How To Uncover The Hidden Value Of Culture In Supplier Selection
W. Edwards Deming once noted that it is management’s role to establish systems and processes that enable employees to be successful. By working that process continuously throughout the entire organization, employees will have a consistent approach to solve problems. In turn, that approach will enable a company to attain a highly consistent level of quality in its products.
As outsourcing continues to grow for pharmaceutical and medical device OEMs (Original Equipment Manufacturers), suppliers who can keep pace with changing needs and regulatory requirements are in high demand. The stakes are high. Mistakes can lead to patient injury or even death. The business pain of switching suppliers, both in terms of costs – which may exceed $1 million – and revalidation time, heightens the importance of making the right decision the first time.
Companies need supplier partners who embrace their values and consistently deliver results to accelerate their competitive advantage. With development cycles ranging from three to five years, and product cycles of up to 10 or more years, customers also need flexible partners who are motivated to continuously improve, add value, and reduce costs to meet the changing market demands.
To consistently deliver the highest quality and value, it is important to select a contract manufacturer that can operate as an extension of an organization across three dimensions: strategic, operational, and cultural. All three dimensions are important. But culture can be the key differentiator — and also the hardest to build and measure.
What should a company look for in a supplier partner to uncover the ideal cultural fit, and what are the differentiators that can create a competitive edge?
The Importance Of Culture
A common mistake in supplier selection is ignoring the cultural dimension. Culture is what steers employee behaviors and motivates continuous improvement. A strong culture has the ability to drive every person at every level to go beyond the tasks of a job description and take pride and accountability for delivering customer value.
Leading-edge organizations build around a model of cultural enablers, continuous process improvement, and enterprise alignment to consistently deliver at the highest level.
West Pharmaceutical Services, Inc.’s Contract Manufacturing division (West) has built a model of guiding principles, based on the Shingo Model Of Operational Excellence. The model drives West’s internal culture of continuous improvement and results through a set of principles designed to create value, consistency, and quality through respect of the individual. The principles (shown in the figure below) are the anchors that connect behaviors to the desired results.
Image courtesy of the Shingo Institute and Utah State University.
Cultural Enablers That Drive Customer Value
Within West’s organization, the guiding principles are grouped into four key areas: people, process, alignment and results.
People
Since complete trust in a supplier starts with the employees, West strives to transform its culture to one where every person is engaged every day in improvements. The company’s goal is to create value for the customer, which starts with people. To lead with humility and respect every individual are two of West’s main guiding principles. For example, a company that creates an environment that enables “safe failure” ensures that all ideas, even the ones that will not work for whatever reason, are acknowledged. The best of those ideas and suggestions are used to implement change. Going a step further, a company must strive to nurture long-term relationships, empower and involve everyone, develop people, and assure a safe environment — these principles are cultural enablers.
One tool West uses to evaluate and measure how well it is leading, supporting, and managing people is the Investors in People (IiP) assessment and certification process. IiP evaluates how well a company invests in, respects, and empowers people. It also evaluates depth of expertise. For example, does the company have depth across all departments and manufacturing plants or only a few strong leaders with a great strategy? An annual assessment provides the ability to benchmark performance and determine areas for improvement. Meeting the IiP standards can lead to various levels of certification. Such an assessment may uncover issues such as higher turnover rates, or employee development paths that may not have been previously established. This helps companies like West to identify risk and understand and improve the true operational effectiveness of the organization both now and for years to come.
At West, a low annual employee turnover rate of 2.1 percent helps provide the customer with confidence in West’s employee stability. The company attributes this to its investment in people. When an employee does choose to leave, the company reviews a variety of metrics and data to better understand what prompted the exit and develop actions and processes that may help prevent future turnover.
Process
In the contract manufacturing industry, it is critically important to achieve operational excellence. West builds the importance of this into its culture with principles that focus on process, embracing scientific thinking, assuring quality, and seeking perfection. The company strives to stabilize processes, uses data to drive results, focuses on the value stream, and integrates improvement with work.
Alignment
In order to drive value for customers, both internal and customer alignment is required. To achieve this, clear communication — to all employees — and a clear set of strategic objectives regarding the direction and purpose of the organization will help to create value for customers. With that understanding, employees at all levels have the confidence to seek innovation, take actions and make decisions that will benefit our customers. Regular monthly and quarterly meetings, as well as employee forums, are held with all employees to ensure that every voice is heard. When setting goals, an employee’s goals are aligned with the organization’s goals.
Results
Ultimately, value must be defined by what a customer wants and is willing to pay for. West works to understand customers’ needs and expectations and communicate this throughout the organization. By measuring what matters, and aligning behaviors with performance, the company goes beyond the “what and how” to understand “why” to determine the cause-and-effect relationships.
How Does This Cultural Model Benefit The OEM?
Nothing is more important to customers than a supplier’s ability to produce safe products, or to minimize risk. Reliable processes and lack of mistakes do not happen by chance. They happen in the context of a system focused on driving ideal, principle-based behaviors. The foundation is laid with the guiding principles of leading with humility and respecting every individual. To understand how the process-related principles translate culture into delivering meaningful business results, companies must look at four of the principles that guide continuous improvement of processes.
These principles reinforce behaviors that drive out errors, improve quality, and make processes more efficient. This is what gives customers the confidence that their supplier partner is looking out for their quality, their reputation, and their bottom line.
Focus On The Process
Can the best employees produce consistently good results with a poor process? The answer is no. Yet, there is a natural tendency to blame the people involved when something goes wrong. In reality, the issue is typically rooted in an imperfect process, not the people.1 In line with this thinking, when an error occurs at West, the company determines the root cause and then focuses on improving the process involved. This focus ultimately leads to very consistent and reliable processes.
Tools such as Six Sigma can help OEMs to standardize processes. At West, two key differentiators are: 1) that the company is not just using these tools, but embedding them into its culture through its guiding principles, and 2) deep levels of Six Sigma certification and expertise help to guide the organization. Without cultural principles to drive behavior, some employees may revert back to the old ways of doing things. Culture is what steers employees to act in ways that add value for customers.
West Contract Manufacturing began cultivating a culture of continuous improvement of processes 15 years ago with Six Sigma Black Belt and Green Belt training. Today, 42 percent of its employees have a Six Sigma certification — including high ratios of Black Belts, Green Belts, and White Belts based on industry standards. All of West’s technicians have been through a program for scientific molding, and the majority have been through Six Sigma Black Belt or Green Belt training to ensure a solid understanding of the data from systems and the ability to respond effectively to any issues that data uncover.
Embrace Scientific Thinking
Process improvements happen over time through observation, learning and exploration of new ideas.2 West encourages employees to explore new ideas without fear of failure, recognizing that this is how the company will achieve process improvement. Also, West follows a structured scientific approach to solving problems. Lean and Six Sigma training are key components to this approach.
High-performing organizations rigorously use data to measure, assess, and improve operations. When evaluating suppliers, it is important to understand how accessible their data is for process management and process improvement purposes. But data itself does not add value unless employees are trained to analyze the data and uncover the actionable insights that lead to process control and improvements. As companies consider suppliers, consider the depth of expertise in the organization. Who is trained and empowered to understand data and improve processes? Is this done by one department? Or is it done by everyone in an organization?
Quality Assurance
“Perfect quality can only be achieved when every element of work is done right the first time. If an error should occur, it must be detected and corrected at the point and time of its creation.”3 Companies like West will have behaviors established to enable perfect quality. Such behaviors may include: organizing places of work so potential problems become immediately visible, and stopping work to fix errors before continuing.
West CM has implemented Internet of Things (IoT) technology in its E2 system. For every single molding machine in component manufacturing, the system collects 17 in-process data points for every cycle. The 17 data points are compared to a standard in real time as part of an automated quality control process. In the bigger picture, systems collect 10 million data points per day across the company and analyze those against standards to make sure the molding process meets the requirements. This data-driven proof reinforces for customers that West’s processes are closely monitored and that even slight variations in a process will be detected and evaluated.
Seek Perfection
For long-term success, a relentless quest to make things better must be built into the culture. A culture of striving for perfection, even if perfection is impossible, brings out the best in each employee. Suppliers with strong culture continuously improve processes and ensure high quality with fewer errors. In practice, simplifying our work is one way we seek perfection. Another way is creating long-term solutions rather than leaving temporary fixes in place.
Uncovering The Cultural Fit
Bringing a pharmaceutical or medical device product to market is incredibly challenging. In addition to the normal manufacturing difficulties, there are the responsibilities of patient safety and regulatory requirements. For many years, the industry resisted outsourcing because of the tremendous challenges. Outsourcing is now growing, and the customer-supplier relationships are transforming into partnerships instead of supplier-vendor relationships.
Finding the ideal cultural fit can be a game changer that drives competitiveness. When strategies align and capabilities are a fit, look to culture as a reason to trust a supplier’s ability to create consistent value for the long-term. Such a culture will be mutually beneficial. Treating suppliers as partners will help to ensure a high rate of success, enhanced collaboration, and increased innovation.
- http://qualcon.com.au/2014/wp-content/uploads/2014/10/Shingo_Model_Handbook-new-version-Oct-2014.pdf
- http://www.shingoprize.org/model
- http://qualcon.com.au/2014/wp-content/uploads/2014/10/Shingo_Model_Handbook-new-version-Oct-2014.pdf