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Question: "We're a manufacturing company. Regulatory compliance is killing us -- cost and productivity. We spend more time focused on internal reports and compliance issues then we do trying to solve customer problems. Any suggestions from your experts on how to get a handle on these issues? It's strangling our competitiveness."

Answer: "Sure. First things first, though. Change your mindset; cut through the 'Compliance Crapola.' You can turn regulatory compliance from a competitive disadvantage to an advantage." -- Louis Columbus, Senior Analyst for Cincom Enterprise Compliance & Quality Management

The cost of non-compliance in the manufacturing industry is staggering:

• The total regulatory burden on manufacturers is estimated at $162 billion dollars.
• In the U.S. alone, manufacturers pay $11,388 per employee in regulatory-compliance costs.

Cut Through the Compliance Crapola

However, when you cut through all the media buzz and "consultant speak" in today's competitive marketplace, a simple truth emerges: Companies that consistently produce high-quality products rise to the top in both reputation and revenue.

Look at it this way: You may have a lock on low-cost suppliers, product design, styling, pricing and even marketing channels. But if your customer gets a lemon instead of a Lexus, all bets are off. Don't forget, studies show that a disappointed customer is more likely to spread the word than to take the time to complain to the company.

Viewed from that real-world perspective, compliance represents an opportunity to gain an important competitive advantage. When a company focuses on making sure every product produced every day exceeds customer expectations, it can drive up sales and profits.

Start with a compliance audit

Companies that want to turn compliance into a competitive weapon often start with an open-minded and rigorous compliance audit. Such an audit allows you to:

• Make sure your organization is (1) aligned with customer needs and (2) delivering what the customer really wants. At one build-to-order company I worked with, a quality audit revealed that, on average, it took seven tries to get things right. So, don't be surprised if your audit results in re-defining supply chains, production processes and quality-assurance standards. They may be required for your people to get things done right the first time.
• Scrutinize existing parameters for compliance and quality to give manufacturing teams insight into which processes are underperforming, and why processes are defective.
• Establish benchmarks and performance analyses you can use to turn corrective and preventative action into exception-driven fine-tuning, instead of costly "firefighting" at the tail end of the production line.

It's important to keep your audit customer-centric, not exclusively cost-based. Some very large companies have found success following this strategy. Lego, for example, chose to keep its most critical manufacturing process, plastic molding, located in Denmark and the Czech Republic - not because of lower labor costs, but because doing so assured continued high quality. Similarly, Otis Elevator kept its subassembly manufacturing in Illinois, despite dramatically lower cost options overseas, to preserve its reputation for quality.

A key point to consider: As part of this process, let the customer audit you. And develop a healthy skepticism for exclusively "warm and fuzzy" feedback. You want candor, from one end of the sales cycle to the other, from order entry to fulfillment and after-sale support. Every customer "touch point" matters in helping you shape your compliance strategy decisions.

Build a stronger supplier network

It's easy to marvel at the Toyota Production System (TPS) and say to yourself, "We could never get there from here." But the building blocks of Toyota's much-admired approach really come from just reaching out to suppliers, collaborating with them and setting high-quality supply-chain standards. Toyota suppliers say that the TPS system forces them to create a culture of quality to continue shipping products, in effect, improving their processes as well.

While the Toyota approach is certainly difficult to mimic, any company can develop a similar supplier compliance strategy that holds vendors' feet to the fire.

For instance, as a result of your compliance audit, you should establish for your suppliers a series of key performance indicators (KPIs) you can monitor. Typical KPIs cover quality, timely delivery performance and the like. Naturally, you want your KPIs to trend up, and to set off "bells and whistles" when they don't.

You may also want to consider incorporating Service Level Agreements (SLAs) in supplier contracts that specify your quality standards and incorporate discounts or other givebacks for failure to perform. Reviewing these metrics from period-to-period will help you keep your suppliers on their toes.

Use technology wisely

Manual processes often dominate quality management and workflows. The result is a disconnected "patchwork quilt" of information in different PC-based systems, a "quilt" that doesn't support a strategic approach to quality management. That's why today's leading-edge companies integrate fragmented compliance systems into a single compliance "system of record" that, for example, analyzes historical supplier performance against established metrics.

Newer technologies, such as RFID for tracking inbound and outbound product shipments also help you gain control over your information, allowing you to automatically update centralized databases to signal gains (or drop-offs) in supplier performance. Using an ECQM-based approach lets you link with your suppliers and motivate each of them to achieve higher quality levels.

Or you can reinforce your compliance strategy with suppliers without spending a cent on technology. How? By tracking and posting their relative performance on portals or internal websites where each of them can see who is exceeding expectations and who is not. Dell, General Electric, Hewlett-Packard and Microsoft are already doing this to improve supplier performance.

Unfortunately, too few manufacturers take advantage of the opportunities available to them, often because they are mired in manual approaches or clumsy and error-prone Excel spreadsheets. But by automating compliance and integrating analytical tools (perhaps using business intelligence "dashboards"), you can weave auditability - and accountability - into the fabric of your compliance process.

Capitalize on compliance wins

As a part of your overall compliance strategy, you should also consider ways you can leverage your compliance performance effort into a competitive differentiator. You need only look at the payoffs Toyota and General Electric have had to see the value in managing process and product quality to high standards.

So, don't "hide your light under a basket." Look for quick wins wherever they occur, and find ways to communicate them. For example, if an initial effort results in less waste or rework, promote the news internally to management and employees to send the right kind of message about manufacturing compliance. A steady stream of such "wins," over time, will play an important role in communicating the company does more than pay "lip service" to quality.

You may also want to huddle with your marketing team to hunt for ways to underscore product and service quality at every opportunity. That way, you need not rely on price, promotion or channel strategies to gain market share.

Go ahead, knock the cover off the ball

Companies that adopt a customer-centric view of manufacturing compliance can knock the cover off the ball in sales and revenue growth. But it takes an investment in both time and money for you to take your company beyond survival and help it thrive in an increasingly competitive global market.

Viewing quality standards as a long-term competitive differentiator calls for a new way of thinking about compliance. After all, complying with customer expectations is a lot more difficult than just complying with regulations. But the bottom-line payoffs are well worth the effort.

Louis Columbus has published 15 technology books and is currently a member of the ECQM practice at Cincom. He is a weekly columnist for crmbuyer.com and informit.com, and teaches graduate-level international business and marketing courses for Webster-Loyola Marymount University. Louis has also taught at the University of California-Irvine and California State University/Fullerton. You can contact Louis at lcolumbus@cincom.com

Additional resources:

For a copy of the white paper, "Top Ten Reasons to Automate Manufacturing Compliance," click here.

For a copy of the white paper, "The High Cost of Non-Compliance for Manufacturers," click here.

About Cincom ECQM Solutions

Backed by over 35 years of successful manufacturing implementation experience, Cincom Enterprise Compliance and Quality Management (ECQM) helps manufacturers increase profit, reduce risk, and improve customer satisfaction. Cincom's fully integrated solution suite resolves issues quickly, prevents recurrence and ensures compliance with industry and regulatory requirements while helping organizations PERFORM and CONFORM more effectively.

Cincom serves clients on six continents including Aerojet, ATK, GKN Aerospace, MPC Products, and Trane.

For more information about Cincom's products and services, contact Cincom at 1-800-2CINCOM (USA only), send an e-mail to info@cincom.com, or visit the company's website at www.cincom.com.