Rockwell Automation, Inc. (ROK) Earnings Call Transcript & Summary

Hello, and thank you for joining the How Leading Suppliers are Taking Control of Quality webinar. [Operator Instructions] Today's webinar is recorded and will be available on demand immediately after it's completed. You can access a recording using the exact same length they use for the live version. We'll also send you a follow-up e-mail with information on how to access the webinar. Lastly, the slides and additional information pertaining to today's topic can be found in the handout panel located in the lower left corner of your screen. And with that, I would like to introduce you today's speakers, Anthony Murphy and Brian Martensen.

Well, perfect. Thank you. I'll maybe give a little bit of a background and an introduction. My name is Anthony Murphy. I am the Vice President of Product Management for Plex and I've been at Plex for quite a while now, but prior to Plex I spent about 13 year actually inside of manufacturing and doing everything from operation management to some quality control and ultimately, overall responsibility for the plant. And so really excited in the work that we do inside of Plex as we think about the next generation of manufacturing, as we think about how we make manufacturers more successful and use quality as a competitive advantage.

And I'm Brian Martensen, I'm a Product Manager for Plex QMS, specifically the QMS portion of Plex. And I have about 25 years' worth of industry experience in engineering and quality management. So a lot of the battles you guys fight, I fought for a very, very long time. Prior to joining Plex last summer, I spent about 5 years at AIAG, so I had some opportunities to see the quality world from that end as far as writing guidelines, best practices, things like that and was fortunate enough to see the development of the AIAG and VDA FMEA handbook, which has come in pretty handy since I've been to Plex with all the changes in the industry regarding to that update. I believe next up, we have a poll. And we're just looking to see what type of products -- automotive products, in particular, that you serve. We'll give folks a minute to fill that out.

It's always super interesting to see what -- where people come from and what products they produce and what the representation is.

Yes. It's also a good way to see who's busy and who isn't right now. [indiscernible] Webinar.

Exactly. We're seeing a lot more interest, as you think about aftermarket, when thinking about the transition from sort of those legacy models into newer model [ years ] but also even thinking about the internal combustion engine to EV that the aftermarket space is really starting to become a lot more prominent and really, really interesting. So it's interesting to see the results kind of coming in and seeing the response rates there.

And the thing interesting about that is as well as when we look at what we're talking about today, the aftermarket doesn't get the same attention. And even being in plants where my 99% of what I made was current production, but I still had aftermarket responsibility. There were some noted dropouts and it was a time work to see how the parts were made. 10, 15 year earlier and some of our manufacturing sales versus what we were implementing on a daily basis coming days. So...

The other interesting just watching the results come in is the electronics and the infotainment. As you think about the software-defined vehicle and what does quality mean not only in terms of the actual physical products we produce, but [ the atoms ], but the ones in the zeros and the software that controls the car and how you run that traceability throughout, it's really, really interesting to see how that full paradigm is shifting and how the automotive manufacturers, OEMs and otherwise, we're starting to think about that. So interesting to see that representation.

Yes. And that's a point of clarity that they're working on because it's pretty clear how you PPAP a physical component. I mean we've done that for 30 years now. But the big question is, how do you PPAP software because software can be deployed from anywhere really as long as you have a remote connection and how do you track that revision history and how do you get that approved? Because there is always that opportunity that's going to react somewhat differently in somebody's vehicle. So...

Yes.

I think we had the results up. So we got close that, so we can get moving. And again, 30% of you represented infotainment and electronics. So again, a lot -- there's probably a fair amount that are not -- that are traditional automotive suppliers in there, but there's probably a fair amount that are relatively new to automotive as well with that line of work. So -- and it's great to see aftermarket and service represented as well. All right. So we have -- we want to take a look before we get into where we're going as to where we've been and just talk about a few of the topics as to what has happened to manufacturing. So we've always been looking for performance and efficiency. And as a manufacturing engineer starting my career, one of the things I would get talked about daily and monthly is, how are you performing? How are we getting better? And we've been pushing for that a little bit in COVID and the skilled worker shortage has really pushed on that even further and stress those symptoms -- or those systems as far as how we're doing and how we're getting better. But as we look at that quality has always been one area that we've looked at that and tried to measure success. But some of the metrics we look at first time through, cost of more quality, things like that. If we look at those numbers being good, we think we're naturally efficient. Now none of this is new. We've been doing this 30 plus, 40 plus 50 years, and you can go back and look at Deming and Juran and the people whose shoulders we stand on in quality and realize that they've been doing this for a very long time. But we haven't always gotten better as we've intended to and we -- And there's still that gap. So we look at some of the data that's out there for that gap, and this is coming from NHTSA, so it's no surprise to anybody, and we're not going to get any details of any specific organizations. But recalls still are a very common and a very problematic area for the industry. Now when we go back and we look at 2018, and we're not going to look at dollars and cents necessarily. We're just going to look at impact on customers and safety really is the primary one on this. And that is, in 2018, the one figure there's about 6 million car crashes every year, which equates up to over 16,000 a day, which equates up to 1 out of every 5 seconds, which means that in the time I've been talking on this slide, there's probably been about 3 or 4 car crashes alone just on that. And then with those accidents, we get about 4.5 million people that go to the hospital every year as a result for minor injuries. And one thing that stands in the way of those being minor injuries rather than major injuries has been the quality of the safety items and vehicles. And we think back to the days, 30, 40 years ago when it was not uncommon to see somebody with the pickup truck and the kids in the back , In the back of the truck. You'd never see that now. And we've put in three-point harnesses or seat belts and side airbags and all the other things that go into that quality. So recalls though, while we've improved the safety of it, they do have a business impact as well. And this is where we're going to talk about the money once we've hit the safety and the quality of that. And that is you have the immediate financial risk of paying for things, but there's brand, there's reputation. And when you have a recall campaign, that cost millions of dollars. And when we look at the fact of chip shortages and supply chain issues and all the things we've experienced now for the last 3-plus years, it's a significant amount of time. My parents just change their lease, they ordered their car in October, and they got it last week and that's just how stretched out the supply chain is. So when you have that planning of we know we have a car coming in, imagine how much more expensive it is when you have to divert those resources from new production to field issues that you have to replace. So again, some of the hard costs on that. In 2016, the total recall cost to the automotive market was more than $20 billion. And I know there's a lot of things we could do with that money in the industry, as well as specifically the Takata airbag, that was a $1.2 billion charge with that. And on average, a recall is about $500 a vehicle but as we start talking about electric vehicles, while the number of parts may be going down from the traditional ICE that we're driving right now, that cost is going to go up because we start looking at instead of primarily mechanical components, we're looking at electrical components, either strict electrical or integrated electrical in the mechanical so that complexity is much, much greater. Plus we're competing with other technology items like cell phones, computers, tablets for those components that automotive has never had to compete with before. We've had a pretty good with a pretty dedicated supply base. But the more we share, the more that we have to worry about that and consider that as we move forward. So automotive, we have that. At Plex, we also do some food. And since we all eat, just some numbers here for those of you that do any food and beverage work. We had in 2021, 47 U.S.-based food safety recalls, which affected 15 million pounds of food. The average cost of those recalls is about $10 million. And as we see those go up, again, we start looking at how does that affect direct commute consumer pricing because the basics of supply and demand are there and it drives those prices right up. Now those recalls tend to stem from poor quality. And a lot of times, even the poor quality comes as something as simple as getting something approved. When I look back at my college time, a company I worked for recalled a significant portion of their production because a pesticide that was used on oats was approved for everything but humans and they just hadn't taken the time and the expense to get that process by the FDA. Completely safe. They are using it for every other living animal, every other living being outside of humans. But they just didn't do it. It was a cost savings. It was an emergency situation. And it cost the company I worked for millions, including goodwill. So when these happen, and we start looking at things that are brand-dependent, sometimes you start affecting who can and will and won't buy from you. So there is a tremendous ripple effect. And when you start looking at quality issues causing food issues, again, that hits home for everybody no matter what brand you're buying. So with that, as we talk about quality, typically, we have had document paper-based systems that we've used. And while this slide animates, We're going to walk you through a little bit about the typical historic QMS. And that is that was paper-based. So those documents are created in multiple disjointed software packages that did not communicate whatsoever. So when I started, much of my content was created using either Excel and FMEA program that didn't speak to Excel, Visio. All of these are great programs that do tremendous things, but the things that they don't do is they don't communicate amongst themselves. Even those Excel files that had multiple tabs, you could do some linkage on, but primarily you're looking at header information. You're not looking at the technically rich content that you need to share on a daily basis. So any technical updates that I did require me to perform a search and rescue in all of my documents to ensure the content matched. Now if you have -- and I want to say I had about 60 or 70 control plans or FMEAs and if we made a standard change on something, that meant I went into 70 distinct documents and hopefully caught the change in every one of them using search features and things like that. If I'm adding or modifying a process step, I'm not only updating control plans, but now I'm going to FMEA process flow and making sure all of these match and manually doing those changes. So those 60, 70 documents, you can multiply that by 3 and so now it's a lot of computer time, not a lot of engineering time. Now when I made those updates and we look at how it's out there, I had to then format it for printing. One particular company, I did subdivide my control plan, so I had the specific steps for that operation everywhere, get them laminate them, get them hung on boards, walk them all around and do things like that. What was nice at the time is we had quality inspectors that did a significant amount of that work. Those folks don't exist in a lot of these organizations anymore because we've leaned them out the last 10, 15 years. So now it's throwing more and more on to the technical staff, your engineers, your managers, things like that to go ahead and get those documents updated. So as we look at that, and we've realized there's a lot of waste. And there are some numbers out there, people throw out. But one set of data is probably an engineer -- quality engineer, whatever, spends about 80% of their time on paperwork and 20% of their time maybe on real work. And -- why is that? It's because these systems don't communicate. They work great in silos, they're fantastic tools. But it's that interaction of making one change to then go ahead and ripple that across so that we don't have to individually do that. But that requires some cultural change, too, because in the old system is very easy to silo. And that share of that information as readily as it needed to be shared. And so when we disjoint that, we have those disconnections that create quality issues because my product engineer doesn't want to share a 200-page DFMEA with me because it's the Holy Grail. And here's a peak, and I'm going to put this away now, good luck figuring the rest of this out. And that, again, opening that binder. These are all paper-based. So revision control gets tricky. Just keeping things posted where they need to be gets tricky. And it just -- it's a management nightmare. And that's before you even get in a certification, which I never did anything specifically to pass an audit. I did the right thing, but there is that realistic nature being automotive that you need to pass at ITF audit. And if you're pulling 4 or 5 revisions of a document because people have them in their personal lockers and cabinets, it's really hard to do that. Distribution is a nightmare trying to spread all down out across the shop floor. So, all is not negative on this. We'll get to some good news here in a little bit. But I like sharing this one here because I never saw a workstation look this nice ever in my career. I'm imagining this has to be either day one of setup or a very highly disciplined company where they're maintaining that. But even at this level of discipline and cleanliness and the amazing 5S job they did on this, you see all of the content that's distributed across there, it's all hand written. So even when I look at that production record, best case scenario, some places I work, best case would be I might get that data in 24 hours as an engineer to figure out how my process is working. Realistically, it was probably closer to 72 hours. And that was only if the people that handled SPC, noted an issue a couple of days later and said, "hey, we see a trend going off, we thought we'd let you know about it." So today's environment, 72 hours is forever and it becomes ancient history real quickly. So having these paper systems that just have a tremendous lag in being updated and being maintained, is not something that's really good to operationalize your quality management system. So again, the focus is getting off the paper. What do we do to get better and how do we make this better for us. So quality is a challenge in it of itself. And a lot of times, what we see when we start working with the customer is they have a poorly integrated quality system that doesn't allow them to identify things in real time. There's mentioned a 72-hour lag. You're waiting for your customer to tell you something is wrong. You're not seeing those trends as to where your process is going and how your process is operating. There's a lot of variability. There's a lot of scrap. There's a lot of waste. The lack of knowledge comes that opportunity to make a lot of bad product and not have a lot of control of your process. We live document control. We all have our nightmare stories. But again, we know managing that is difficult, keeping up with standards. And yes, there is an ITF rewrite coming in the next couple of years. There are some other document updates coming in the next couple of years that are customer requirements that we know of. So again, every time something like that changes, you go back and you redo and then you update and refresh your system. And I'm guessing nobody on the line has extra people right now sitting around their facility waiting to work. if you do, it's a blessing, but we know that a lot between COVID and just the general shrinking we went through during the recession 15 years ago now, we lost a lot of talented people. I used to see people all the time that I was automotive, now on aerospace. Now I'm in medical, whatever. I mean it's been great to get the automotive disciplines out there, pat on the back, we're ahead of those industries as far as QMS management and core tools and things like that. But still, we've lost a lot of that talent. And the attrition rate and my generation, the people at the leading edge of that are 58 years old. When we talk about the baby boomers retiring, but Gen X is getting in that position where they're starting to see a retirement in the face for many of them in the next 10 years. Side note, Anthony, I'm not going anywhere that quickly, but a lot of my [indiscernible] 10 years or so, but that all sets up risk. And how are we sharing that institutional knowledge from one organization to another and within our organization. So I'm going to pass this off to Anthony because he had some good insights here for how we're currently handling some stuff and the challenges we have.

Yes. And it's really good insight, Brian, in your background in manufacturing and likewise quality is super insightful. And so you go to Brian's point about these paper-based processes and sort of laminating and shuffling paper around the shop floor and you look at where we are today and we're like, well, good news, it's 2023. We're talking about these new technologies. We're talking about the software-defined vehicle. We're talking about the move to electric vehicles. And on top of all of this great advancement in technology, even outside of the automotive industry and like, well, why is it that in 2023, we're still struggling with the same issues that Brian was talking about? The same ones that we've been struggling with for 20-plus years. And -- and the reason for that is that because most of manufacturing, and I want to anchor on that point most, but most of manufacturing thinks about quality, the way that we did as manufacturers during the industrial area during the Deming days, right? We approach quality like we approach the assembly line in this very sort of linear and algebraic approach. And it's sort of that old-fashioned approach. And here -- so here's what I mean. So for most manufacturers, right, start with inputs around process, product and people training, right, people training and enablement. And then from there, we hope that those will lead to quality outputs around product delivery, quality of delivery and audit quality, right? And then we measure the success of those things through outcomes, like Brian was talking about, first pass yield, cost of our quality, parts per million, et cetera, right? So that's how we think about it. It's the sort of, again, this algebraic, A plus B equals C, right? My input plus my outputs should equal my outcomes, right? But the problem is it's very product-centric, and it's very focused on one department quality, right, the quality department, the quality engineers. And -- and quality can't be thought of one department's job and it cannot be looked at solely through the lens of product quality. It has to be holistic and it has to be continuous. And so what we mean by that is when we say holistic, we mean that quality has to come from everyone and it has to be driven not just by one department, but as a sort of this organizational ethos and it's not just about the product quality, though that is absolutely important, it's about customers, it's about employees, it's about the community and the environment. And the reason for that holistic approach is relatively simple, and it goes back to the points that Brian was making earlier, we don't have as many people in the manufacturing industry as we used to. And certainly, as Brian mentioned, there's been a sort of an exodus out of the automotive industry at large. And so -- the reason for that holistic approach is relatively simple, you got to build a scalable and sustainable business and you have to build one that will persist regardless of trends or events. And Brian mentioned, we're already looking at and there's already an IATF rerate coming. And so you have to think about building a business that can satisfy today's requirements as well as to satisfy the requirements over time in a predictable, repeatable and accurate manner. And you may not know about what's coming tomorrow and you have to be prepared to adapt to those things. And so -- when we think about that, when we think about that holistic approach, excellence, resilience and agility, they have to be embedded and improved at every level of the organization. It has to come with and from every employee. And so if you're solely reliant on management or you're solely reliant on leadership or even the quality department to try and drive that and determine that quality, you're always going to be behind because something is going to change, and it's going to be up to one or 2 people to try and drive that change throughout the organization, and that's just not going to be successful. And so that's why culture is important, right? Culture is circular, it's intentional, but it's about building from the inside out. And it's not that linear an algebraic, A plus B equals C. right? Culture is more calculus, right? It means it's a function of continuous change and continuous improvement. But all that's like that's super good. That sounds really great, Anthony. It's a little bit fluffy, but we still got to make a dollar, right? And so as we think about culture, for manufacturers, that culture of continuous improvement, a culture of quality, it still has to support both the top and the bottom line. And so we're going to take a look at why a culture of quality is important to the financials. And then we'll look at what a culture of quality looks like. And likewise, a few sort of actionable tips that we've seen. And we have the -- Brian and I have the opportunity to talk to manufacturers around the globe and talk to both quality engineers and people who are on the production line doing the work. And likewise, the CEOs of some of the leading companies, and we really get this opportunity to have this perspective. And so we've pulled all this together with some of the things that we've seen the leading manufacturers do to really be successful. So we'll talk a little bit about the reasons why it's important and how it can actually have a financial impact, and then we're going to try to give you a little bit of takeaways, if you will, so that you can help institute this inside of your company. And so a couple of things. We'd like to dig and talk numbers. Brian and I are both really numbers guy, the numbers guys. You can get behind the numbers, and you can follow the numbers and make improvement. So -- A multiyear study was done by CEB and they looked at more than 60 domestic and international manufacturers. And then they went inside of those manufacturers and they interviewed over 1,000 employees, and they were exploring the topics of quality and culture and likewise, what it looks like to create a culture of quality and as importantly, what the benefits were. And so they did that analysis and they sorted and they ranked all the data and then they sorted the companies on the overall success and they measured success based on profits, based on employee and customer loyalty because we know about the labor shortage and we know about the cost of retaining customers and like winning new business. And so they started those and they ranked them and what they found is that the bottom 20%, the bottom performers, right, talked about total quality management, but they focus solely on the sort of old methodology where they focused on monetary incentives and piece counts and trainings, right? But what they found then is that when they studied the health of those bottom performers that they were making 64% more mistakes. They had 60% more issues and more errors, right? And then when they looked at that further, they were spending 2x as much to resolve those mistakes issues and errors, right? So again, they did this study. They ranked by -- based on overall financial metrics, employee satisfaction and customer satisfaction. And they found that the people who are performing the worst, we're doing the things that we've always done that linear A plus B equals C approach, right? Now imagine if you had 2x the amount of money, time, energy and people given back to you. Imagine all of the good and all of the things that you could do inside of your business, right? So that's a lot. Now, they dug into the data even further and they found that 60% of the employees -- so remember, they went in and interviewed over 1,000 employees, 60% of the employees of those bottom performers said they worked in an environment without a culture of quality, where they worked in an environment where, hey, look, we're just doing what we're told. We're just following the instructions. We're just trying to make the piece counts. And hey, look, if something happens, not my fault, right? And that's what leads to negative impacts and negative scenarios. So if you think about that, you're probably like, okay, well, let's contrast that, Anthony, if the bottom performers have -- are spending 2x as much and 60% of those employees are not working in an environment where there's a culture of quality. What does it look like for those who work in the top 20%, right? And so again, they went -- they sorted that data and they dug in and interviewed the employees. And what they found was the top 20%, those who were leading again, in terms of profits, in terms of margins, in terms of customer satisfaction and loyalty in terms of employee satisfaction and loyalty, they were driving these peer-driven and mission informed practices in addition to total quality management. So they were saying, hey, total quality management and piece counts are important as we think about some of those inputs and those outputs but that can't be it, right? It's a new approach and a new sort of environment that we're living in. And so what that meant is they had 46% fewer mistakes. They had less than half of the mistakes as those in the bottom and they were thus able to get products to market faster. And they were spending less than half the time to resolve those mistakes and issues. So they were as fast. They were twice as fast as their competition, right? And that math checks out. And so if you think about why it matters. You think about speed and time to market, right? You think about the availability of people and capital and financial capital, that every dollar and every person and every moment is precious. And so the ability to drive that even 1% faster, let alone 50% faster is game changing. Now they took it even further, right? I mean that's real money we're talking about the bottom line, but it's also about the top line. How do we drive more revenue and more opportunities to the business? And so that same study found that they went and they looked at not only the employees and the businesses, but they went to talk to the customers of those companies. And they found that, obviously, we all noticed that buyers buy from companies that they trust and that others trust and who have values of things like sustainability and quality, right? And so they found that 50% of the buyers of the customers' customer, we're looking for companies that look like them, think like them, have values like them, right? And people that they think and know that they can trust. And likewise, we know that 75% of the same thing with those B2B buyers are relying on word mouth and references. And so again, that culture of quality, that culture of doing the right thing of everybody being involved and informed and moving forward of setting your commitments and meeting your commitments is important to the bottom line as well as to the top line. But if you think about the bottom line, there is significant impact, too. Again, they found for every 5,000 employees moving from that bottom performer -- that lower 20% to that top 20% had $67 million in annual savings. Now not all of us have 5,000 employees. And so that can be -- that's great, Anthony, but I don't have 5,000 employees. And so you can break it down a little bit in further. So 5,000 employees is too big. The same study found that it's $1.34 million in savings per 100 employees. If you just move from that bottom 20% to that top 20%. And the way to move from that top 20% -- or the bottom 20% to the top 20% is by having a culture of quality, right? And where everybody is engaged and where we have mission informed practices. And so imagine what you could do, right, if you had another $1 million to go attack some of your hardest problems, to go get a new product to market quicker, to invest in automation or to invest in new technologies, right? Imagine what that money can do. And so that is when you think about having a culture of quality, why it is so important because it not only helps with employee retention and customer retention and customer satisfaction, employee loyalty but it also has real top and bottom line benefits. And so with that, I'll pass it, Brian, back to you. But I think it's important for us, as we talk about these things, what are some of the actionable tips and tricks that we found, what is a culture of quality look like? And so you can take that away and look to implement some of these things in your businesses.

All right. Thanks, Anthony. One other thing of 100 employees is too much. It comes down to about $13,400 per employee. So -- all of you are in an organization of at least once, so you can start to multiply that out and realize the type of impact you have with that. And what does the quality of culture look like? I can tell you what it doesn't. And that was when I started 30 years ago and you'd have these quality initiatives that would roll out and your entire hourly workforce and salaried workforce looks at it and says, okay, this is going to last about 6 months. We're going to drop this initiative and about that point, we'll have the next initiative and then the next. It's not throwing something out, seeing if it works and then moving on from it when for some reason, it doesn't work. That's actually showing a very weakness in your culture right there. And it's -- granted you don't want to stick with something that's not working. But historically, we've done that a lot in automotive, where we've thrown out an initiative and then just never followed up on it. So it's not linear, Anthony mentioned doing algebra that A plus B equals C, we're doing calculus. We're more sophisticated about that now. But let's look at what -- more of what that culture actually looks like. So -- as a culture, we're looking at creating that environment in which all employees not only follow those quality guidelines, but they also see others consistently taking quality-focused actions. And with that, we're acting. We're thinking, we're talking, we're living that on a daily basis. And then as we're doing that and showing that from the leadership side and no matter where you are in the organization, you're probably in some role of leadership whether you realize it or not. But by having that consistency of what we're doing, then that passes on to everything. And to Anthony's point, it's not just product quality. If you're creating releases for your suppliers, if you're taking in orders from your customers, if you're auditing a process, anything that you're looking at, quality impacts that, and it's that mindset of doing this the best we can, highest level, speaking up and moving on. And again, leadership, employee ownership to me, those are really close to one and the same. A lot of times, like I mentioned, we'd throw a program out as leaders, we don't follow up on it, and then our workforce doesn't engage it because they know that in 6 months, we'll be doing something different with all the new flyers and posters and everything else that -- we're meant to motivate and change our business, but they just didn't do anything. Metrics, again, make sure those metrics are easy to live by. And when I say that, I don't mean like wide open SWATH of no matter where it is. Make them easy to live by because they're important to your team. With ITF, there's more of a thought process of interested parties where historically, we thought what goes on in this 4 walls, we're going to be an army and we're going to work on this and we're only concerned about this. We have the opportunity to impact the world in a greater way than what we're doing in manufacturing and automotive manufacturing. And part of that is taking in metrics and thinking about those interested parties. They could be including the other people in the industrial plaza that you're at, the landlord, the local consumer, everybody around you that has that. And then that idea of continuous improvement that it's embedded. Everybody is looking to experiment. I had the opportunity to take some training years ago where after the academic portion of the training, we went into a facility. It was a warehouse distribution company. They did mail-order business. And the one gentleman that was in our class was talking about how we consistently had back pains. And this was something as simple saying if we elevate this, I'm sure I'm going to feel better. And once they put a couple of pallets under there and they realized not only it is back not bothering at the end of the day, but as productivity went up, errors went down. All the other things that went with that. Everything just rows up just with that one simple change. They got rid of the pallets, bought a proper scissor lift, so he was always operating at that same height no matter what. So it's that idea of continually improving what you're trying to do and living that on a daily basis. So this culture of quality, it is a continuous flow, I like the idea of showing it as a circle because there is no endpoint on this being continuous. All of these feed into each other. And again, there is the need for leadership to embrace. But as peers, we have to hold each other accountable as well. It's the idea of am I doing it the right way? Or am I taking a shortcut? Am I thinking about what's happening to my customer? Am I thinking about how to improve this? Am I engaged? And really, to me, engagement starts -- you can start that micro. Started to make sure your work team is engaged with each other, that they are pure driven that they are doing those. It's really easy to think here's this massive, we're going to flip the culture of quality here, hit the reset button, and we're going to worry about everything all at once. Well, you're going to overwhelm your team. So start with that engagement and creating that community even if it's just one work cell at a time, and then you're going to notice that, that builds and builds and builds. The biggest plant I worked in there, about 2,000 of us and we need to see some of that because there was a lot of pressure from line to line where there is friendly competition to say, are we hitting our numbers? Are we doing what we're supposed to do? How well do we produce our product? How are we improving? And it was a neat environment. And it was really beneficial to the company because we were really the only section of the entire company making any money at that point. But we took a lot of pride in that, and we pushed ourselves. And so we were -- we had that mission focus. We had that engagement, and we were holding each other very, very accountable. And trust me as an engineer of something went beyond 20 minutes on some things. I had operators all over me, hey, we need the support. And so it was really, really healthy. And then again, I flipped that, we put this change in to help us, let's make sure we're implementing it and we're using it. So again, that culture and just the different elements that go with that are very important to make sure that we are cultivating and living on a daily basis. And it's not just a plant floor thing. We have to look at that at leadership levels, mid-management levels, executive levels, wherever we're at. It's driving to these cultures and embedding them as to what we do on a daily basis. With that, here are some tips that we have encountered to have some success and again, leadership priority, make sure that we are communicating that, clearly, it is a priority to everything we're doing and how we're living that. Making sure our employees understand what we have. If we're not serious about it. We're not explaining ourselves. We're not sharing critical items to our teams. They're not going to perform because they're not going to have that direction. Going back, and it's the idea of a willing work or people show up wanting to do their best every day because nobody wants to go home feeling like their third place. They want to go home feeling like they're working for a great company that's engaged, that's supporting them. So as we share that message and show how -- what we're doing and how that fits in and why it's important to do the things we're doing, people are more likely to embrace that than if you just say from an Edict and a mandate just do this. Find the message that works for you. Motivational posters, I know early in my career were all over the place, and they are the standard leadership with the Eagle picking a fish out of the water or something like that. Those are fantastic if that's what your company buys into. But the biggest residents is speak the language that you guys speak, put it in terms that are applicable. We had somebody come in and try to teach us TPS at one organization, which works fantastically. But when you start using those terms rather than the language it gets spoken by your organization, you start losing people on the message because the glitz of the packaging is not understood by the substance of what you're trying to teach. Interestingly, the next leadership team that came in and started using Lean and Six Sigma broke it down to an understandable language that everybody in the plant could understand. And we saw more benefit from that than we did from trying to have a high language for everybody Again, highly [indiscernible] being -- I'm sorry.

No, I was going to say it's really Brian, going back to some of the things that you talked about earlier. When you think about helping connect employees to the broader purpose, if you're in the interior business, we have a customer who produces interior components for glove boxes and the employees who are on the line helping assemble the glove box, right, they had a bit of a quality issue still well within tolerance but like it's a glove box, right? Like I keep some Wendy's or McDonald's napkins in there and it's got a user manual that I never read like, "Hey, it's just a glove box." But they went back and the leadership team explained that the purpose of the glove box is certainly can put stuff in there. But if there's ever an accident on impact, that is actually a safety system that will help save lives. They will absorb the blow and the burden. And likewise, if you manufacture it correctly, it stops at other pieces of the car from being internal project tiles. And so when they connected the organization to some of the broader purposes of the products that they produce, it really had a big impact because it was no longer like, I don't use my glove box. I don't even store gloves in my glove box and it became this, "No, no, no. It's actually a safety system." And so you can sort of extrapolate that and how you connect people to the broader purpose and the broader mission. And it could be everything from -- this is a safety system in the vehicle. In some cultures, in some environments that broader mission, broader purpose, Brian, to your point, people want to win. Nobody wants to be in third place. And so in some plants and some cultures, it may be about dollars and cents and -- and the opportunity to be more efficient and add more money to the bottom line. But the important piece is helping people understand the why behind what they're doing. Really helps to not only drive this culture of quality, but this engagement and then it's like, well, goodness gracious, this could save somebody's life, like I'm not going to just pass through and blindly fill out a check sheet or just say, yes, because that's the first thing that's in my checklist. Like No, you have a glove box, right? And so it just helps connect people. And so that's really how you help find that resonance is connecting people to that to the broader purpose. And we've seen leading manufacturers really sort of embrace that purpose.

Exactly. Exactly. And that sense of purpose, just -- without that, you're rudderless. It's really hard to get people on the same page. You're pushing the rope, you're not pulling it and then it's going to go anywhere. Highlight successes. I went into an organization, a quality manager, I was getting nothing but bad news every day. How do you think the start-up meeting went? It was nothing but bad news and you see people they didn't even want to talk to me. Being I mean -- again, there's a new guy breaking the ice. But then when everything is bad coming in, nobody wants to hear from you. Now I'm not saying you put bury your head in the sand and ignore it. You have to address those items but make sure you're highlighting those successes. Whenever you're changing that culture, there is going to be -- and we see that with our implementations because it is changed. People look at the fact and say, well, this went wrong, this went wrong, we're struggling with this. But highlight when you're learning, highlight when you're making differences. And it can even be small and subtle but as those little changes come in, make sure those are being acknowledged and the people are recognized on what they're doing and how they're moving forward with that. Define published share the metrics. Again, this goes back to a continual improvement. If you're making little success as you highlighted, but you understand where you're at, understand where you're going, make sure that it's definable, measurable, achievable and let's put those metrics in so that we can monitor how we're improving and that feeds into highlighting those successes when those metrics go. But again, from even a strict product quality, if you get those metrics in, you're going to keep yourself and your customers safe. But look at those cultural items that you need to address and highlight those improvements as you make them. And then involve diverse team members. Everybody has something to bring to the table. And when I look at this from a manufacturing perspective, doesn't mean that you bring in 3 manufacturing engineers and say, "Hey, we have 3 different areas covered. We're great." When I talk to people about APQP , it's as simple as you have to pull people in from different areas to make sure people are represented. If you're coming at something from everybody from one discipline, you're going to miss things because even if you went to different schools, odds, you've had some similar training, you have similar outlooks and you're looking for specific things. One of my best problem solvers was not my -- I can't pat myself on the back for it because we noticed a facility issue that actually fixed the problem. And when we had something turned on, it worked when it was turned off, it didn't. And it was an observation somebody from our line did. A lot of times, your frontline employees can be your best engineers. They are your eyes and your ears and they see what the problem is, they can help you identify it. They're going to identify correlations and as a manufacturing engineer, quality engineer part of my responsibility was listening to that, but also validating to make sure I had the data to back that up and to formalize that, so I can put that in front of people. But -- you never know when your next great idea where it's coming from, so make sure that you're engaging those people and having those different roles be able to speak up and participate in those activities. The other part of that...

When you get people -- I really love the stories Brian because when you bring people in from other areas of the business, they contribute, you get a different perspective but then they're going to go to their back at some point to their respective areas, and they're going to tell that story. Like, "hey, I was involved in this continuous improvement initiative and here's what we were doing. And even though it wasn't my area, I had this insight," that just sorts to self-perpetuate and that becomes that sort of grassroot because everybody is now just by involving other people, it's good for the business, but they're taking those stories and taking that culture back to their respective areas. And we all know everybody likes to talk and so whether it's at break time or while we're doing work on the production floor, those things start to perpetuate. And then it becomes people see those actions, they hear about those actions and they start reinforcing those actions. And so that intentionality and visibility, I think you're talking about, Brian, there is just so important.

Yes. I'm going to cycle back to that because there's a freebie point that is not on the slide, and this is something we all need to consider and that is ego. Check that at the door if you're going to make these changes because you're not going to be the one solving every problem, you're not going to be one having all the right answers. And for years, the culture in automotive was the play hero and you look for that white knight on their horse coming in to save the day. And I worked at a plant where they would let people fail, so the other department could come in and look good and say, look, what we did. The culture was horrible in that. Again, we've fixed a lot of problems but you have to be able to just check your ego out the door and say, "I'm not going to solve everything. I need to be smart enough to take these good ideas and good input." And you're going to see how the culture changes because in that hero culture, people are not going to offer their suggestions. They're going to be disengaged, they're going to just be in there as Animatronics and coming and doing their job and going home, their human machines at that point. Keep those resources engaged because they're going to go ahead and -- and keep you moving forward on that. So when we think of defining quality as a culture and we uplevel our thinking on reporting our metrics and we make a lot -- make these improvements to focus on employee, customer community business outcomes. It's a time to look at how are we tracking this? How are we going to monitor this and see what kind of improvements we make? So we have some suggested metrics that we've seen used throughout our careers and things that work. Obviously, your business is a little different than ours. We look at renewals when we're looking at Plex, but you're looking at repeat customer orders, you're looking at the fact that the next time the model year comes around and the engineering change comes, you're the supplier of choice and your customer keeps coming to you. But how fast are you solving issues? How quickly are you turning things around? And you'll notice these metrics don't -- their quality metrics, but they don't necessarily focus on your parts necessarily being good, they're focusing on how is your system overall performing and how are you taking care of your customer in a quality rate. Now again, as you get to the bottom, you start looking at scrap and cost of our quality, things like that. But these are all things that we look at, and they do have financial impacts as well. A lot of organizations that have true quality-related costs, around 15% to 20% of sales. And some of the bad ones get up to about 40%. Our general rule of thumb is that cost of our quality in the thriving company is 10% to 15%. And you think about that, even 10% is a pretty significant number when you look at the amount of business, a lot of organizations do. So -- and then audit fees, again, those are based on days. There is some hope to reduce some of that based on the risk-based auditing that the IATF worked on but still, that's pretty much set to a formula based on size of the company, number of employees, you're going to pay a certain amount to be audited. So while that's a little fixed -- a bit of fixed cost, there is still some wiggle room on that based on how you're performing because if you're performing poor, your customer always has that opportunity to say, "Hey, we want to send that auditor back in there because we're not seeing what they said they saw." So that will drive those costs up as well. And when we talk about quality, it's being holistic and digital and integrated are 2 of the big things we push with that because it makes sense. It gets all that data where it needs to go. You can drive your process, you can drive your reporting, you can drive your accountability by getting the right data out in the right spot. We talked about paper and the fact that I was fortunate to get some stuff within 72 hours. I can get it within seconds of things being operated. One of my first jealous moments, I was in supplier quality, and I had a customer that had taken the time in 2005 to actually run Ethernet cable out to his manufacturing area, so he could dump stuff into a spreadsheet. And he said, "Watch my leak rate, he kicked his feet up." And I was incredibly jealous of him that we couldn't do that at the facility I was at. Now the benefit came as we had a call that his manifolds were leaking, I asked for the date he had a Julian date stamp on one of the flanges. They gave me that date. I gave him a phone call within 3 to 5 minutes. I had an e-mail with an Excel file with a nice little histogram on there. Pass that on to my customer and next thing you know, I think we're good. We're okay. They found the leak somewhere else. Now their culture was very good and my supplier because they had that data. The culture at my customer was very bad because again, I don't know if you've heard this one or not, but your supplier is always the problem, you're guilty until proving guilty all the things like that. And that was -- the reflex was let's just go after the supplier because it can't be us. And once that data was there and was quickly produced, they had a ton of credibility because I could pull it by date, I could charter, I could do everything I wanted and it was available. And that's what we're talking about here with that culture is you're making real-time changes with real-time data with real-time opportunities to make improvement. And the big push we have is that single-source database where all your information is going into that and everybody that's utilizing that system can now go ahead and pull that data as they need it. For me as an engineer, if I make an update on a control plan, I know that I can feed that into my FMEA easily. I can feed that into my check sheets. I can make process tolerance changes as I need to. I can control process parameters. Again, it enables you to think input, output and manage things much better than just I'm always chasing a specification rather than controlling a process. So that every interaction, every stakeholder, everything is documented, it's retainable, retrievable and easy to pass on when you need it. And as I mentioned, you even pass it beyond your 4 walls when you need to go ahead and do that. So this is a pretty nice slide here that I like. It goes through with all the different opportunities we have when we can start integrating and in Plex. We start looking at compliance, which, again, you have to comply but as you're putting that compliance out there, you're able to track that digitally, you have access to it, you're able to share it. You can assign responsibilities, all those things, and it's all kept real time, so people know what's going on and when it's going on. Moving on and [indiscernible] the food and beverage document, but we're all very familiar with FMEA. And we are compliant with the AIAG VDA FMEA standards but again, it's keeping those documents up-to-date. So then when we're feeding into what we need to do, then we feed into the control plan and how are we controlling it, we're managing and controlling that risk at this point. And again, that's linked back to that PFMEA document and they're able to communicate with each other. Once we get that in or your control plan is driving your check sheets. So what you're supposed to be controlling is now being cascaded out to our manufacturing operations to be measured, monitored and that you have that verification and validation that you're doing what you're supposed to be doing. Now side note is we get real happy with check sheets as far as measuring product characteristics and product parameters, but it's that input control of those process parameters as well. You can establish a history to say we're always running our heat treat furnace at whatever degree Celsius we need to be at. Here's our history of it, and we've been charting that and going on from there. Also having your measurement devices feed this data in to the system is nice. And it's really -- really, to me, it's a must-have because you're documenting that any time you're requiring a manual operation, you're putting that -- the element of variability in that you don't need to have. Problem control. Now -- as much as we'd love to never have to write a corrective action. I've written more than I hoped to ever remember. But they're out there and they happen and mistakes happened and just having that culture not only to solve a problem like that, that's integrated in your system and be able to pull data and reference information. But with that quality culture is realizing what happened and using that as an opportunity to make your process better. And then using that discipline and problem control is to then go back in and do those read across and have that data distributed to your other processes. So you make the mistake once, you don't make it 7 times in 7 product lines. And then we see how these go ahead and interrelate and the continual feed like we walked through with that. But this is really that way to deliver that to you and to your customer to make sure that they are available to do -- you're available to do what you need to do, you're managing that process and you're putting that best process and product that deliverable out to your customer in an interrelated fashion. So quality is much more than just a department. The thing that always drove me nuts is out of time, that's quality. When there's a customer issue, that's quality, when there's a product change. That's quality. Everybody else gets involved in that. And one of the things we talk about is putting that empowerment in the hands of the employee. So the heart for what we do is our control panel. It really is a digital cockpit for those folks on the floor to be able to manage their operation and it drives the good behaviors that we want to see them use. So with some of the items that we have with that, we are not only just looking at a general control panel here, but we start looking at those reports that we have that we're driving the data out so that people are aware what they have, people can pull these reports anytime they need to and review that data as live as possible with as close to reality as possible. We also have that ability then to highlight any issues and make sure that we are maintaining some control over what we're doing and make people aware of what's out there with real-time updating. So if there is a change, they're being notified by it. And then identifying that, yes, quality is everything, whether it's maintenance, it's engineering, it's tooling, it's production, it's scheduling. Everybody is involved, you have opportunities to provide suggestions, make decisions based on all the information that's out there. If I had to -- and my manufacturing days wait for, in some cases, the owners of the company can make a decision, when the owner of the company is out of the office on business or vacation or whatever, you're looking at weeks, months to make decisions at times. Having that data there and people can make the right decisions because you've created that culture or people are aware what to do, they know how to react to issues and they can move with that is really a huge benefit for your organization and its speed, which is one of the other things we talked about having that speed and that ability to react is critical. So we're going to see -- I'm sorry, go ahead.

Sorry, Brian. I'm trying to get to the -- there we go. So it's about -- as we think about making sure we've got time for questions, but we talk a lot about why is a culture of quality important. We talk a lot about the pros of that in the top and bottom line. And then we talk about how Plex really drives this fully integrated component and everything to Brian's point, inside and outside the 4 walls. It's all about outcomes for us as manufacturers. It's all about the bottom line. And so wanted to share a couple of quick results and then give just a little bit of time for questions, but that we talk about those culture metrics, and we're seeing these leading manufacturers really get the benefits of that culture of quality. And so you can see this increased engagement from a company like Thai Summit, getting that 2x employee productivity and engagement. And not only that, but companies growing sales and winning consecutive customer delivery awards, right, pinpointing cost accuracy, that's what a culture of quality and digital solutions can drive. And then likewise, when you think about it in terms of those total quality metrics, right, it's still about the product quality. And so looking at things like how fast and how quick can we do recalls and even mark recalls, right down to, in some cases, 7 minutes and moving our scrap and waste rates down to single digits. That's the power of a culture of quality and having this fully integrated system and eliminating that sort of paper -- the paper shuffling that we've got. And so for Plex, and we'll end here and we'll open for just a couple of questions in the last couple of seconds that we have. right? It's all about culture of quality is everybody, and you need to think about digital operations from every aspect. And so part of what we do is we think about how can we meet the manufacturer where they are and more importantly, where their needs are and everything from as simple as OEE and production monitoring visualization up to controlling the assets and the sensors to full MES and ERP and even supply chain planning so you can better govern your supply chain. And so that operational rigor, governance and control and driving that culture of quality and making sure that it's digital at every step of the way. And so I think we just got a little bit of time for some questions. And so we'll open it back up, and we can publish some questions and happy to go through those.

Yes, we do have a couple of questions here. So the first one I'd like to ask is how can you drive a culture of quality when workforce shortages continue to be a challenge? And those workers we have to do the work quality process as optional?

Yes. It's a great question. I'll take a first stab at it, and Brian, feel free to layer in. I go back to why a culture of quality is important, why culture is important in the first place, there is labor shortages everywhere, and it's exacerbated by retention rates. And so if you think about it from its sort of base principles, you're thinking about building an environment where employees want to work where they can be successful. And part of that is thinking about the employee experience and using that as a measurement and retention rates in a measurement and how you can continuously improve there. But also connecting them back to the mission, right? It's hard for somebody to think about quality as optional when the thing that they are producing is going to save lives is where it is going to have a bigger impact and benefit. And so one of the things that we see leading manufacturers doing and what we coach is go back to the employee experience and so that you can think about when I bring in a new employee in, how do I make sure that I get them trained and effective quickly that they have a great onboarding experience that they are a part of the -- of the overall ethos and culture of the business so that they want to stay and likewise, measure that and see what we can continue to change but also connect them to that mission. And then you use digital tools to help make sure that as people are ramping and getting connected, to that broader mission, that quality can't be optional, right? That the -- the system enforces good discipline and makes it almost impossible to do the wrong thing.

Yes. And to echo that point, a lot of that culture, again, it's what you do on a daily basis and how you do it. So you have a culture of quality no matter what. It's just how good or how bad is it and by having a strong culture of quality, retention goes up, things like now you're going to find people that are just -- they're not going to fit that -- it's a story everywhere. But you really increased your success by having that culture of quality. The organization, the mail order business, I mentioned, their turnover was almost zero. If somebody left it, it's because they had a phenomenal opportunity, either within the organization to go to another division or again, a phenomenal opportunity to do something that was a significant lifestyle change for them. But they never lost people because everyone felt engaged, empowered to be able to do their work, and they also promoted with them. They gave a path for somebody to say, if I stick here a long time, this is how I'm going to be rewarded, and they live that and people saw that every day.

Great point.

We have one last question here. Does Plex have global food company customers?

We do actually -- and that's a fun part about the nature of the technology that we have. It's Software as a Service. It's infinitely scalable, but we have food and beverage companies across the globe as far flung as in the EMEA region and APAC regions. And so worldwide deployments for food beverage, absolutely.

And the one thing with that that's come to mind is when I was in co-oping I went from an assembly -- automotive assembly plant to a food plant and the superintendent I worked for because I was in the paint department joke, well, I guess if you can paint, you can bake. And so I think about that every now and then you get a lot of these cultural items, they transfer no matter where you're at because they're Again, it's how you're living and how you're doing that. But yes, we do have those food cultures. And it's been fun trying to learn some of that again after being automotive for so long.

Great. I think we'll go ahead and wrap things up. Thank you, everybody that stuck around for these additional 5 minutes. I think it was really important to answer some Q&As because there were some great ones out there. I'd like to thank Anthony and Brian for this wonderful presentation, a lot of insight there. So next up is if you'd like to please stick around and answer our survey question. We take those surveys and we use them to improve our webinars and to learn what other topics you'd like to see us produce and out there for you. Again, thank you, everybody, for being here, and have a wonderful rest of your day.

Bye.