Every brand and retailer is responsible for ensuring that their products comply with the requirements of their destination market, and failure to do so can result in recalls, steep fines and lawsuits. Optimizing the cost of a testing program is a particularly relevant challenge for business models with inherently thin margins, such as discount stores.
This case study demonstrates how QIMA helped a major discount chain operator reduce the cost of their testing program by identifying and addressing the root causes of high test failure rates through detailed analysis of their sourcing data.
Case Study
Client Background
The client is a discount chain operating over 14,000 retail stores throughout the US. Following the 2008-2009 recession, the client experienced rapid growth as more consumers sought better deals, which has led to the client’s revenues skyrocketing from USD 6B in 2011 to USD 22B in 2019. During that period, the client also notably expanded their e-commerce operations.
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Rapid growth and further e-commerce led to higher needs for QC but using traditional means with QC partners who had no data analysis did not accomplish that. As an “extreme discount store” they need to operate on very tight margins so cost savings operationally are required for continued success.
Challenge
The client’s rapid growth led to higher needs for quality control and product testing. This was particularly relevant for their e-commerce distribution channels, as online purchases are at higher risk of quality issues, being delivered to consumers directly from distribution centers and thus eliminating the chance of product defects being spotted by store staff or the consumers themselves prior to the purchase.
Before approaching QIMA in 2017, the client struggled with a high test failure rate in their supply chain. Although the client had a quality control and testing program in place, it relied on traditional methods and QC partners without data analysis capabilities, leaving the client unable to identify and address the root causes of the high test failure rates in their supply chain.
As a result, the client’s existing supply chain interventions were able to prevent non-compliant products from being shipped, but the estimated cost of rework and retesting was USD 266,000 per year. With their “extreme discount store” business model, the client operates on very tight margins and requires constant optimization of costs for continued success.
The Client approached QIMA, a leading provider of end-to-end intelligent solutions for improving quality and compliance, looking for a technology-oriented partner capable of analyzing massive volumes of sourcing data in order to identify and eliminate quality and compliance hotspots, and improve supplier performance in the long term.
Implementation
After taking over the client’s product testing program, QIMA was able to collect a large volume of data on product and supplier performance, which was systematized and analyzed in QIMA’s intelligent quality platform. The overall test failure rates for the client’s products at the start of their cooperation with QIMA were around 3%.
Access to detailed testing data showed that the majority of product test failures came from violation of labeling requirements, most of which could be traced back to 3-4 specific suppliers. Based on this information, QIMA developed a three-pronged strategy for improving product quality and compliance in the client’s supply chain:
Vendor education: providing training to the vendors on the relevant labeling requirements (with priority given to the vendors with the highest rate of test failure), in order to improve label design
Client education: providing training to the client’s staff on the relevant labeling requirements, enabling them to further advise vendors on the issue
Cooperation: working with the client to establish an additional in-process verification stage, where the vendor would submit the designed label to the testing lab for review before going to mass production
QIMA’s ability to collect, analyze and make available to the client detailed sourcing and testing data was instrumental for the program’s success. Meanwhile, QIMA’s industry and market expertise, combined with its presence in the sourcing regions and fluency in the suppliers’ languages and culture, enabled smooth and productive cooperation between all parties. QIMA’s approach, centered around education and cooperation, was highly effective in preventing non-compliant products from entering the client’s supply chain.
Impact
Within the first four months of partnership with QIMA, the test failure rate in the client’s supply chain dropped from 3% to below 1%. This initial improvement was particularly significant because it happened before the client’s peak season, saving the client approximately USD 65,000 in the first month of their peak season.
Going forward, QIMA monitored the test failure rates in the client’s supply chain, observing a further reduction to an average of 0.3% in 2017. Ultimately, the reduction in test failure rates amounted to 80% in the first four months of cooperation, and 90% over 2 years of partnership, translating to a total of USD 1.8 million in cost savings to date. It is worth noting that the cost savings alone outpace the total cost of the client’s entire testing program with QIMA.