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Lessons from Samsung on Supplier Quality Management

Samsung says the battery issues in its ill-fated Galaxy Note 7 model came from two different problems with two different suppliers; it's a scenario that could befall many firms, so it pays to learn lessons now

With last week’s launch of the flagship Galaxy S8, Samsung will hope the next few months will treat the firm a lot better than the fraught former 12 have done.

The huge global recall of millions of its Galaxy Note 7 phones led to a 30% fall in third-quarter profits last year, and the effect on the brand is still being debated.

But although this may have been the most recent high profile case of supplier quality control – as this was – Samsung is certainly not the only company to struggle with the issue. It has been a perennial challenge for Quality executives over the years, in part because of how difficult it is to enforce.

Exploding Galaxies

After four months of testing hundreds of thousands of phones, Samsung in late January revealed the reason behind the sudden combustion of the Galaxy Note 7: faulty batteries. More specifically, two sets of faulty batteries from two different suppliers that caught fire for two completely different reasons.

During a two-hour presentation, Samsung focused on the fact it did not have strong enough quality controls in place to detect both battery defects before they reached the customer. The company also admitted that it may have asked too much of its suppliers.  According to DJ Koh, Samsung’s president of mobile communications business, the Note 7’s design was “quite aggressive” calling for a more powerful battery without compromising on size in an attempt to satisfy consumer demand for a better video and gaming experience.

Samsung’s ordeal with the Galaxy Note 7 cost a lot of money – some estimates putting it at $17 billion –  and, while a combination of quality failures may have led to the discontinuation of the model, Samsung’s size and market dominance should help the firm weather the storm. Not all would be so lucky, however.

Three Questions…

In a highly competitive global marketplace where most companies must aggressively compete for customers, Quality professionals have a vital role to play in ensuing that something similar doesn’t happen at their firm.

They should start by asking themselves three questions to find out where problems might exist across the organization.

  1. Could our actions or requests inadvertently confuse or put too much pressure on suppliers?
  2. How can we work with other functions like Procurement to ensure suppliers aren’t making harmful quality trade-offs to meet deadlines?
  3. How can we promote supplier collaboration to strengthen quality controls?

These questions are important because big companies increasingly require suppliers to work with more people and functions. This is usually designed to reduce supplier risk, but can unintentionally create new threats. Quality managers need to think about how supplier relationships with multiple internal stakeholders could affect the quality of products and operations.

For example, in order to manage third-party risk, functions like Legal and Compliance are increasingly involved in the supplier management process. While well-intentioned, these efforts can slow the delivery of what the suppliers are being paid to produce and create confusion that distracts from concerns about the quality of what’s being produce – especially if communication with the supplier from all other stakeholders in the firm is not coordinated.

It is also important to be aware of how Procurement could be squeezing suppliers on price, which could lead suppliers to cut corners. What’s more, putting pressure on suppliers to hit unrealistic deadlines will unintentionally force harmful tradeoffs – such as foregoing agreed-upon quality checks in favor of filling an order on time.

…And Three Tactics

Once they’ve found answers to each of the questions, three tactics will help Quality teams work with internal partners to tackle supplier management issues and stay out of the headlines.

Issues like these aren’t easy for Quality to tackle. Quality isn’t the only function with responsibility for supplier relationship management, making it difficult for Quality to tackle issues like these on their own. To manage this risk, Quality needs to team up with internal stakeholders to manage supplier quality performance.

  1. Get more involved with collaborative projects: To manage supplier risks, Quality teams must first understand the breakdown of responsibilities for supplier management within their own company. Quality is often accountable for tasks like developing supplier capabilities, but doesn’t necessarily own the execution.

    To improve supplier quality, start by determining what areas Quality has accountability for, and then ask functional partners to inform the Quality team when they are working on these types of projects with suppliers. By asking to be more involved, the team will ensure quality considerations are applied within the context of the project the supplier and client (i.e., the Quality team’s colleagues) are working on.

    In addition, these collaborative projects offer the unique chance for Quality to understand how suppliers meet their company’s needs. Quality often dictates specific standards that suppliers must routinely meet but, unless there is a supplier audit, there is limited visibility into how suppliers work to meet and prioritize those mandates. These collaborative efforts will provide more visibility and help ensure suppliers don’t feel pressure to deliver on some mandates over others without Quality’s knowledge or input.

  2. Build trust with suppliers: Suppliers increasingly report that the customers they work with are only looking out for their own interests. In fact, 69% of strategic suppliers say they lack of confidence in their customer partnerships.

    Strong supplier partnerships don’t depend on doing the most business with a particular vendor, or even having been a customer for long, according to CEB analysis. Suppliers value the customers they trust. This trust translates into stronger collaboration for better quality control and reduced risk.

    To boost suppliers’ confidence in their firm as a customer, Quality should work with Procurement and other relevant partners to create common goals and priorities for the partnership. For example, one food packaging and processing company worked with its suppliers to create a “common agenda” document.

    This one-page sheet spelled out mutually agreed-upon high-level priorities in simple terms. The document helped build confidence among both parties that their priorities were being met.

  3. Keep track of organizational changes at major suppliers: Get ahead of potential supplier problems by asking internal partners to inform your team if they hear about a supplier that is undergoing major changes (e.g. new systems implementation, leadership transition).

    Research shows that during times of change, employees are more likely to lose focus. In fact, when distracted employees make an average of two additional errors per year that could affect customers. If your suppliers’ employees are distracted, quality issues are more likely to slip through the cracks.

    To prevent this, the quality team can provide additional support or training during this time to minimize the risk of quality failures.

 

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