1 Scope

1.1 General

This procedure is an integral part of General Engine Products’ Supplier Quality Improvement Process. It applies equally to all GEP suppliers who supply parts or materials for production to GEP.

Copies of GEP Procedure 4.06C can be obtained by accessing the GEP website at www.gep-inc.com and clicking on Supplier Quality from the main menu.

1.2 Purpose

This General Procedure defines the process roles, responsibilities and requirements of:

· Problem Reporting and Resolution (PRR)

· Controlled Shipping

· Supplier Measurements

- PRRs

- Parts Per Million (PPM)

- Incidents of Controlled Shipping

- Majors Disruptions

The PRR process (Section 4) defines how issues, concerns or problems are documented and communicated to the responsible supplier (supplier on contract) utilizing the GEP Problem Report and Resolution Summary Form, Form# SQA-04.

Controlled Shipping (Section 5) is implemented at GEP’s discretion to provide additional assurances that GEP receive only parts or materials that conform to specified requirements. Controlled Shipping requires additional verification toverification to be implemented at a supplier’s site or at a third party facility for a supplier’s product. Controlled Shipping costs shall be paid by the supplier.

Supplier Measurements (Section 6) define the methods of identifying, communicating and measuring supplier quality performance. Section 6 also explains how the measures are calculated.

2 Normative References

The following documents contain provisions, which through reference in this text constitute provisions of this General Procedure.

2.1 Quality System Requirements (QS-9000), AIAG - Chrysler, Ford, General MotorsApplicable quality system

2.2 Potential Failure Mode and Effects, AIAG - Chrysler, Ford, General Motors

2.3 Advanced Product Quality Planning and Control Plan, AIAG - Chrysler, Ford, General Motors

Quality Manager Approval: ______________________________________

3 Terms and Definitions

3.1 Major Disruption

Incident of downtime, qQuality spill, or stockout that severely impacts GEP or its customer's facility.

3.1.1 Major Disruption - Downtime

Major Disruption which includes all of the following:

· A problem has been identified and verified as supplier fault AND

· Requires GEP to stop production of its products AND

· The downtime experienced is 5 minutes or greater

3.1.2 Major Disruption - Quality Spill

Major Disruption consisting of a nonconformance that causes a major plant disruption and requires GEP to stop shipment, production, and/or scheduling of its products; or requires correction of products already built, but not yet shipped.

Correction of products already built includes major re-inspection/repair of products for a specific problem, or GEP investing non-standard labor hours to perform a major rework on a specific part to ensure proper installation and/or function.

3.1.3 Major Disruption - Stockout

Stock-out includes all of the following:

· A shortage of plant inventory that has been identified and verified as supplier fault AND

· The plant continues production of its products excluding the missing part AND

· The plant is required to rework the finished product to install, or include the conforming part, or material.

NOTE1: A stock-out does NOT result from a sudden schedule change where the supplier did not have adequate time to adjust their production schedule.

3.1.4 Major Disruption - Customer Impact

Major Disruption consisting of a nonconformance that causes a GEP customer's plant disruption and requires GEP to stop shipment, production, and/or scheduling of its products; or requires correction of products already built at the customer's location.

3.2 Duns Number

Unique supplier identification number issued by Dun & Bradstreet that identifies a supplier location, i.e. manufacturing, sales, ‘remit to’, etc.

3.3 Issuing Location

GEP issuing, or subsequently issuing, a PRR.

3.4 Nonconformance

Product or material that does not conform to specified requirements. Can also be known as a discrepancy.

3.5 Nonconformity

Nonfulfilment of a specified process or procedural requirement

3.6 PRR (Problem Report and Resolution)

Record using a standard format and issued according to the requirements of this General Procedure to:

· Quantify and describe a problem(s) encountered by GEP

· Define the magnitude of the problem

· Identify the supplier by duns code and the part number, if applicable

· Record supplier contact name and phone number

· Define material disposition

· Record corrective action plan

3.7 Subcontractor

Provider of: a) production materials, b) pre-production or service parts, or c) heat treating, plating, painting or other finishing services directly to a GEP supplier.

3.8 Supplier

Provider, directly to a GEP facility, of:

· production materials

· pre-production or service parts

·heat treating, plating, painting or other finishing processes services

3.9 Supplier-Initiated PRR

PRR issued to a supplier who has notified GEP, in advance of the receipt of a possible nonconformance with the supplier’s parts or material. Also can be applied to a possible nonconformance to GEP’s requirements regarding timing and or procedures.

3.109 Suspect Material

Any material or product that may contain a defined nonconformance.

3.11 Fiscal Year

General Engine Products Fiscal Year; November 1^st, through October 31^st.

4 Problem Reporting and Resolution (PRR)

4.1 General

PRRs may be issued to address the following, for example:

· supplier-responsible production part or material nonconformance

· supplier-responsible pre-production or prototype part or material nonconformance

· supplier responsible service part or material nonconformance

· supplier-responsible packaging nonconformance

· issues and concerns with the shipping of production parts or material to GEP

· procedural or process nonconformity, i.e., failure to communicate in a timely fashion, adherence to procedures, meeting deadlines

4.2 PRR Categories

4.2.1 Quality

Quality PRR may be issued when GEP has verified that the supplier caused a nonconformance.

Nonconformances that can result in a Quality PRR include, but are not limited to, discrepancies in or problems with:

· appearance

· dimension

· welds

· finish, i.e., burrs or flash

· contamination

· coating

· laboratory and metallurgy specification

· machining

4.2.2 Packaging

Packaging PRR may be issued when GEP has verified that the supplier caused a packaging-related nonconformance.

Nonconformances that can result in a Packaging PRR include, but are not limited to:

· labeling discrepancies, i.e., missing, incorrect, unreadable

· pre-production or production part or material inadequately secured in the container

· container inadequately secured in the carrier vehicle

· container design or fabrication inadequate

· container has been damaged by improper handling

· mixed pallets built incorrectly

4.2.3 Shipping

A Shipping PRR may be issued GEP has verified that a shipping or scheduling-related nonconformity was caused by the supplier.

Nonconformances that can result in a Shipping PRR include, but are not limited to:

· noncompliance to schedule requirements

· documentation noncompliance, i.e., missing, inaccurate

· nonconformity, or nonconformance caused by transportation carrier

· electronic communication issues or problems

· premium shipment issues, i.e., prepayment, coordination, excessive use

4.2.4 Customer Satisfaction

A Customer Satisfaction PRR may be issued when GEP has verified that any other nonconformity, excluding pricing or other commercial issues, was the result of a supplier’s action or inaction.

NOTE A Customer Satisfaction PRR can be issued to a supplying locationsupplier with or without reference to a part number.

Nonconformities that can result in a Customer Satisfaction PRR include, but are not limited to, failures regarding:

· communication requirements for data or information

· timeliness or deadline issues

· procedural requirements

4.3 PRR Issuance

4.3.1 PRR Guidelines for Issuance

PRRs shall be issued from GEP by Quality Assurance personnel only. GEP shall verify the nonconformance is the supplier’s responsibility prior to issuing a PRR to the supplier.

The following guidelines can be used at GEP’s mManagement's discretion to determine if issuing a PRR is warranted:

· Supplier has caused a dMajor Disruption to GEP - downtime, qQuality spill, or stock-out.

· GEP has been issued a customer concern, which has been verified as a GEP's supplier nonconformance.

· Supplier does not respond / react to GEP concern(s) about possible nonconformance issues.

· Action(s) taken by supplier to correct a nonconformance are not considered adequate by GEP. (timely / effective)

· A prior nonconformance concern has a repeat occurrence.

4.3.2 PRR Origination

GEP shall gather the following information prior to issuing the PRR.

· Date of PRR origination

· Supplier Name and contact

· Part name and number, if applicable

· Type of PRR (See 4.3.5)

· Give a description of the problem and/or symptom

· PRR tracking number

GEP-SQA will originate and issue a PRR tracking number to the supplier. The PRR tracking number will use the format YY-XXX where YY is the last two digits of the current calendar fiscal year, and XXX is a sequential number starting at 001 and reset at the beginning of each new calendar fiscal year.

A logbook with a listing of the current fiscal year’s PRR tracking numbers will be maintained in the SQA office area.

4.3.3 Notification of Responsibility

Prior to the issuance of a PRR, if possible, contact the supplier by telephone, or by email. Also, if it is necessary to expedite containment, GEP should notify the supplier by telephone to discuss immediate actions required.

Whenever possible, the supplier should be encouraged to participate in identifying and verifying the nonconformances. If requested by the supplier, nonconforming, nonconforming samples shall be provided, in a timely fashion, along with any photographs, sketches or marked drawings.

Formal issuance of the PRR to the supplier from GEP-SQA will be made by electronically mailing or faxing the “Problem Report and Resolution Summary Form”, Form# SQA-04, with an assigned PRR tracking number.

4.3.4 Containment of Suspect Material

GEP should tag the suspect parts at their storage location, or if possible, gather the suspect parts or material and place in a designated area for suspect parts.

4.3.5 Identification of PRR Type

When issuing a PRR, GEP shall select a PRR type, i.e., quality, packaging, shipping, or customer satisfaction.

GEP shall designate a PRR as a Major Disruption if appropriate. Refer to section 6.2 for further definition of Major Disruptions.

4.3.6 Supplier-Initiated PRR

4.3.6.1 General

GEP may categorize a PRR as ‘Supplier-Initiated’ if the suppliers notified GEP of a possible nonconformance prior to GEP identifying the problem on their own.

If the parts or materials have NOT entered GEP’s production process, a PRR is NOT required.

If the suspect material has entered GEP’s normal material flow to the production operator, the PRR should be classified as ‘Supplier Initiated’.

4.3.6.2 Ramifications of Supplier-Initiated PRRs

Costs incurred by GEP, i.e., sorting, rework, may be charged to the supplier.

Management Discretion can be used in determining if the nonconforming part quantity on a ‘Supplier Initiated’ PRR should be used in the PPM calculation for the supplier and part number.

If management decides to use the nonconforming part quantity, only the actual quantity of nonconforming parts identified on a ‘Supplier Initiated’ PRR shall be counted as discrepant quantities in the PPM calculation for the supplier and part number.

4.3.67 Identification of Quantities for the PRR

When a PRR is issued to a supplier, GEP shall accuratelywill determine and record the quantity suspect, the quantity checked, and the quantity nonconforming for the PRR. As additional data becomes available, the quantities may be edited.

4.3.67.1 Quantity Suspect

To determine ‘Quantity suspect’ for a PRR, GEP shall identify all material physically at the plant location that is suspected of containing the problem. GEP should consider the lot number, run date, ship date or other indicators that will help isolate the problem parts into the smallest logical batch. The quantity suspect does not exclude any product in transit. On going verification may require this value to be labeled “TBD”.

4.3.76.2 Quantity Checked:

GEP shall identify the quantity of parts that has been inspected and/or sorted for the nonconformance noted in the PRR. On going verification may require this value to be labeled “TBD” or “100%”The quantity checked MUST be at least 1% of the total suspect lot, or 30 pieces, whichever is less.

4.3.67.3 Quantity Nonconforming

GEP shall determine the total actual quantity discrepant for the PRR. For example, parts or material may be found to be nonconforming based on a visual or obvious inability by the operator to utilize the parts as intended. On going verification may require this value to be labeled “TBD”.

Note: As additional data becomes available, the quantities may be edited.

The “Estimated Quantity Nonconforming” number is a system-generated calculation obtained from quantities input on the PRR. It is computed by dividing the “Quantity Nonconforming” by the “Quantity Checked” and multiplying the result by the “Quantity Suspect”. See example in Attachment A.1.

Qty Nonconforming

Quantity Checked X Total Quantity Suspect = Est. Qty N/C

4.3.78 Supplier Responses

GEP MUST review PRR responses and provide comments as appropriate.

GEP can also issue a ‘Customer Satisfaction’ PRR (See 4.2.4) if the supplier shows a pattern of poor responses, or if the PRR is a repeat.

4.3.89 Corrections to a PRR

If any information on a PRR is found to be inaccurate, GEP MUST ensure that corrections are made. If the supplier contests any PRR information, GEP MUST assist in investigating the details and then correct the information if appropriate. Appeals by the supplier MUST be directed to Supplier Quality management at GEP. (See 4.5.1)

4.3.910 Addition of Supplier to SQA "Hot List"

GEP shall keep a list of suppliers whose current supply of parts is suspect, or potentially suspect.

This list will be known as the “GEP – SQA Hot List”, Form# SQA-02. The “GEP – SQA Hot List” will be updated every week at a minimum and distributed to GEP incoming shipment department and applicable GEP management. If, during the week a change is made to the “Hot List” whether to add a supplier, remove a supplier, or other change, the “Hot List” will be updated and re-distributed.

4.3.10 Addition of Supplier to SQA "Hot List"

A supplier may be added to the "Hot List" for one of the following reasons:

· If a part from a supplier is to "print specifications" but is of a functional concern to GEP production (PRR not issued). Hot List Code: FC

· If a supplier has had a nonconformance, to verify a supplier's internal corrective actions are adequate (PRR not issued). Hot List Code: NC

· If a PRR for a supplier has been issued for a nonconformance.

Hot List Code PRR. (Non major machining supplier)

· If a PRR for a major machining supplier has been issued for a nonconformance. Hot List Code PRR-MM

· If a supplier has been placed in “Controlled Shipping” (See Section 5.0).

Hot List Code CS

· If records of "acceptable quality performance" need to be established for a supplier. (See Procedure 4.10E) Hot List Code: QR

4.3.111 SQA HOT LIST Checksheet

The “The “GEP SQA HOT LIST Checksheet”, Form# SQA-03, will be used to gather the sample data for the shipments. Shipments approved from the “the “GEP SQA HOT LIST Checksheet” will be tagged “OK” for production. Using the “GEP-SQA HOT LIST Checksheet”, Form# SQA-03, shall should include:

· PRR Number (if applicable)

· Supplier Name

· Hot List Code

· Part name

· Part number, print revision, & date

· Dimension/characteristic to be checked (management discretion)

· Product specification/tolerance

· Evaluation / measurement technique (management discretion)

· Daily Check (write in - management discretion)

· Production / Assembly Function Check (write in - management discretion)

4.3.122 Removal of Supplier From SQA "Hot List"

4.3.12.1 Guidelines for Hot List Removal: Functional Concern-Code FC (No PRR)

The supplier of a part, which has a functional concern in which GEP may perform a controlled study, can be removed from the "Hot List" at Management Discretion. Use of the “GEP SQA HOT LIST Checksheet”, Form #SQA-03, is not required.

4.3.12.2 Guidelines for Hot List Removal: Supplier Nonconformance-Code NC (No PRR)

The supplier of a part, which has had a nonconformance (without a PRR being issued), will remain on the hot list until an audit sample of the first shipment after the nonconformance is inspected and approved. The audit sample size shall be all pieces in the shipment if less than 30 or a maximum 30 piece sample. Form# SQA-03, will be used to gather the sample data for the shipments. Shipments approved from the “GEP SQA HOT LIST Checksheet” will be tagged “OK” for production.

4.3.12.4.4.3.12.3. Guidelines for Hot List Removal: Supplier PRR - Code PRR

1. The suppliers of regularly scheduled shipments (more than two shipments per 30 days) will remain on the hot list until four consecutive shipments of parts have been sampled for the PRR nonconformance after implementation of the corrective action and approved for production usage. The sample size shall be all pieces in the shipment if less than 30 or a maximum 30-piece sample for the PRR nonconformance. Form# SQA-03, will be used to gather the sample data for the shipments. Shipments approved from the “the “GEP SQA HOT LIST Checksheet” will be tagged “OK” for production.

Or

2. The supplier of non regular scheduled shipments (less than two shipments per 30 days) will remain on the hot list until the first shipment of parts have been sampled for the PRR nonconformance after implementation of the corrective action and approved for production usage. The sample size shall be all pieces in the shipment if less than 120 or a maximum 120 piece sample for the PRR nonconformance. Form# SQA-03, will be used to gather the sample data for the shipments. Shipments approved from the “the “GEP SQA HOT LIST Checksheet” will be tagged “OK” for production.

Or

3.2.The supplier whose component can only be verified as conforming through functional testing (i.e. injection pump) will remain on the hot list until two consecutive weeks of parts have been run in production without re-occurrence of the PRR nonconformance. Document "Prod / Assy" functional verification on the “GEP SQA HOT LIST Checksheet”, Form# SQA-03

4.3.12.4.4.3.12.4 Guidelines for Hot List Removal: Supplier PRR - Code PRR-MM

The major machining suppliers will remain on the hot list until two consecutive weeks of parts have been run in production after implementation of the corrective action without a re-occurrence of the PRR nonconformance. Any non-conformity will be documented on the daily “Supplier Quality Activity Log.”A daily sample (1 piece) will be inspected for the specific non-conformance by SQA. Document "Daily Sample" check and "Prod / Assy" functional verification on the “GEP SQA HOT LIST Checksheet”, Form# SQA-03.

4.3.12.5. Guidelines for Hot List Removal: Controlled Shipping - Code CS

·If a supplier has been placed in “Controlled Shipping” (See 5.0). The supplier will remain on the hot list until 30 consecutive days without a nonconformance and/or until four consecutive shipments of parts have been sampled (all pieces in the shipment if less than 30, or a maximum 30 piece sample) for the nonconformance after implementation of the corrective action and each shipment approved for production usage, whichever is longer. The “The “GEP SQA HOT LIST Checksheet”, Form# SQA-03, will be used to gather the sample data for the shipments. Shipments approved from the “the “GEP SQA HOT LIST Checksheet” will be tagged “OK” for production.

4.3.13 PRR Resolution

A supplier PRR is considered closed when the supplier has answered all stages of the PRR to GEP's satisfaction and the supplier has been removed from the "SQA Hot List" (4.3.10) for the non-conformance of which the PRR was written.

4.4 Supplier Requirements

4.4.1 General

The supplier shall promptly notify GEP when suspect product or material may have been shipped.

4.4.2 Problem Identification

The supplier shall participate in problem identification if requested.

4.4.3 Initial Response

The supplier shall provide an initial response consisting of the following information, at a minimum, within, within one (1) business day of the issuance of the PRR.

· Immediate and ongoing containment actions to be taken by the supplier to prevent further shipments of nonconforming parts or material. Containment shall be extraordinary, visible, and temporary. Containment shall include data collection and analysis.

· Disposition of the nonconforming parts or material at the GEP location and in-transit. The supplier must analyze the entire delivery chain to identify any suspect material at, or in-transit, to any customer location.

· Date of the next shipment of conforming parts or material, including how it will be identified. The supplier must consider that the conforming material ship date should reflect all customer plants receiving the corrected parts or material.

· Name, title and phone number of the supplier representative who provided the above information.

Generally, suppliers will not be measured on the timeliness of their initial responses. However, if an initial response is not received from the Supplier within one business day, GEP may issue a Customer Satisfaction PRR.

4.4.4 Problem Solving

The supplier shall promptly complete (see 4.4.5) appropriate problem solving activities.

4.4.5 Final Response

The supplier shall provide a final response within fifteen ten (1510) calendar business days of issuance of the PRR using the “GEP Problem Report and Resolution Summary Form”. The final response shall include at a minimum:

· Containment actions taken

· Methods used to evaluate the success of containment actions taken (see 4.4.3)

· Root cause of the problem, including methods used to identify the root cause

· Corrective and preventive action implemented, including the rationale used in evaluating any alternatives

· Elements of the proposed implementation process

· Contact information of those assigned responsibility for actions taken

· How the success of proposed actions will be evaluated

· How the solution is to be institutionalized with respect to other similar processes and products.

· Dates when revised process Failure Mode and Effects Analysis (FMEA) and Control Plan (PCP), if, if applicable, will be available for GEP.

NOTE: See Potential Failure Mode and Effects Analysis and Advanced Product Quality Planning and Control Plan reference manuals.

Suppliers will not be measured on the timeliness of their final responses. It is expected that adequate thought and investigation be given to the problem, and that a timely response be given. If an adequate response cannot be completed within 15 calendar10 business days, the supplier must notify GEP of the situation. Failure to respond, without prior notification, may result in a Customer Satisfaction PRR.

4.5 PRR Appeal Process

4.5.1 General

The supplier may appeal the issuance of a PRR or specific information contained in the PRR. To appeal, the supplier shall use the following process:

· The supplier shall provide objective evidence to GEP demonstrating rationale for the appeal. Any request for change to a PRR due to an error MUST be submitted within 15 business days of issuance of the PRR.

· If GEP and the supplier do not agree, and the supplier wants to pursue the appeal, it should be directed to the Quality Manager for revision or deletion.

4.56 Cost Recovery Process

4.65.1 General

Ordinarily, GEP will not try to recover costs incurred as a result of a supplier’s nonconformance.

However, if extraordinary costs are incurred due to a supplier’s nonconformance, GEP retains the right to recover from the supplier all or part of the costs incurred.

GEP would provide The Cost Recovery process is used by GEP to recover costs incurred as a result of a supplier’s nonconformance. Cost Recovery requests shall have adequate supporting documentation regarding man-hours, downtime and vehicles / units impacted to the supplier, along with . Ddetailed explanations of any additional costs. shall be provided by GEP when issuing a cost recovery request.

4.6.2 Cost Limits and Restrictions

4.6.2.1 Total ACTUAL costs incurred less than US $500 can be tracked, but will not be charged to the supplier.

4.6.2.2 Man-hours shall be charged at the rate of US $55 per hour.

4.6.2.3 Major Disruption Downtime, at GEP, shall be charged at US $500 per minute and shall be:

· 5 minutes or greater in duration. Downtime less than 5 minutes may be recorded in a cost recovery but will NOT generate any request for actual payment.

4.6.2.4 Downtime shall be charged based on the man-hours lost. (See 4.6.2.2.)

4.6.2.5 Stockout charges shall be assessed based on the man-hours expended to correct or retrofit vehicles or units.

4.6.2.6 Other costs associated with the impact of a nonconformance that results in additional cost to GEP are eligible for a cost recovery request. These costs include, but are not limited to, the following:

· expenses incurred by GEP for travel to the supplier location

· rebill of costs GEP incurs from the final customer due to supplier responsible interruptions, disruptions or quality concerns at final customer location.

· rebill of supplier responsible warranty costs attributable to quality spills (Issuance of a PRR associated with this type of cost MUST be made by the appropriate Supplier Quality Manager.)

· incidental lab, machining or retrofit costs

In such cases, these charges shall have complete supporting documentation.

4.6.2.7 Costs that are ineligible for a cost recovery request include, but are not limited to, the following:

· excessive or unreasonable man-hours

· cost of nonconforming scrap parts

· additional production parts or materials used in place of the nonconforming parts

NOTE: The costs of these parts are recovered through the inventory and financial process.

4.6.2.8 Cost recoveries less than US $50,000, with no supplier response, can be debited through the financial organization to the supplier after six weeks. Cost recovery requests equal to or greater than US $50,000, with no supplier response, shall be approved by purchasing before debit to the supplier.

4.56.23 Cost Recovery Response

The supplier should provide a response to any cost recovery request issued to them by GEP.

4.6.4 Appeal Process

The supplier may appeal a cost recovery request. To appeal, the supplier shall use the following process:

4.6.4.1 The appeal process shall be concluded within six weeks from the date the cost recovery was issued.

4.6.4.2 The supplier shall initiate any appeal within three weeks of issuance of the cost recovery request by contacting GEP in writing.

4.6.4.3 The supplier shall provide objective evidence that the charge is inaccurate. If the GEP and supplier agree on a revised cost, the cost recovery request shall be amended, by GEP, and the revised amount shall be debited to the supplier.

If no agreement is reached between GEP and supplier within three weeks of issuance, the supplier may then appeal to GEP’s purchasing. If the buyer and supplier agree on a revised cost, the cost recovery request shall be amended and the revised amount shall be debited to the supplier. If no agreement is reached within six weeks of issuance of the cost recovery request, the original cost requested shall be debited to the supplier.

5 Controlled Shipping

5.1 General

Controlled Shipping is a demand by GEP to a supplier to put in place a redundant inspection process to sort for nonconforming material resulting from an out-of-control process. This redundant inspection at the supplying location is in addition to normal controls. The data obtained from the redundant inspection process is critical as both a measure of the effectiveness of the secondary inspection process and the corrective actions taken to eliminate the initial nonconformance. Controlled shipping MUST become a corrective action process at the supplier.

Two levels of Controlled Shipping exist:

a) Level I Controlled Shipping is defined as a redundant inspection process enacted by the supplier’s employees at the supplier’s location in order to isolate GEP from receipt of nonconforming parts/material.

b) Level II Controlled Shipping is the same activity but the ‘person(s) performing the sort’ is an impartial third party selected by GEP and paid for by the supplier. In special cases, the Level II activity may be required to be performed outside the supplier’s facilities at the third party’s location or at a facility deemed appropriate by GEP.

The key points of this process:

a) Agreement between GEP Quality Manager and Plant Manager that current controls by the supplier are not sufficient to insulate GEP from the receipt of nonconforming parts/material.

b) Determination by GEP which level of controlled shipping is required.

c) Communication to the supplier of impending action (Level I or Level II) to be taken including exit criteria.

d) If Level II, a kick-off meeting with supplier management may be required providing full explanation of the containment process to be implemented and the roles and responsibilities of the involved parties.

e) If Level II, a detailed definition of an effective containment area is required if the process is to be performed at the supplier’s location.

f) A review of corrective action is essential regardless of which Level of Controlled Shipping is involved.

5.2. Determination of the need for Level I or Level II Controlled Shipping

GEP, when experiencing the part/material nonconformance makes the determination whether the supplier can effectively correct the situation through the PRR process and/or isolate GEP from the problem. Standard guidelines for implementation of Controlled Shipping may consider one or several of the following:

· Repeat PRR’s

· Duration and severity of the problem

· Incapable processes

· Quality problem in the field

· Inadequate containment and/or resolution of nonconformances via the PRR process

Based on consideration of the above, GEP decides whether Level I or Level II would be appropriate. GEP management may include the Plant Manager, Materials Manager, Quality Manager and appropriate process engineering resources. Level II situations are characterized as situations where the supplier’s past actions have proven ineffective and the very severe step of hiring an inspection company to isolate the plant is warranted.

5.3. Level I Controlled Shipping process:

5.3.1 GEP Quality Assurance communicates in writing defining the problem, the need for additional inspection, containment efforts and the exit criteria. See “Controlled Shipping Notification-Level 1”, Form# SQA-06, for suggested format.

5.3.2 The supplier is required to:

a) Complete the “Controlled Shipping Confirmation Reply”, Form# SQA-08, and return it to GEP.

b) Immediately establish a separate sort area at their location.

c) Commence the sort activities and display the results in a public and visible location.

d) Track breakpoints of nonconforming material.

e) Management must meet daily at the sort location to review the results and ensure that corrective actions taken are effective or require changes.

f) Communicate results of sort activities to customer location.

g) Request exit from controlled shipping by providing documentation on performance to GEP Quality Assurance.

5.3.3 GEP evaluates if exit criteria have been met and communicates, in writing, that the supplier is no longer considered in Controlled Shipping.

5.3.4 Controlled Shipping containment guidelines:

a) Containment area must be highly visible and properly lighted, equipped, etc.

b) Must have well defined efficient material flow including clearly identified areas for incoming and outgoing parts/material.

c) No repair must be done in the containment area.

d) Sorting area must be independent of the supplier production process.

e) Information boards must prominently display nonconformances, measures, actions taken and results of containment activity.

f) Charts must be updated on a daily basis and reviewed by top supplier management.

g) Problem solving must be formal, data driven and documented.

h) Containment operators must have available to them proper job instructions, quality standards, boundary samples, etc.

i) Operators must be properly trained.

j) Preventive maintenance must be employed if required.

5.4. Level II Controlled Shipping process:

5.4.1 GEP management analyze the nonconformance situation and determine if Level II is required. GEP management may include the Plant Manager, Materials Manager, Quality Manager and appropriate process engineering resources.

5.4.2 Communication, in writing, from the Quality Manager (or other appropriate management such as the GEP Plant Manager or Materials Manager), to the supplier CEO describing:

a) The action being undertaken

b) The nonconformance

c) The inspection checks required

d) Exit criteria required to be achieved

e) Request to establish a date for a detailed kick-off meeting between GEP and the supplier at the supplier production location

See “Controlled Shipping Notification-Level 2”, Form# SQA-07, for suggested format. Copies are to be sent to GEP Quality Assurance.

5.4.3 Kick-off meeting, if utilized, must follow these steps:

a) Describe the purpose of the meeting:

· GEP has determined that Level II Controlled Shipping is being implemented.

· The production source is out of control and that the nonconforming part/material must be isolated

b) Meeting agenda must include the following:

· Review of the process flow diagram

· Description of the problem

· Definition of the roles and responsibilities

· Establish the controlled shipping plan details

· Definition of the exit criteria

· Definition of the communication plan

5.4.4 Roles and responsibilities:

5.4.4.1 GEP Quality Assurance

a) Participates in decision of which ‘contract engineering’ firm will conduct the Level II containment activities. This decision will also include appropriate plant management.

b) Defines the required checks

c) Facilitates definition of the exit criteria

d) Drives resolution of all issues

5.4.4.2 Materials

a) Assumes responsibility for all commercial and financial issues arising from the CS activity

b) May participate in the decision of which ‘contract engineering’ firm will conduct the Level II containment activities, if requested.

5.4.4.3 Controlled Shipping Partner (Third Party)

a) Provides people to perform the inspection activity and record results

b) Provides documentation to the supplier and GEP on the progress of the CS activity

5.4.4.4 Production (supplier) source

a) Issue a purchase order to the Controlled Shipping Partner (Level II third party). Supplier is responsible for all costs of the ‘contract engineering’ firm either performing the actual containment activities or supervising the supplier’s employees in the supplying location.

b) Provide proper space and tooling to perform re-inspection activity

c) Drive permanent corrective actions

5.5 Controlled Shipping containment guidelines: (Same as 5.3.4)

5.6 Information boards should prominently display the following:

a) Quality standards such as boundary samples, technical specifications, drawings, etc.

b) Nonconformances and action plans.

c) Process Control Plan highlighted to show where nonconformance occurred.

d) Operator instructions.

e) Gate charts showing number of discrepancies found, PPM, PRR’s, etc.

f) Trend charts and SPC charts if applicable.

5.7 Communication plan should address the following:

a) Format and frequency of communication to GEP location.

b) Primary focus is progress toward the exit criteria.

c) Controlled Shipping Level II source is to report ALL issues identified during the containment.

d) Exit criteria to remain constant.

5.8 Exit criteria must:

a) Include clear and measurable elements.

b) Must be specific and relevant to the nonconformance issues to be addressed.

c) Provide a timetable to ensure corrective actions taken are permanent.

5.9 GEP evaluates if exit criteria have been met and communicates in writing that the supplier is no longer considered in Controlled Shipping.

6 Supplier Measurements

6.1 General

Section 6 defines the supplier measurements used by GEP to monitor supplier quality performance.

NOTE: Several measurements are based on the information obtained from PRR data.

6.2 Major Disruption Measurement

If a quality or packaging PRR has been issued to a supplier within the current calendar fiscal year, GEP will track, by manufacturing duns number, the number of Major Disruptions caused by a supplier if a PRR is classified as a Major Disruption. There are four (4) types of Major Disruptions; Quality Spill, Downtime, Stockout, and Customer Impact (see 3.1).

Major Disruption classification of a PRR is at Management discretion.

NOTE 1: The number of Major Disruptions is an important measure of a supplier’s quality performance to GEP. This measure can be utilized as criteria for GEP Approved Supplier List.

NOTE 2: A Major Disruption implies that many functions within GEP facility, such as Assembly, Quality and Scheduling, are involved with the problem, and that immediate actions are required to sustain or re-start plant operations.

6.23 Parts Per Million (PPM)

If a quality or packaging PRR has been issued to a supplier within the current calendar fiscalcalendar year, GEP will track the actual monthly and 12 month accumulated PPM for the calendar fiscalcalendar year. At the beginning of the next calendar fiscalcalendar year the supplier's PPM will be reset at zero. GEP will provide monthly reports to suppliers who have a monthly PPM greater than zero.

A supplier’s PPM will be calculated based on the estimated actual quantity of nonconforming parts or material from the quality and packaging PRR’s ONLY. See Appendix A.2 for how PPM is calculated.

To impact the supplier’s PPM, a PRR must be issued.

6.34 Incidents of Controlled Shipping

GEP will track monthly supplier Duns location in Controlled Shipping Levels I or II, if any supplier is in Controlled Shipping.

Appendix A

A.1 Quantity Suspect

A discrepancy is noted on a part at the production line. A check of material on hand in the plant indicates a quantity of 4 10 boxes of 100 250 pieces per box, plus the partial box on the line (3 boxes are in transit via truck). Line. The box on the line is quickly sorted and reveals that 4 15 pieces of the 170 pieces left in the box reveal the discrepancy. The box on the line is dated 3-Mar-9808, lot number 3456. A review of the remaining 4 10 boxes in inventory show that 2 4 boxes are dated 5-Mar-9808, lot number 9988. A decision is made to return the 62 boxes dated 3-Mar-908 and use the 5-Mar-98 08 after a cursory review of that box indicates NO discrepancies. GEP would input the following quantities into the PRR:

Quantity Checked: 170

Quantity Nonconforming Actual: 154

Quantity Suspect: 272670 0

(2 10 full boxes and the 170 originally suspected parts),

note that the in-transit material is not to be included)

Qty Returned 15*

Est. Quantity Nonconforming: 15 (4 / 70 * 270 = 15)

(System-calculated number that is included in PPM calculation)

*The plant may have chosen to return all 4 boxes on hand (stock swap) if the plant determined that they would be unable to check the remaining in-stock material due to time and manpower constraints. However, if the plant production might have been negatively impacted by sending all material back to the supplier, the plant would opt to sort the remaining boxes (lot 9988).

The plant may choose to issue a cost recovery for any related expenses incurred (cursory reviews, inspection, rework, etc.).

A.2 Calculating Supplier PPM

The estimated actual quantity nonconforming for each PRR for a part number is totaled for the month and is used as the numerator (known as Discrepancies) in the PPM calculation for that part number. The denominator is the estimated monthly production usage of that part number for the month. Total discrepancies divided by the estimated monthly production multiplied by 1,000,000 equals the PPM for that part number.

PPM for a supplier manufacturing duns is calculated monthly using the following formula:

1. Total all the ‘estimatedactual quantity nonconforming’ for a part number.

2. Divide by estimated monthly production usage for that part number. (See Examples)

3. Multiply by 1,000,000.

EXAMPLE 1:

Part: Injection Nozzles

Estimated mMonthly Engine Production = 960

Part usage per engine = 8

Estimated mMonthly production usage = 7680

EXAMPLE 2:

Part: Cylinder Head Assemblies

Estimated mMonthly Engine Production = 960

Part usage per engine = 2

Estimated mMonthly production usage = 1980

A.3 Forms

Form# SQA-02 - “GEP – SQA HOT LIST”

Form# SQA-03 - “GEP – SQA HOT LIST Checksheet”

Form# SQA-04 - “Problem Report and Resolution Summary Form”

Form# SQA-05 - “SQA – Control Plan”

Form# SQA-06 - CONTROLLED SHIPPING NOTIFICATION – LEVEL 1 Letter

Form# SQA-07 - CONTROLLED SHIPPING NOTIFICATION – LEVEL 2 Letter

Form# SQA-08 - CONTROLLED SHIPPING CONFIRMATION REPLY Letter