the equivalent of over 40 full-time people, just for maintenance. QMS Sourcing® could save millions!

Recent articles have raised doubts and said that claimed outsourcing returns of 40-60% savings are a more modest 15-20%. In part it is true and is due to better accounting of severance and management costs. However all statistics relative to the broad subject of outsourcing must be reviewed carefully; there are so many different services that generalizations are useless. Indeed the first year’s savings are going to be reduced because of these costs, but subsequent annual savings will continue to grow. But 15-20% isn’t a bad start. There are also many reports of failed outsourcing attempts, often due to poor planning and relationship issues. The methods suggested in this paper will help to develop realistic goals and viable partnerships.

There are three major forms of outsourcing: Strategic, Partner and Transaction. This paper will focus primarily on developing a partnership. In such an integral part of business as quality management, it makes sense to have a committed, competent and candid partner. A transactional approach, cherry-picking services, fails to achieve the full potential of the outsourcing. Plus, as important as quality management is to your business, it serves but doesn’t set your strategic plan. It’s the client’s responsibility to determine how QMS Sourcing® will integrate into the long range plan.

“Cost reduction remains the primary motivation behind current outsourcing contracts, but an increasing number of companies--21 percent now versus 11 percent in 2004--are outsourcing primarily to improve quality.” Reuters April 13, 2006, 4:26 AM PDT

History

  • Outsourcing
  • Smartsourcing
  • Rightsourcing
  • QMS Sourcing®

Many references trace the origins of outsourcing to the 1920’s for manufacturing and 1980’s for the public sector. It seems, however, that the earliest outsourcing was millenniums ago with mercenaries. What better example can be found of outsourcing the dirtiest, highest risk jobs that no one else wants or those that someone else can perform better? The ideal situation is that an outsource partner has such a strong reputation the competition surrenders at first sight.

The term outsourcing to most people means sending jobs overseas, but actually over 70%1 of the activity is domestic.

Quality Management Outsourcing is relatively new, and so far it has been primarily tactical with providers focusing on a few lucrative areas like supplier development, internal auditing and improvement events. This leaves the client to manage many sources or to sub-optimize their quality outsourcing.

Many of the lessons learned from other forms of outsourcing have been considered and applied in the recommendations that follow.

Trends

Generalizations based on trends are useless due to the diversity of services being outsourced, but a few facts will leave little doubt that this is a major force in the industry and requires the same due-diligence as any other significant business decision.

  • Outsourcing is now a US$4 trillion a year business.2
  • Outsourcing is expected to grow by 36% in the next year.3
  • "General Electric's '70-70-70' plan signals the possible extent of these shifts: It plans to outsource 70 percent of its head count, push 70 percent of that outsourcing offshore and locate 70 percent of its workers in India."4
  • "The survey of 25 large organizations with a combined $50 billion in outsourcing contracts found that 70% have had negative experiences with outsourcing projects and are now taking a more cautious approach. One in four companies has brought outsourced functions back in-house, and nearly half have failed to see the cost savings they anticipated as a result of outsourcing."5

Why QMS Sourcing®?

Reduce operating costs - Experience has shown a 40-60% reduction in costs from economies of scale, off-shore services and variable expense versus fixed costs of fulltime resources.

Focus resources and energy on core processes – Quality demands involvement of your scarcest resource--your best people, due to high visibility and risk. These are the same resources that are key to growing your core business.

World-class experience – It takes a great deal of time to teach your own people in the technical and complicated methods of quality management, and their only benchmark in many cases is entirely internal. Outsourcing brings a wealth of knowledge workers with specific skills honed from years of experience in all types of situations and businesses.

Objectivity – Your partner is outside the political landscape and focused entirely on your success, because it ensures their success by definition. They can even instill confidence in your customers that an independent third party is looking out for their interests.

Management attention – It’s an investment, and face it--management pays more attention to the ROI on any expenditure than it does on time spent by internal resources. As a partner, the QMS outsource must have direction from and accountability to top management.

Employee acceptance – It is much easier and less risky for an employee to air a sensitive issue with a third party than directly with their bosses.

Risk management – Objectivity, accountability, knowledge/experience, and practically unlimited resources are there when/where needed, which means no surprises.

Customer security – Your QMS outsource partner should be one voice of your Customer, ensuring their needs are known and met. At times they are your conscience when the all-to-often grey areas demand a dissenting voice.

Less hassles – No succession planning, no turnover, no delays in critical projects for lack of resources add up to a better quality of life for the client.

What functions can be included in QMS Sourcing®?

  • QMS certification
    • Preparation
    • Training
    • Gap analysis
  • QMS certification maintenance
    • Internal auditing
    • Document control
    • Record maintenance
    • Measurement Systems Analysis
  • Improvement efforts
    • Benchmarking
    • Lean implementation
    • Six Sigma projects
    • Process standardization and best practice deployment
    • Error-proofing engineering
    • Structured Problem Solving
  • Supplier development
    • Performance evaluation
    • Site audits
    • Corrective action and follow-up
    • Competitive sourcing analysis
  • Training
    • Concepts
    • Tools
    • Process specific training
    • Quality system awareness
  • Customer relationship management
  • Quality culture deployment
    • Values, Vision, Mission, Purpose
    • Strategic planning for Quality
    • Leading change
    • Everyone’s role in Quality
    • Common language, beliefs, and commitment
  • Knowledge management
  • Operational excellence
    • BOS (Business Operating System)
    • Goal setting and deployment
    • Measurement
    • Assessment
  • New product launch support
    • Program management
    • APQP tool development, support and implementation
    • PPAP preparation

Which functions should be included in QMS Sourcing®?

A tool for deciding this question is the QMS Sourcing® Range Chart. As a team and in conjunction with your QMS Sourcing® partner, give each potential outsource function a rating on a scale of 1 to 10 for its fit with your Core Business and Core Competencies. These two numbers will provide the coordinates to plot the location of this function on a simple X-Y plot.

Scales:

Core Business – 1 no fit, 10 it’s where you make your money.

Core Competency – 1 can’t spell it, 10 you’re the benchmark, world-class.

Example: Function (Core Business, Core Competency)

  • Supplier development (2, 2)
  • Customer relationship management (6, 7)
  • Quality culture deployment (2, 4)
  • Knowledge management (3, 5)
  • Operational excellence (6, 6)

Range:

Plot the functions on a simple X-Y chart. Draw a rectangle from the point on the Core Business scale where you’re currently comfortable with your partner’s capabilities to the point on the Core Competencies scale where you’re confident in their abilities. This rectangle can grow with the relationship. The items included in the rectangle are the best starting point.

Who’s the best QMS Sourcing® partner?

The best partner can be summarized in the 5 R’s of QMS Sourcing®:

1. Results

2. Reputation

3. Relationship

4. Regulation

5. Renewal

Results – Start with the end in mind. Set clear measurable goals and deliverables with your partner and expect regular updates regarding the key milestones. They must focus on your success not your satisfaction; they must be willing to tell you what you need to hear not just what you want to hear.

Reputation – They need a proven track record and capabilities in all areas of the QMS you’re looking to outsource. If your organization is global, so must your partner be. You will want a full service provider who can manage the entire scope of work either first-hand or through subcontractors. This keeps the accountability with your selected partner but allows them to marshal the necessary resources to ensure the best solutions.

Relationship – There must be trust and compatibility right down to the core values of both organizations. Your QMS outsource partner will impact on your overall Quality Culture, so a common value system is a must.

Regulation – Even with the best relationship there needs to be controls. Set boundaries where needed to ensure the scope and expense don’t increase over time without clear agreement. Take responsibility to monitor progress on agreed-upon deliverables and provide timely feedback to your partner.

Renewal – Keep the relationship strong through appropriate use of recognition and rewards for outstanding performance. The most appreciated rewards are more business and strong endorsements. As they meet and exceed your expectations, look for more opportunities to profit from your partnership.

How to start QMS Sourcing®

  • List all the QMS Functions currently being conducted within your organization.
  • Conduct a detailed accounting of the cost, including headcount, for the listed functions.
  • From the list of “What functions can be included in QMS Sourcing®?” determine if there are other functions you would like to include.
  • Rate and plot each function using the QMS-Source Range Chart
  • Determine which of those functions you would like to outsource, why you want to outsource it and what results you expect.
  • Select your potential QMS Sourcing® partner(s), provide them with the list of functions you would like to outsource along with details about the scope of the work.
  • Meet with the candidates and provide clarification on any questions to assist in their preparation of a quote, references and endorsements.
  • Assess the potential partner’s compatibility and reputation, as well as their capability and capacity to handle the proposed work.
  • Select a QMS Sourcing® partner.
  • Utilize the 5 R’s of QMS Sourcing® to manage the partnership.

When to start QMS Sourcing®

Best

  • Before the financial situation requires it.
  • Before the competition does it.
  • Before your lack of resources compromises your business.
  • When expertise is needed beyond your current competencies.
  • When speed is critical.
  • When you’re spending more time on trivialities than on your core business.

Worst

  • After you’ve lost the business.

Where to learn more

The International Association of Outsourcing Professionals (IAOP)

http://www.outsourcingprofessional.org

Omnex Management and Engineering Consultants, LLC

https://www.omnex.com/

Contact:

David A. Lalain

001.248.953.0880

dlalain@omnex.com

References:

  • 2004 Enterprise Systems Outsourcing Survey October 2004
  • Dun & Bradstreet
  • Michael F. Corbett, Executive Director, International Association of Outsourcing Professionals
  • Newsweek August 2004
  • Deloitte Consulting April 2005

About the author

David A. Lalain, President Omnex Quality Culture

As President of the Omnex Quality Culture, Dave is responsible for leading clients through a systematic process to align and involve their entire organization in the pursuit of quality improvement and ultimately customer success.

Dave has over 33 years of industry experience with a Fortune 500 company. Quality leadership has been his role and passion for the last 22 years. His major rewards have come through building a strong foundation for quality improvement to thrive. When everyone understands quality in the same way and shares a common language for quality, alignment and commitment follow. He has led the implementation of quality improvement, Six Sigma and Lean Manufacturing throughout a diverse global organization.

About Omnex

Omnex, Inc. is a business management solution provider to the semiconductor, high technology, automotive, manufacturing, and service industries. Omnex provides implementation consulting and training courses in subject areas ranging from APQP to Six Sigma from its offices worldwide, and is dedicated to bringing together world-class talent with local presence to deliver high impact expertise in today's global business environment. Omnex Systems, an affiliated company, offers the Enterprise-wide Quality Management System (EwQMS) Suite.