Why Auto OEMs Require Layered Process Audits for Tier One Suppliers

An article in the Harvard Business Review noted that organizations, including OEMs, are “… increasingly relying on their suppliers to reduce costs, improve quality, and develop new processes and products faster than their rivals’ vendors can … The issue isn’t whether companies should turn arms-length relationships with suppliers into close partnerships, but how.” One way that OEMs are working with their tier one suppliers to improve quality is through Layered Process Audits (LPAs).

These quick audits are designed to provide verification of process conformance, identify areas of possible process variation, and provide continuous improvement opportunities for key performance measures. According to the industry’s guide to LPAs, “These outcomes can have a direct impact on the quality of the product the organization ships to the customer. Ultimately, the improvements to the organization will have a positive impact on business results.”¹

The LPA mandate came out of the ISO/TS 16949 quality management system standard as a Chrysler specific requirement in the early 2000s and was later adopted by other OEMs. Expectations for a supplier’s LPA program are fairly straightforward and call for multiple layers of management to perform LPAs on a regular basis, including one audit per week by top management and at least one audit per shift by an operational manager that covers build techniques and craftsmanship.

It’s readily apparent that the sooner an error is detected and fixed in the manufacturing sequence, the lower the cost to remedy the situation. If a process that is used in the production of a vehicle’s instrument panel is filled with variation, then the likelihood of a nonconforming product increases. If this production process is flagged during an LPA and then is corrected and followed on a consistent basis, it becomes a relatively inexpensive adjustment for a tier one supplier to make. On the other hand, if a defective part (caused by process variation) is installed in a vehicle produced by an OEM and is later subject to a wide recall, not to mention a storm of negative publicity, the costs can suddenly skyrocket.

From the OEMs perspective, LPAs:

• Expand collaboration efforts with their suppliers
• Are something that OEMs themselves are doing, so asking suppliers to do the same is a natural extension of this philosophy
• Require a low investment from tier one suppliers, but offer a significant quality return for both the supplier and the OEM
• Provide a mechanism to review a tier one supplier’s corrective actions for any detected quality issues.

Creating a Culture of Quality for the Supplier

It’s not only the OEMs that benefit from LPAs, but also tier one suppliers which stand to gain from an effective LPA program that can provide real-time insight into audit results including:

• audit completion
• process conformance
• corrective action assignment
• process failure by type and location

And, if a supplier uses LPA software it can easily track audit completion and corrective action in real time.

LPAs provide suppliers a dynamic view into their operational process conformance and the corrective actions required by OEMs to maintain supplier quality. LPAs serve as a method to disclose process conformance and audit completion rates for added assurance and credibility into production quality.

LPAs can serve as a method to move a supplier organization to the next level of performance. They give ongoing attention to core processes by all levels of management. A well-designed LPA system brings multiple layers of management onto the shop floor, helping create an organization-wide culture of quality. Coupled with randomized audit scheduling, people from across the plant are brought in contact with each other, extending the culture horizontally as well as vertically.

Other benefits of a supplier LPA program may include:

• Improving standardization
• Promoting management involvement
• Encouraging operator feedback on processes, providing first-hand perspective
• Establishing accountability in the workforce
• Improving productivity
• Preventing errors
• Improving communication between management and the workforce
• Deploying resources effectively
• Reducing variation and defects
• Improving first-time-through capability
• Facilitating operator training
• Boosting employee morale

Given the high stakes of product quality for both OEMs and suppliers alike, doesn’t it make sense to invest in a well-developed LPA program?

¹ CQI-8, Layered Process Audits, Version 2, (2014), p. 8, Southfield, MI: AIAG