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Using the Supply Chain to Improve Product Quality

In our second article, we elaborated on the importance of the Supply Chain in reducing price volatility, increasing quality, and focusing on core competencies.

For this article, we are going to take a deep dive into how your supply chain management can improve product quality and lead to higher customer satisfaction.

Quality is defined by the customer requirements and their perception of how the product should perform. The fitness of use should be from the customer’s perspective and not within the organization. For quality-centric companies like Toyota, quality management is their approach to maintain long-term success through customer satisfaction.

Before we can discuss how to leverage our supply chain to improve quality, we must first define what quality is to our customers. Do our customers want a luxury item with many features or are they looking for the best value at a low cost? What levels of reliability, durability, and maintainability does the customer require? What do they currently think of our competitor’s quality and how has that driven their sales? All of these questions begin to define what level of quality the customer requires to win orders and sustain loyalty.

Once we define and understand what quality is to our customers, we must next understand the risks of poor quality. There are two types of costs that are achieved when products are made of poor quality: internal and external failure costs.

Internal failure costs are the costs of parts/components that go wrong before reaching the customer. These costs include rework, scrap, re-inspection, and retesting. Although these costs aren’t always quantifiable, they can be the difference between meeting production & quality goals and wasting hours to fix failures. Think of it this way, if you’re investing your own labor hours into altering or inspecting parts that you have purchased, then what seemed like a manufacturing issue might actually be a supply chain issue.

Relative to external failures, internal failures can pose less of a risk. External failure costs are incurred when the product has reached the customer. These include warranty and returns. These are the most significant costs related to poor quality. We want to eliminate external failure costs as much as possible because they can affect your brands perception of quality. Nobody wants to buy something new only to find out it doesn’t work after two months. And as a business you don’t want to have these failures occur at the hands of parts you procured from an outside supplier. Allowing poor quality to reach the customer can lose future orders and diminish branding.


How do you limit internal and external failures?

1 : Setting clear expectations

Understanding what the customer expects and the costs associated with failing to reach those expectations is the first step in leveraging your supply chain to improve quality. It is critical to communicate these expectations with every stakeholder within your supply chain. This means ensuring your suppliers understand what your internal use of their parts will be. For example, if you are buying bearings that will be regularly exposed to high temperatures, it is important your supplier knows this or else they may ship product that is not suitable for its working environment. Once these expectations are established and communicated, it should be emphasized that under no conditions these expectations should falter. Any possible quality issue should be communicated prior to shipment. These quality issues will end up costing both companies if they are not met before delivering the product.

2 : Reiterate the importance of quality

The next step is to establish the importance of quality across your entire supply chain. If you think of your company as the customer of your external suppliers, the idea of quality being defined by the customer works the same way. It is critical to expect your supplier to meet your quality requirements. If an item you are purchasing has major quality or safety implications, ensure that is communicated to the supplier so they can do additional inspection or even alter their operation. Imagine purchasing a valve that must meet certain specifications or else your product may fail. The supplier should understand the risk to ensure they’re capable of producing a product to meet your needs. If a part is not as critical you could communicate that to your supplier as well, as this may help them to meet faster delivery windows. Again, it is critical to communicate these quality expectations with your supplier. This will save them external failure costs as well.

3 : Communicate Change Points

Change points in this context are mainly engineering or process related. For example if the design or specifications of your product change, it may be important to communicate that change to the supplier. Say your product design changes and your electrical harness needs to be longer, if the supplier was never notified of the change then your next shipment will be no good causing an internal failure. All change points in product and design that could affect materials coming from outside must be relayed outside of the organization.

Even in times of low material availability and unreliable delivery, it is critical your organization has a supply partner that you can trust to deliver high quality material for your application. If you are able to establish a long-term, collaborative relationship with your supply chain, the right supply partners can help guide you through the most volatile environments. The top tier suppliers will deliver with your quality goals in mind. Unprecedented times allow your organization to understand which suppliers have your goals in mind.

By first establishing clear expectations, then reiterating the importance of good quality, and communicating any changes going forward, you can leverage your supply chain to deliver high quality products. Then it is up to your organization to evaluate and maintain relationships with your supply partners. Will they be the catalyst that allows you to deliver high quality products even in volatile times? Is your supply chain setting you up for success? All of these actions are the key to establishing a quality driven product that will continue to win over customer loyalty.


The above article is the third and final installment in our Discipline in Supply Chain (DiSC) series. You can find the previous articles in The Latest section of our site. If you’re interested in learning more or talking with our supply chain team on how they can help improve your Supply Chain processes, please contact John Herzig at



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