Rob Prosser, global product manager for Industrial ID Materials at Brady discusses how identifying and tracking products can help improve processes, control the supply chain, minimise defect risk, navigate regulatory challenges and improve customer service
According to ISO 8402, traceability is the “ability to trace the history, application or location of an entity by means of recorded identifications.” Traceability also has ties to Six Sigma programs as it provides vital tools that help improve customer satisfaction by enhancing processes and protocols that can reduce the liability associated with electronics manufacturing.
A traceability system can provide clear insight into the various steps in the manufacturing process that impact a finished product. That information can then be used for a variety of purposes including process improvement, defect resolution, regulation compliance, brand integrity, and direct and indirect cost savings.
Why is traceability so critical?
Customers expect to receive both quality and reliability in the product they ordered. When the product fails, has unexpected flaws or doesn’t meet their needs, a replacement often is covered by warranty or product recall at the expense of the supplier. When it comes to this cost, manufacturers frequently seek to share the burden with their supply chain partners. As companies realise the significant cost-savings driven from sharing the warranty or recall obligations, the pressure and scale of that arrangement will only increase.
Productivity and lean challenges - While the need for traceability systems often stems from customer requests or contractual agreements, production teams also face increasing internal pressure to facilitate cost-reduction activities through lean manufacturing. To align with these efforts, manufacturers first need to identify areas for improvement, such as supply inputs, non-contributing processes and worker errors. Once these activities are complete, they can isolate causes in processes that can be addressed with corrective actions.
A traceability program provides the data needed to monitor and quickly correct previously undetected issues in production processes. This robust data has been proven to provide significant quantitative benefits — reducing manufacturing cycles, changeover times, and improving sales quoting, shipping, data entry and inventory management processes.
Early defect detection - In an average surface-mount technology production line, there are over 800 million opportunities annually for process or component defects to occur. By isolating the impacted components or finished goods prior to customer shipments, manufacturers can benefit from substantial direct and indirect cost-avoidances that justify the upfront investment of a traceability system. The importance of early detection is demonstrated by the estimate that product recall costs increase tenfold at each step along the product life cycle.
Regulatory compliance - Manufacturers who sell into multiple vertical markets, such as aerospace, automotive and medical, are tasked with managing and meeting a variety of compliance requirements. In addition to customer expectations, manufacturers have to manage REACH, RoHs, ISO, UL and other governing bodies. Navigating the numerous regulations and requirements can drive considerable amounts of manual work and hard-copy documentation.
Demonstrating compliance often counteracts lean manufacturing practices, and also creates additional liabilities that are typically outlined in supplier agreements. Using data captured from production activities and supply inputs in a traceability system can provide an organisation with a simplified process of aligning with and documenting regulatory compliance, and mitigating the possibility of violations.
Where ROI comes from
As manufacturers look for traceability solutions, one of their primary concerns often is the return on investment. Industrial firms see the most benefits in four key areas:
1. Production efficiency - Typical cost structures in manufacturing environments show that materials comprise about 50% of the total cost. In the electronics industry, the material cost is typically closer to 80%. Considering the importance of materials in the production process, manufacturers stand to benefit from faster access to more comprehensive data. This increased data affects productivity for electronics manufacturers in two main areas: error-proofing processes, and identifying and eliminating waste.
With a traceability system in place, manufacturers can monitor and detect any production problems or inefficiencies for significant process improvements. Simple enhancements, such as digital storage and access to documents, consolidating databases, simplifying expense and cost recovery systems, and automating manual processes, can have a major impact on overall production costs. Leveraging traceability systems in lean manufacturing processes can help drive significant qualitative and quantitative improvements that impact profitability.
2. Warranty or recall purposes - Warranty expenses and liabilities are the most obvious consequence of a quality error that wasn’t detected before end-use application. Defective components in the automotive industry are well documented because of the extreme cost and extent of impacted vehicles. However, it’s estimated that only 20-30% of all vehicle components are tracked for regulatory and warranty purposes. So despite several well-recognised recalls, the industry can still improve its processes by using traceability data.
Manufacturers of consumer electronics, appliances, medical devices and aerospace also faced increased scrutiny over the integrity of their components and finished goods. Research estimates that consumer electronics manufacturers, communication carriers and retailers spent an estimated $16.7 billion to process returned merchandise in 2011, and 5% ($835 million) of that returned merchandise was a result of defective product. Given the numbers, even small, incremental improvements can have a considerable impact on warranty processing costs and overall profitability.
3. Counterfeit/unspecified supply chain - Product recalls and warranties receive more attention than counterfeit or non-compliant components, but recent research suggests this issue is becoming a serious threat to supply chain integrity. A 2010 U.S. Department of Commerce study concluded that counterfeit incidents had increased more than 240% during a three-year period. Included in this data are key findings that are believed to drive this rapid increase — poorly documented inspection protocols, inventory management and procurement practices, and a lack of dialogue along the entire supply chain (specifically insufficient traceability and accountability within supply chain organisations).
4. Regulatory compliance - Electronics manufacturers face demanding environmental and process compliance obligations. Demonstrating compliance is often taxing and inefficient, but a traceability system can dramatically simplify those activities.
Multiple key stakeholders enact environmental compliance, including government agencies, industry associations and OEMs. Each layer presents additional challenges to electronics manufacturers. In Europe, for example, more than 1,000 substances in 58 different categories are regulated by REACH governance. This demonstrates the sheer volume of monitoring that takes place globally.
Many large key vertical segments have strict business requirements with which suppliers must comply. The aerospace, automotive and medical industries all have their own set of compliance requirements that extend beyond environmental needs into process and quality-control activities. These business requirements can be time-consuming and manually intensive. Most programs are designed to help the collective supply chain achieve zero-defect rates and 100% on-time delivery targets.
Using manual and hard-copy documentation to demonstrate compliance with the myriad of regulations is time-consuming and costly. Data from traceability systems can simplify and reduce errors associated with compliance requirements.
As the requirements for industry regulations and costs of warranty and refund programs continue to evolve, manufacturers can differentiate themselves by taking advantage of direct and indirect benefits provided by a traceability system: improving processes, controlling the supply chain, minimising defect risk, navigating regulatory challenges and improving customer service levels.
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