Process effectiveness and efficiency are business terms often used interchangeably or in a general combination. Effectiveness refers to your ability to optimize business strengths in the way you operate. Efficiency refers to your ability to optimize your resources and business activities to generate revenue and profits. Organizations simply cannot ignore the terms ‘efficiency’ and ‘effectiveness’  For increasing productivity as well as improving customer service, both of these are essential. Efficiency is doing things right; effectiveness is doing the right things.

Clause 5.1.1.2 Process effectiveness and efficiency

Top management must check the processes for making products and the support processes to see if they work well and are efficient. The findings from these reviews must be considered when top management conducts management review.

Clause 5.1.1.2 requires top management to have a method for reviewing all organizational activities that relate to supplying parts to the organization’s customers.  IATF 6949 adds a requirement that top management must regularly review the effectiveness and efficiency of the product realization and support processes. In simple English, that requires top management to ask how well the core business is being managed. Financial measures obviously come to mind. but from the quality perspective, measures of parts per million (ppm) nonconforming at the customer, first-run capability (the percent of product produced without repair operations). scrap, employee turnover, and delivery performance to the schedule are among the appropriate metrics for measuring core business efficiency. The clause also requires not to ensure that the results of process review activities will now be included in management review. Process review activities need to include evaluation methods and, as a result, implement improvements. The results of these steps would be an input to the management review process. Top management is thus performing a review of the process-specific reviews performed by the process owners.

Top management at each site must review process effectiveness and efficiency . This may include:

• Achievement of continual improvement objectives for identified product realization and support processes
• Optimization of the interaction of these processes
• Verification that these processes operate as an effective and efficient network
• Monitoring cost trends and benchmarking of key processes

Process Effectiveness

Effectiveness is an external measure of performance and indicates how well a Process fulfills the demands of various stakeholders. Simply put, it is “doing the right things.” For example, in educational institutions, effectiveness is measured by teaching students what they need to know. Managers need to make sure that the services or products meet customers’ expectations. When analyzing a company’s processes, effectiveness takes precedence over efficiency. The effectiveness of a process is the measure of how relevant the output is to the desired objective. A truly effective process will make customers happy by providing everything right. That is the right results at the right place time, and cost. Hence, measure process effectiveness from the customers’ goal point of view.

Effectiveness measures the extent to which planned activities (run rate) and planned results (objectives) are achieved? E.g., say you plan to produce and ship 1000 units a day with zero defects.  At the end of the week, the production records showed we achieved our planned activity of 1000 units per day, but fell short on our planned result, as we incurred a 2.5% defect rate and only hit a 90% on-time delivery rate.

Effectiveness can include discussion of current operations and opportunities for improvement. If your business is currently effective, you are using your core strengths and available resources to best serve the marketplace. A for-profit business with a strong customer service staff is effective if it earns healthy revenue by providing a high level of sales and service production. An effective manufacturing firm uses its buildings, equipment, and workflow to produce quality goods. The activities that make you effective now may not contribute to continued effectiveness. Therefore, it is fair to say that effective companies consistently look for opportunities for growth and development. If an emerging market develops that your company can serve, effectiveness means that you conduct research, recognize the needs and interests of the market, develop products and services to match and promote your brands well to the target customer base. Your company’s effectiveness is somewhat relative to the ability of competitors to produce similar business results with the same resources and opportunities.

Process Efficiency

Efficiency is an internal measure of performance for a process that shows how well the process converts inputs into outputs. The more the ratio of outputs to inputs approaches 100 percent, the better the efficiency of the process will be. In simple terms, it is “doing things right” and comes from the proper harnessing of time, cost, and effort. For example, an employee can improve efficiency by developing a daily work schedule, avoiding personal phone calls, and preventing distractions. Process efficiency, on the other hand, acts as a vital factor in determining productivity. It is a measurable concept. Essentially it is the ratio of ‘useful output to total input’. Hence it requires resource optimization (mainly cost and time) along with maximum waste reduction. To understand process efficiency we need to measure process time, cost, and effort needs.

Efficiency is the relationship between results achieved and resources used. Can we produce more units than planned per hour for the set amount of resources? Or can we use fewer resources than planned to produce the units.? Efficiency can relate to the utilization of any resource – machine, labor, material, facilities, utilities, time, etc.    Let us look at a simple example. Say one operator A can produce 100 good units per hour with 2% material scrap on a machine.  Operator B produces 105 good units with only 1% material scrap per hour on the same machine. Clearly, operator B is more efficient in the use of time as well as material, both of which can be measured. Because there are many other resources to be considered, the measurement of efficiency can get fairly complex and requires a multidisciplinary approach involving production, engineering, cost accounting, and other disciplines.

Efficiency generally refers to how well you convert business investments into revenue and profit. One factor in efficiency is cost control. Efficient companies usually only spend money that produces tangible gains in customers, revenue, or profit. Paying competitive wages while motivating employees to produce the highest goods or sales contributes to efficiency. Paying only for product developments that lead to enhanced customer perception of value is another element of cost control and efficiency.

 Productivity relates the output of goods and services of the company to the inputs of all the resources used in the production of goods and services. In other words, it measures how well a company transforms resources into products. Productivity is the combination of efficiency and effectiveness. This means that a company that only attains efficiency or effectiveness is either partially productive or not productive at all. To be productive, a company needs to be efficient and effective at the same time. Relating efficiency and effectiveness overcomes the shortcomings of using either of them alone. If managers focus on efficiency alone, they may jeopardize the competitiveness of their company. For example, mere focus on efficiency ignores the contribution of the activity to customer value creation. Likewise, the exclusive emphasis on effectiveness ignores the cost-effectiveness of the activity. Improving productivity boosts competitiveness by lowering operational costs, using resources better, increasing market share, and increasing profits.

Measuring Process effectiveness and efficiency 

The starting point involves detailed process mapping and creating the block diagram for the said process after discussing in detail with the operations teams and floor walk-through. The block diagram is then fine-tuned to mark the boundaries thus freezing the beginning point and the ending point of the chosen process. Further planning involves marking the source of inputs that go into the said process, identifying the input source as well as the output customers at intermediate and final stages of the process. Detailed examination of the data that is received as input, the data or deliverable that is required to be sent as output from the process would have to be done to ensure every possible detail is captured. At this point, it becomes necessary to examine the input and output data accuracy, errors, frequency, and standardization of the data as well as to record the customer expectations from the process. Once the entire process mapping and overview has been completed and defined, the next logical step would be to tabulate the measurements and targets for the overall process.

1. Process Effectiveness Measurement
   Effectiveness of a process refers to the usefulness of the process output in relation to the expectations and needs of the Customer. The effectiveness of the process lies in being able to provide the desired output as needed by the Customer at the right time, the right way, and at the right place, and more importantly at the right cost too. The process of setting up process effectiveness measurement begins with outlining the complete Customer expectations and needs detail. These expectations would then be converted into measurable targets and expectations. Lastly, the data collection and measurement methods would need to be outlined. It helps to elaborate a little more on the process effectiveness measurement and the attributes that are used as measurements. In most cases, it is generally seen that the customer expectations and requirements are not defined clearly with specifications in terms of the delivery format, frequency, and so on. In addition, the customer’s expectation of error-free service, customer experience, and quality of service is not defined or understood well enough and is not quantified. Now is the time to examine the customer expectations in detail and establish the criteria for delivery of the said product or service in line with customer expectations. There are several criteria that are used to measure the process effectiveness specifically in relation to the Customer expectations. Some of the popular and useful criteria used in the product as well as service industry include – Product or Service Presentation, Timeliness of Delivery, Accuracy of Service, Reliability of Service or Product, Product usability, Product serviceability, and Customer Service, Responsiveness, etc. Once the criteria for measurement have been established and accepted, the next sequential step would be to formalize the measurement criteria and freeze the formats. Measurement criteria here would include the usage of QC Inspection, Check Sheets, AQ Sampling formats to be used at the Customer end, Customer Inspection and Installation reports or feedback forms, etc. Specific measurement criteria can be set up depending upon the specific business case.
2. Process Efficiency
   Efficient execution of the process is very important for very many reasons. In most cases, the processes are normally found to contain inefficiencies built over a period of time. First and foremost every customer who is buying a product or a Service expects efficiency of service. Depending upon the nature of the business or the service, the process efficiency can be ascertained. The efficiency of service in a restaurant can be measured in terms of time taken from Order to Delivery of Food and in the case of an Airline; the check-in process efficiency could be of prime importance to gauge service efficiency. Take the case of Sales Order processing; the process efficiency would be of importance when it comes to the calculation of total time taken from the Order to delivery to the end customer. Process efficiency is not only important from the point of view of the external customers alone. Internally too, process efficiency has a bearing on the cost of the operations as well. Internally the process efficiency can be measured using several criteria including but not limited to – Total processing time, Resource utilization per unit of output, Non-Value Added Cost, Non-Value Added Time, Cost of Quality, etc. Measuring the processing time at all stages throws up a lot of factors that are aiding or harming the process efficiency and thus provides ample information to be able to work on process control and improvement. Measurement of process time or cycle time will also throw up non-value-added time as well as activity that can be acted upon for correction. Furthermore, any deficiency in the training or skills of the workers and any delay or inefficiency from the related processes that are supposed to provide the inputs will also show up with the measurement of the cycle time of the process. The efficiency of the process has a direct bearing on the Customer’s expectation and the promise to the Customer as well as to the overall operational cost. Therefore putting process efficiency measurements in place will help bring out the areas and factors that are needed to be controlled, managed, changed, and altered in the process of improving the said process.

Some metrics used for calculating Process efficiency and effectiveness are

Improving Customer Experience & Responsiveness

On-Time Delivery to Commit – This metric is the percentage of time that manufacturing delivers a completed product on the schedule that was committed to customers.

Manufacturing Cycle Time –  Measures the speed or time it takes for manufacturing to produce a given product from the time the order is released to production, to finished goods.

Time to Make Changeovers – Measures the speed or time it takes to switch a manufacturing line or plant from making one product over to making a different product.

Improving Quality

Yield – Indicates a percentage of products that are manufactured correctly and to specifications the first time through the manufacturing process without scrap or rework.

Customer Rejects/ Return Material Authorizations/ Returns – A measure of how many times customers reject products or request returns of products based on receipt of a bad or out of specification product.

Supplier’s Quality Incoming – A measure of the percentage of good quality materials coming into the manufacturing process from a given supplier.

Improving Efficiency

Throughput – Measures how much product is being produced on a machine, line, unit, or plant over a specified period of time.

Capacity Utilization – Indicates how much of the total manufacturing output capacity is being utilized at a given point in time.

Overall Equipment Effectiveness (OEE) – This multi-dimensional metric is a multiplier of Availability x Performance x Quality, and it can be used to indicate the overall effectiveness of a piece of production equipment or an entire production line.

Schedule or Production Attainment – A measure of what percentage of time a target level of production is attained within a specified schedule of time.

Reducing Inventory

WIP Inventory/Turns – A commonly used ratio calculation to measure the efficient use of inventory materials. It is calculated by dividing the cost of goods sold by the average inventory used to produce those goods.

Ensuring Compliance

Reportable Health and Safety Incidents – A measure of the number of health and safety incidents that were either actual incidents or near misses that were recorded as occurring over a period of time.

Reportable Environmental Incidents – A measure of the number of health and safety incidents that were recorded as occurring over a period of time.

Number of Non-Compliance Events / Year – A measure of the number of times a plant or facility operated outside the guidelines of normal regulatory compliance rules over a one-year period. These non-compliances need to be fully documented as to the specific non-compliance time, reasons, and resolutions.

Reducing Maintenance

Percentage Planned vs. Emergency Maintenance Work Orders – This ratio metric is an indicator of how often scheduled maintenance takes place, versus more disruptive/un-planned maintenance.

Downtime in Proportion to Operating Time – This ratio of downtime to operating time is a direct indicator of asset availability for production.

Increasing Flexibility & Innovation

Rate of New Product Introduction –  Indicates how rapidly new products can be introduced to the marketplace and typically includes a combination of design, development, and manufacturing ramp-up times.

Engineering Change Order Cycle Time – A measure of how rapidly design changes or modifications to existing products can be implemented all the way through documentation processes and volume production.

Reducing Costs & Increasing Profitability

Total Manufacturing Cost per Unit Excluding Materials – This is a measure of all potentially controllable manufacturing costs that go into the production of a given manufactured unit, item, or volume.

Manufacturing Cost as a Percentage of Revenue – A ratio of total manufacturing costs to the overall revenues produced by a manufacturing plant or business unit.

Net Operating Profit – Measures the financial profitability for all investors/shareholders/debt holders, either before or after taxes, for a manufacturing plant or business unit.

Productivity in Revenue per Employee – This is a measure of how much revenue is generated by a plant, business unit, or company, divided by the number of employees.

Average Unit Contribution Margin – This metric is calculated as a ratio of the profit margin that is generated by a manufacturing plant or business unit, divided into a given unit or volume of production.

Return on Assets/Return on Net Assets – A measure of financial performance calculated by dividing the net income from a manufacturing plant or business unit by the value of fixed assets and working capital deployed.

Energy Cost per Unit – A measure of the cost of energy (electricity, steam, oil, gas, etc.) required to produce a specific unit or volume of production.

 Cash-to-Cash Cycle Time – This metric is the duration between the purchase of a manufacturing plant or business unit’s inventory, and the collection of payments/accounts receivable for the sale of products that utilize that inventory – typically measured in days.

EBITDA – This metric acronym stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a calculation of a business unit or company’s earnings, prior to having any interest payments, tax, depreciation, and amortization subtracted for any final accounting of income and expenses. EBITDA is typically used as a top-level indication of the current operational profitability of a business.

Customer Fill Rate/On-Time delivery/Perfect Order Percentage – This metric is the percentage of times that customers receive the entirety of their ordered manufactured goods, to the correct specifications, and delivered at the expected time.

It’s been over a year since Volkswagen was caught cheating on EPA tests, but the effects of that scandal are still reverberating throughout the automotive industry. The IATF 16949 standard has been revised by the International Automotive Task Force (IATF) based on industry feedback and engagement. This is the first time that ethics language has been included in an automotive quality standard. It’s significant because it gives us an opportunity to verify where the supply base stands on several core ethics policies. The new IATF 16949 standard states that certified organizations must implement basic corporate responsibility policies, such as anti-bribery policies, an employee code of conduct, and an ethics escalation (whistle-blower) policy. Nine North American and European OEMs and five national automotive supplier associations have agreed to include corporate responsibility requirements in the new quality standard. The language is basic, but it clearly requires automotive sites worldwide to provide documentation that they have established an employee behavioral expectation code, implemented a formal process to report code violations, and published an anti-bribery policy. There are no incremental costs to suppliers or OEMs to capture this corporate responsibility data. By late 2018, more than 65,000 supplier sites that are certified to the new standard—primarily Tier One and Tier Two direct-part manufacturers—must be physically audited and re-certified by an approved IATF third-party certification body. Non-compliance could result in the suspension of a supplier’s quality certification and limitations to accessing new business opportunities. Fortunately, the Automotive Industry Action Group (AIAG), which oversees the creation of these global standards, is offering a free knowledge assessment tool so that industry professionals can identify gaps in their understanding of the Group’s Global Guidance Principles and address them before being audited.

IATF 16949:2016  5.1.1.1 Corporate responsibility

The organization needs to make and follow rules about being responsible. This includes having policies to stop bribery, guidelines for how employees should behave, and a way for people to report problems, like a whistle-blowing policy.

Explanation:

To be successful today, the automotive industry and its supply chain partners must contend with heightened expectations from a range of stakeholders on complex corporate responsibility issues:
• A plethora of governmental regulations affect the use and management of chemicals in the production process. The organization must keep abreast of existing and emerging regulations on the use and management of chemicals in the production process and provide an assessment of their impact.
• A growing number of regions, countries, and non-governmental organizations throughout the world require companies to report greenhouse gas emissions, which also factor into financial firms’ assessments, stockholder decisions, and customer perceptions. This is an important first step in environmental sustainability. OEMs and suppliers are required to calculate and report emissions from the supply base in a consistent and accurate manner and creating cost savings for the organization. The lessons learned and processes implemented for GHGs will set a foundation for other elements of environmental sustainability (i.e., water, wastes).
• The increased globalization of automotive production makes understanding and managing the impact of working conditions on business a greater challenge. Understanding and managing the impacts of the working conditions of business has become a greater challenge with the increased globalization of automotive production, and developing responsible working conditions begins with having a shared understanding of the key issues(child labor, forced labor, freedom of association, harassment and discrimination, health and safety, wages and benefits, and working hours.) up and down the supply chain.

1. Business Ethics
   The basis for sustainable and successful business activity is to have integrity and transparent business practices. Companies are expected to operate honestly and equitably throughout the supply chain in accordance with local law, including those laws pertaining to:
   • Anti-Corruption
   • Anti-competitive Business Practices
   • Protection of Intellectual Property
   • Respect for Company and Personal Data
   • Export Controls
   • Conflicts of Interest
2. Environmental Standards
   Companies are expected to pursue effective environmental protection throughout the supply chain in order to reduce the environmental footprint of our products throughout their life-cycle. All products manufactured within the supply chain and the applied materials and substances used in the process are expected to meet environmental standards for design, development, distribution, use, disposal, or recycling. Such a comprehensive approach includes but is not limited to:
   • Reducing energy and water consumption
   • Reducing greenhouse gas emissions
   • Increasing use of renewable energies
   • Enhancing appropriate waste management
   • Training of employees
   Businesses are expected to support a proactive approach to environmental challenges and encourage the development and diffusion of environmentally friendly technologies.
3. Working Conditions and Human Rights
   1. Child Labor and Young Workers
      Child labor should not be tolerated and the age of employment must be in accordance with local labor law.
   2. Wages and Benefits
      Compensation and benefits should be competitive and comply with applicable local laws, including those relating to minimum wages, overtime compensation, and legally mandated benefits.
   3. Working Hours
      Working hours, including overtime, should comply with applicable local laws regulating hours of work.
   4. Forced Labor
      Any form of forced or compulsory labor, including human trafficking, should not be tolerated.
   5. Freedom of Association
      Workers should be able to communicate openly with management regarding working conditions without fear of reprisal, intimidation, or harassment. Workers should have the right to associate freely, to join or not join labor unions, seek representation, and join workers’ councils in accordance with local laws.
   6. Health and Safety
      Workers should have a safe and healthy working environment that meets or exceeds applicable standards for safety and occupational health.
   7. Harassment and Discrimination
      Harassment or discrimination against employees in any form is not acceptable.

Anti Bribery Policy

Ethical business practices are not only necessary for preserving reputability and improving business overall, but also for adhering to the law. Conducting bribery or corrupt activities won’t just get you a slap on the wrist; you could be heavily fined or potentially put behind bars. Bribery includes the act of offering, giving, promising, asking, agreeing, receiving, or soliciting something of value for the purpose of influencing action. But being involved in bribery is not just limited to the act of offering a bribe: if you are on the receiving end and accept it, you are also breaking the law.  Anti Bribery  Policies should aim to:

• Demonstrate its understanding of anti-bribery law.
• Emphasise that the company has zero-tolerance for bribery.
• Detail whom the policy applies to.
• Detail the company and employees’ responsibilities.
• Reduce and control bribery risks.
• Provide rules about accepting gifts.
• Provide guidance on how business should be conducted so to prevent bribery.
• Provide direction on how to avoid conflicts of interest.
• Include information about monitoring and reviewing the policy.
• An anti-bribery policy demonstrates a company’s commitment to preventing bribery and corrupt activities, and all staff should be instructed to familiarise themselves with the information it contains.

Having this policy in place ensures that everyone knows what to do in regards to preventing bribery, which minimizes the risks of bribery and corruption occurring in your business and therefore protects your company from facing any issues with the law.

Six Principles to prevent Bribery in the organization

The Organization having Anti- Bribery policy in place and wishing to prevent bribery from being committed on their behalf should follow the following Six principles.  Commentary and guidance on what procedures the application of the principles may produce accompany each principle. These principles are not prescriptive. They are intended to be flexible and outcome focussed, allowing for the huge variety of circumstances that organizations find themselves in. Small organizations will, for example, face different challenges to those faced by large multi-national enterprises. Accordingly, the detail of how organizations might apply these principles, taken as a whole, will vary, but the outcome should always be robust and effective anti-bribery procedures. To set out in more detail below, bribery prevention procedures should be proportionate to risk.

Principle 1: Proportionate procedures

An Organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale, and complexity of the organization’s activities. They are also clear, practical, accessible, effectively implemented, and enforced.
Commentary
The term ‘procedures’ is used to embrace both bribery prevention policies and the procedures which implement them. Policies articulate the organization’s anti-bribery stance, show how it will be maintained, and help to create an anti-bribery culture. They are therefore a necessary measure in the prevention of bribery, but they will not achieve that objective unless they are properly implemented. Adequate bribery prevention procedures ought to be proportionate to the bribery risks that the organization faces. An initial assessment of risk across the organization is therefore a necessary first step. To a certain extent, the level of risk will be linked to the size of the organization and the nature and complexity of its business, but size will not be the only determining factor. Some small organizations can face quite significant risks and will need more extensive procedures than their counterparts facing limited risks. However, small organizations are unlikely to need procedures that are as extensive as those of a large multi-national organization. For example, a very small business may be able to rely heavily on periodic oral briefings to communicate its policies while a large one may need to rely on extensive written communication. The level of risk that organizations face will also vary with the type and nature of the persons associated with it. For example, an organization that properly assesses that there is no risk of bribery on the part of one of its associated persons will accordingly require nothing in the way of procedures to prevent bribery in the context of that relationship. By the same token, the bribery risks associated with reliance on a third party agent representing a commercial organization in negotiations with foreign public officials may be assessed as significant and accordingly require much more in the way of procedures to mitigate those risks. Organizations are likely to need to select procedures to cover a broad range of risks but any consideration by a court in an individual case of the adequacy of procedures is likely necessary to focus on those procedures designed to prevent bribery on the part of the associated person committing the offence in question. Bribery prevention procedures may be stand-alone or form part of wider guidance, for example on recruitment or on managing a tender process in public procurement. Whatever the chosen model, the procedures should seek to ensure there is a practical and realistic means of achieving the organization’s stated anti-bribery policy objectives across all of the organization’s functions. Applying these procedures retrospectively to existing associated persons is more difficult, but this should be done over time, adopting a risk-based approach and with due allowance for what is practicable and the level of control over existing arrangements.

Procedures
Organizations’ bribery prevention policies are likely to include certain common elements. As an indicative and not exhaustive list, an organization may wish to cover in its policies

• its commitment to bribery prevention
• its general approach to mitigation of specific bribery risks, such as those arising from the conduct of intermediaries and agents, or those associated with hospitality and promotional expenditure, facilitation payments, or political and charitable donations or contributions;
• an overview of its strategy to implement its bribery prevention policies.

The procedures put in place to implement an organization’s bribery prevention policies should be designed to mitigate identified risks as well as to prevent deliberate unethical conduct on the part of associated persons. The following is an indicative and not exhaustive list of the topics that bribery prevention procedures might embrace depending on the particular risks faced:

• The involvement of the organization’s top-level management.
• Risk assessment procedures
•  Due diligence of existing or prospective associated persons
• The provision of gifts, hospitality, and promotional expenditure; charitable and political donations; or demands for facilitation payments.
• Direct and indirect employment, including recruitment, terms, and conditions, disciplinary action, and remuneration.
• Governance of business relationships with all other associated persons including pre and post-contractual agreements
• Financial and commercial controls such as adequate bookkeeping, auditing, and approval of expenditure
• Transparency of transactions and disclosure of information.
• Decision makings, such as delegation of authority procedures, separation of functions, and the avoidance of conflicts of interest
• Enforcement, detailing discipline processes and sanctions for breaches of the organization’s anti-bribery rules.
• The reporting of bribery including ‘speak up’ or ‘whistle blowing’ procedures
• The detail of the process by which the organization plans to implement its bribery prevention procedures, for example, how its policy will be applied to individual projects and to different parts of the organization.
• The communication of the organization’s policies and procedures, and training in their application
• The monitoring, review, and evaluation of bribery prevention procedures

Principle 2: Top-level commitment

The top-level management (be it a board of directors, the owners, or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organization in which bribery is never acceptable.

Commentary
Those at the top of an organization are in the best position to foster a culture of integrity where bribery is unacceptable. The purpose of this principle is to encourage the involvement of top-level management in the determination of bribery prevention procedures. It is also to encourage top-level involvement in any key decision-making relating to bribery risk where that is appropriate for the organization’s management structure.
Procedures
Whatever the size, structure, or market of a commercial organization, top-level management commitment to bribery prevention is likely to include (1) communication of the organization’s anti-bribery stance, and (2) an appropriate degree of involvement in developing bribery prevention procedures.

Internal and external communication of the commitment to zero tolerance to bribery. This could take a variety of forms. A formal statement appropriately communicated can be very effective in establishing an anti-bribery culture within an organization. Communication might be tailored to different audiences. The statement would probably need to be drawn to people’s attention on a periodic basis and could be generally available, for example on an organization’s intranet and/or internet site. Effective formal statements that demonstrate top-level commitment are likely to include:

• a commitment to carry out business fairly, honestly, and openly
• a commitment to zero tolerance towards bribery• the consequences of breaching the policy for employees and managers
• for other associated persons the consequences of breaching contractual provisions relating to bribery prevention (this could include a reference to avoiding doing business with others who do not commit to doing business without bribery as a ‘best practice’ objective
• articulation of the business benefits of rejecting bribery (reputational, customer, and business partner confidence)
• reference to the range of bribery prevention procedures the commercial organization has or is putting in place, including any protection and procedures for confidential reporting of bribery (whistle-blowing)
• key individuals and departments involved in the development and implementation of the organization’s bribery prevention procedures
• reference to the organization’s involvement in any collective action against bribery in, for example, the same business sector.

Top-level involvement in bribery prevention
Effective leadership in bribery prevention will take a variety of forms appropriate for and proportionate to the organization’s size, management structure, and circumstances. In smaller organizations, a proportionate response may require top-level managers to be personally involved in initiating, developing, and implementing bribery prevention procedures and bribery critical decision making. In a large multi-national organization the board should be responsible for setting bribery prevention policies, tasking management to design, operate, and monitor bribery prevention procedures, and keeping these policies and procedures under regular review. But whatever the appropriate model, top-level engagement is likely to reflect the following elements:

• Selection and training of senior managers to lead anti-bribery work where appropriate.
• Leadership on key measures such as a code of conduct.
• Endorsement of all bribery prevention-related publications.
• Leadership in awareness-raising and encouraging transparent dialogue throughout the organization so as to seek to ensure effective dissemination of anti-bribery policies and procedures to employees, subsidiaries, and associated persons, etc.
• Engagement with relevant associated persons and external bodies, such as sectoral organizations and the media, to help articulate the organization’s policies.
• Specific involvement in high profile and critical decision making where appropriate
• Assurance of risk assessment.
• General oversight of breaches of procedures and the provision of feedback to the board or equivalent, where appropriate, on levels of compliance.

Principle 3: Risk Assessment

The commercial organization assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed, and documented.

Commentary

For organizations, this principle will manifest itself as part of a general risk assessment carried out in clause 4 in relation to business objectives.  The purpose of this principle is to promote the adoption of risk assessment procedures that are proportionate to the organization’s size and structure and to the nature, scale, and location of its activities. But whatever approach has adopted the fuller the understanding of the bribery risks an organization faces the more effective its efforts to prevent bribery are likely to be. Some aspects of risk assessment involve procedures that fall within the generally accepted meaning of the term ‘due diligence.

Procedures

Risk assessment procedures that enable the organization accurately to identify and prioritize the risks it faces will, whatever its size, activities, customers, or markets, usually reflect a few basic characteristics. These are

• Oversight of the risk assessment by top-level management.
• Appropriate resourcing – this should reflect the scale of the organization’s business and the need to identify and prioritize all relevant risks
• Identification of the internal and external information sources that will enable risk to be assessed and reviewed.
• Due diligence inquiries
• Accurate and appropriate documentation of the risk assessment and its conclusions.

As a commercial organization’s business evolves, so will the bribery risks it faces and hence so should its risk assessment. For example, the risk assessment that applies to an organization’s domestic operations might not apply when it enters a new market in a part of the world in which it has not done business before

Commonly encountered risks

Commonly encountered external risks can be categorized into five broad groups – country, sectoral, transaction, business opportunity, and business partnership:

1. Country risk: this is evidenced by perceived high levels of corruption, an absence of effectively implemented anti-bribery legislation, and a failure of the foreign government, media, local business community, and civil society effectively to promote transparent procurement and investment policies.
2. Sectoral risk: some sectors are at higher risk than others. Higher-risk sectors include the extractive industries and the large-scale infrastructure sector.
3. Transaction risk: certain types of transactions give rise to higher risks, for example, charitable or political contributions, licenses and permits, and transactions relating to public procurement.
4.  Business opportunity risk: such risks might arise in high-value projects or with projects involving many contractors or intermediaries; or with projects which are not apparently undertaken at market prices, or which do not have a clear legitimate objective.
5. Business partnership risk: certain relationships may involve higher risk, for example, the use of intermediaries in transactions with foreign public officials; consortia or joint venture partners; and relationships with politically exposed persons where the proposed business relationship involves, or is linked to, a prominent public official.

 An assessment of external bribery risks is intended to help decide how those risks can be mitigated by procedures governing the relevant operations or business relationships, but a bribery risk assessment should also examine the extent to which internal structures or procedures may themselves add to the level of risk. Commonly encountered internal factors may include

• deficiencies in employee training, skills, and knowledge
• bonus culture that rewards excessive risk-taking
•  lack of clarity in the organization’s policies on, and procedures for, hospitality and promotional expenditure, and political or charitable contributions
• lack of clear financial controls
• lack of a clear anti-bribery message from the top-level management.

Principle 4: Due diligence

The organization applies due diligence procedures, taking a proportionate and risk-based approach, in respect of persons who perform or will perform services for or on behalf of the organization, in order to mitigate identified bribery risks.

Commentary

Due diligence is firmly established as an element of corporate good governance and it is envisaged that due diligence related to bribery prevention will often form part of a wider due diligence framework. Due diligence procedures are both a form of bribery risk assessment and a means of mitigating risk. By way of illustration, an organization may identify risks that as a general proposition attach to doing business in reliance upon local third-party intermediaries. Due diligence of specific prospective third-party intermediaries could significantly mitigate these risks. The significance of the role of due diligence in bribery risk mitigation justifies its inclusion here as a Principle in its own right. The purpose of this Principle is to encourage organizations to put in place due diligence procedures that adequately inform the application of proportionate measures designed to prevent persons associated with them from bribing on their behalf.

Procedures

As this guidance emphasizes throughout, due diligence procedures should be proportionate to the identified risk. They can also be undertaken internally or by external consultants. A person ‘associated with an organization includes any person performing services for a commercial organization. The scope of this definition is broad and can embrace a wide range of business relationships. But the appropriate level of due diligence to prevent bribery will vary enormously depending on the risks arising from the particular relationship. So, for example, the appropriate level of due diligence required by an organization when contracting for the performance of information technology services may be low, to reflect low risks of bribery on its behalf. In contrast, an organization that is selecting an intermediary to assist in establishing a business in foreign markets will typically require a much higher level of due diligence to mitigate the risks of bribery on its behalf. Organizations will need to take considerable care in entering into certain business relationships, due to the particular circumstances in which the relationships come into existence. An example is where local law or convention dictates the use of local agents in circumstances where it may be difficult for an organization to extricate itself from a business relationship once established. The importance of thorough due diligence and risk mitigation prior to any commitment is paramount in such circumstances. Another relationship that carries particularly important due diligence implications is a merger of organizations or an acquisition of one by another. ‘Due diligence’  should be conducted using a risk-based approach. For example, in lower-risk situations, organizations may decide that there is no need to conduct much in the way of due diligence. In higher-risk situations, due diligence may include conducting direct interrogative inquiries, indirect investigations, or general research on proposed associated persons. Appraisal and continued monitoring of recruited or engaged ‘associated’ persons may also be required, proportionate to the identified risks. Generally, more information is likely to be required from prospective and existing associated persons that are incorporated (e.g. companies) than from individuals. This is because on a basic level more individuals are likely to be involved in the performance of services by a company and the exact nature of the roles of such individuals or other connected bodies may not be immediately obvious. Accordingly, due diligence may involve direct requests for details on the background, expertise, and business experience, of relevant individuals. This information can then be verified through research and the following up of references, etc. An organization’s employees are presumed to be persons associated with the organization for the purposes of the Bribery Act. The organization may wish, therefore, to incorporate in its recruitment and human resources procedures an appropriate level of due diligence to mitigate the risks of bribery being undertaken by employees which are proportionate to the risk associated with the post in question. Due diligence is unlikely to be needed in relation to lower-risk posts.

Principle 5: Communication (including training)

The organization seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organization through internal and external communication, including training, that is proportionate to the risks it faces.

Commentary

Communication and training deter bribery by associated persons by enhancing awareness and understanding of a commercial organization’s procedures and to the organization’s commitment to their proper application. Making information available assists in more effective monitoring, evaluation, and review of bribery prevention procedures. Training provides the knowledge and skills needed to employ the organization’s procedures and deal with any bribery-related problems or issues that may arise.

Procedures for Communication

1. The content, language, and tone of communications for internal consumption may vary from that for external use in response to the different relationship the audience has with the commercial organization. The nature of communication will vary enormously between commercial organizations in accordance with the different bribery risks faced, the size of the organization, and the scale and nature of its activities.
2. Internal communications should convey the ‘tone from the top’ but are also likely to focus on the implementation of the organization’s policies and procedures and the implications for employees. Such communication includes policies on particular areas such as decision making, financial control, hospitality, and promotional expenditure, facilitation payments, training, charitable and political donations and penalties for breach of rules, and the articulation of management roles at different levels. Another important aspect of internal communications is the establishment of a secure, confidential, and accessible means for internal or external parties to raise concerns about bribery on the part of associated persons, to provide suggestions for improvement of bribery prevention procedures and controls, and for requesting advice. These so-called ‘speak up’ procedures can amount to a very helpful management tool for commercial organizations with diverse operations that may be in many countries. If these procedures are to be effective there must be adequate protection for those reporting concerns.
3.  External communication of bribery prevention policies through a statement or codes of conduct, for example, can reassure existing and prospective associated persons and can act as a deterrent to those intending to bribe on a commercial organization’s behalf. Such communications can include information on bribery prevention procedures and controls, sanctions, results of internal surveys, rules governing recruitment, procurement, and tendering. An organization may consider it proportionate and appropriate to communicate its anti-bribery policies and commitment to them to a wider audience, such as other organizations in its sector and to sectoral organizations that would fall outside the scope of the range of its associated persons, or to the general public.

Procedure for Training

Like all procedures training should be proportionate to risk but some training is likely to be effective in firmly establishing an anti-bribery culture whatever the level of risk. Training may take the form of education and awareness-raising about the threats posed by bribery in general and in the sector or areas in which the organization operates in particular, and the various ways it is being addressed. General training could be mandatory for new employees or for agents (on a weighted risk basis) as part of an induction process, but it should also be tailored to the specific risks associated with specific posts. Consideration should also be given to tailoring training to the special needs of those involved in any ‘speak up’ procedures, and higher risk functions such as purchasing, contracting, distribution and marketing, and working in high-risk countries. Effective training is continuous, and regularly monitored and evaluated. It may be appropriate to require associated persons to undergo training. This will be particularly relevant for high-risk associated persons. In any event, organizations may wish to encourage associated persons to adopt bribery prevention training. Nowadays there are many different training formats available in addition to the traditional classroom or seminar formats, such as e-learning and other web-based tools. But whatever the format, the training ought to achieve its objective of ensuring that those participating in it develop a firm understanding of what the relevant policies and procedures mean in practice for them.

Principle 6: Monitoring and review

The organization monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.

Commentary

The bribery risks that the organization faces may change over time, as may the nature and scale of its activities, so the procedures required to mitigate those risks are also likely to change. Organizations will therefore wish to consider how to monitor and evaluate the effectiveness of their bribery prevention procedures and adapt them where necessary. In addition to regular monitoring, an organization might want to review its processes in response to other stimuli, for example, governmental changes in countries in which they operate, an incident of bribery, or negative press reports.

Procedures

There is a wide range of internal and external review mechanisms that organizations could consider using. Systems set up to deter, detect and investigate bribery, and monitor the ethical quality of transactions, such as internal financial control mechanisms, will help provide insight into the effectiveness of procedures designed to prevent bribery. Staff surveys, questionnaires, and feedback from training can also provide an important source of information on the effectiveness and a means by which employees and other associated persons can inform the continuing improvement of anti-bribery policies. Organizations could also consider formal periodic reviews and reports for top-level management. Organizations could also draw on information on other organizations’ practices, for example, relevant trade bodies or regulators might highlight examples of good or bad practices in their publications. In addition, organizations might wish to consider seeking some form of external verification or assurance of the effectiveness of anti-bribery procedures. Some organizations may be able to apply for certified compliance with one of the independently-verified anti-bribery standards maintained by industrial sector associations or multilateral bodies. However, such certification may not necessarily mean that a commercial organization’s bribery prevention procedures are ‘adequate’ for all purposes where an offense under section 7 of the Bribery Act could be charged.

Example of Template of Anti Bribery policy

1. What does your policy cover?

1.1 This anti-bribery policy exists to set out the responsibilities o[f [COMPANY Name] and those who work for us in regards to observing and upholding our zero-tolerance position on bribery and corruption.
1.2 It also exists to act as a source of information and guidance for those working for [COMPANY NAME] . It helps them recognise and deal with bribery and corruption issues, as well as understand their responsibilities.

2. Policy statement

2.1 [COMPANY NAME] is committed to conducting business in an ethical and honest manner and is committed to implementing and enforcing systems that ensure bribery is prevented. [COMPANY NAME] has zero-tolerance for bribery and corrupt activities. We are committed to acting professionally, fairly, and with integrity in all business dealings and relationships, wherever in the country we operate.
2.2 [COMPANY NAME] will constantly uphold all laws relating to anti-bribery and corruption in all the jurisdictions in which we operate. We are bound by the laws of India, including the Prevention of Corruption Act 1988, in regards to our conduct both at home and abroad.
2.3 [COMPANY NAME] recognizes that bribery and corruption are punishable by imprisonment and a fine. If our company is discovered to have taken part in corrupt activities, we may be subjected to a fine, be excluded from tendering for public contracts, and face serious damage to our reputation. It is with this in mind that we commit to preventing bribery and corruption in our business and take our legal responsibilities seriously.

3. Who is covered by the policy?

3.1 This anti-bribery policy applies to all employees (whether temporary, fixed-term, or permanent), consultants, contractors, trainees, seconded staff, home workers, casual workers, agency staff, volunteers, interns, agents, sponsors, or any other person or persons associated with us (including third parties), or any of our subsidiaries or their employees, no matter where they are located (within or outside of India). The policy also applies to Officers, Trustees, Board, and/or Committee members at any level.
3.2 In the context of this policy, third-party refers to any individual or organization our company meets and works with. It refers to actual and potential clients, customers, suppliers, distributors, business contacts, agents, advisers, and government and public bodies – this includes their advisors, representatives and officials, politicians, and public parties.
3.3 Any arrangements our company makes with a third party are subject to clear contractual terms, including specific provisions that require the third party to comply with minimum standards and procedures relating to anti-bribery and corruption.

4. Definition of bribery

4.1 Bribery refers to the act of offering, giving, promising, asking, agreeing, receiving, accepting, or soliciting something of value or of an advantage so as to induce or influence an action or decision.
4.2 A bribe refers to any inducement, reward, or object/item of value offered to another individual in order to gain commercial, contractual, regulatory, or personal advantage.
4.3 Bribery is not limited to the act of offering a bribe. If an individual is on the receiving end of a bribe and they accept it, they are also breaking the law.
4.4 Bribery is illegal. Employees must not engage in any form of bribery, whether it be directly, passively (as described above), or through a third party (such as an agent or distributor). They must not bribe a foreign public official anywhere in the world. They must not accept bribes to any degree and if they are uncertain about whether something is a bribe or a gift or act of hospitality, they must seek further advice from the company’s compliance manager.

5. What is and what is NOT acceptable

5.1 This section of the policy refers to the following areas:
• Gifts and hospitality.
• Facilitation payments.
• Political contributions.
• Charitable contributions.
5.2 Gifts and hospitality
[COMPANY NAME] accepts normal and appropriate gestures of hospitality and goodwill (whether given to/received from third parties) so long as the giving or receiving of gifts meets the following requirements:
a. It is not made with the intention of influencing the party to whom it is being given, to obtain or reward the retention of a business or a business advantage, or as an explicit or implicit exchange for favors or benefits.
b. It is not made with the suggestion that a return favor is expected.
c. It is in compliance with local law.
d. It is given in the name of the company, not in an individual’s name.
e. It does not include cash or a cash equivalent (e.g. a voucher or gift certificate).
f. It is appropriate for the circumstances (e.g. giving small gifts around Dipawali / Christmas or as a small thank you to a company for helping with a large project upon completion).
g. It is of an appropriate type and value and given at an appropriate time, taking into account the reason for the gift.
h. It is given/received openly, not secretly.
i. It is not selectively given to a key, influential person, clearly with the intention of directly influencing them.
j. It is not above a certain excessive value, as pre-determined by the company’s compliance manager (usually in excess of Rs1000).
k. It is not offered to, or accepted from, a government official or representative or politician or political party, without the prior approval of the company’s compliance manager.
5.3 Where it is inappropriate to decline the offer of a gift (i.e. when meeting with an individual of a certain religion/culture who may take offense), the gift may be accepted so long as it is declared to the compliance manager, who will assess the circumstances.
5.4 [COMPANY NAME] recognizes that the practice of giving and receiving business gifts varies between countries, regions, cultures, and religions, so definitions of what is acceptable and not acceptable will inevitably differ for each.
5.5 As good practice, gifts that are given and received should always be disclosed to the compliance manager. Gifts from suppliers should always be disclosed.
5.6 The intention behind a gift being given/received should always be considered. If there is any uncertainty, the advice of the compliance manager should be sought.
5.7 Facilitation Payments and Kickbacks
[COMPANY NAME] does not accept and will not make any form of facilitation payments of any nature. We recognize that facilitation payments are a form of bribery that involves expediting or facilitating the performance of a public official for a routine governmental action. We recognize that they tend to be made by low-level officials with the intention of securing or speeding up the performance of a certain duty or action.
5.8 [COMPANY NAME] does not allow kickbacks to be made or accepted. We recognize that kickbacks are typically made in exchange for a business favor or advantage.
5.9 [COMPANY NAME] recognizes that, despite our strict policy on facilitation payments and kickbacks, employees may face a situation where avoiding a facilitation payment or kickback may put their/their family’s personal security at risk. Under these circumstances, the following steps must be taken:
a. Keep any amount to the minimum.
b. Ask for a receipt, detailing the amount and reason for the payment.
c. Create a record concerning the payment.
d. Report this incident to your line manager.
5.10 Political Contributions
[COMPANY NAME] will not make donations, whether in cash, kind, or by any other means, to support any political parties or candidates. We recognize this may be perceived as an attempt to gain an improper business advantage.
5.11 Charitable Contributions
[COMPANY NAME] accepts (and indeed encourages) the act of donating to charities – whether through services, knowledge, time, or direct financial contributions (cash or otherwise) – and agrees to disclose all charitable contributions it makes.
5.12 Employees must be careful to ensure that charitable contributions are not used to facilitate and conceal acts of bribery.
5.13 We will ensure that all charitable donations made are legal and ethical under local laws and practices and that donations are not offered/made without the approval of the compliance manager.

6. Employee Responsibilities

6.1 As an employee of [COMPANY NAME], you must ensure that you read, understand, and comply with the information contained within this policy, and with any training or other anti-bribery and corruption information you are given.
6.2 All employees and those under our control are equally responsible for the prevention, detection, and reporting of bribery and other forms of corruption. They are required to avoid any activities that could lead to, or imply, a breach of this anti-bribery policy.
6.3 If you have reason to believe or suspect that an instance of bribery or corruption has occurred or will occur in the future that breaches this policy, you must notify the compliance manager.
6.4 If any employee breaches this policy, they will face disciplinary action and could face dismissal for gross misconduct. [COMPANY NAME] has the right to terminate a contractual relationship with an employee if they breach this anti-bribery policy.

7. What happens if I need to raise a concern?

7.1 This section of the policy covers 3 areas:
a. How to raise a concern.
b. What to do if you are a victim of bribery or corruption.
c. Protection.
7.2 How to raise a concern
If you suspect that there is an instance of bribery or corrupt activities occurring in relation to [COMPANY NAME], you are encouraged to raise your concerns at as early a stage as possible. If you’re uncertain about whether a certain action or behavior can be considered bribery or corruption, you should speak to your line manager, the compliance manager, the director, or the Head of Governance and Legal.
7.3 [COMPANY NAME] will familiarise all employees with its whistleblowing procedures so employees can vocalize their concerns swiftly and confidentially.
7.4 What to do if you are a victim of bribery or corruption
You must tell your compliance manager as soon as possible if you are offered a bribe by anyone if you are asked to make one, if you suspect that you may be bribed or asked to make a bribe in the near future, or if you have reason to believe that you are a victim of
another corrupt activity.
7.5 Protection
If you refuse to accept or offer a bribe or you report a concern relating to potential act(s) of bribery or corruption, [COMPANY NAME] understands that you may feel worried about potential repercussions. [COMPANY NAME] will support anyone who raises concerns in good faith under this policy, even if the investigation finds that they were mistaken.
7.6 [COMPANY NAME] will ensure that no one suffers any detrimental treatment as a result of refusing to accept or offer a bribe or other corrupt activities or because they reported a concern relating to potential act(s) of bribery or corruption.
7.7 Detrimental treatment refers to dismissal, disciplinary action, treats, or unfavorable treatment in relation to the concern the individual raised.
7.8 If you have reason to believe you’ve been subjected to unjust treatment as a result of a concern or refusal to accept a bribe, you should inform your line manager or the compliance manager immediately.

8. Training and communication

8.1 [COMPANY NAME] will provide training on this policy as part of the induction process for all new employees. Employees will also receive regular, relevant training on how to adhere to this policy, and will be asked annually to formally accept that they will comply
with this policy.
8.2 [COMPANY NAME] ’s anti-bribery and corruption policy and zero-tolerance attitude will be clearly communicated to all suppliers, contractors, business partners, and any third-parties at the outset of business relations, and as appropriate thereafter.
8.3 [COMPANY NAME] will provide relevant anti-bribery and corruption training to employees etc. where we feel their knowledge of how to comply with the Prevention of Corruption Act 1988 needs to be enhanced. As a good practice, all businesses should provide their employees with anti-bribery training where there is a potential risk of facing bribery or corruption during work activities.

9. Record keeping

9.1 [COMPANY NAME] will keep detailed and accurate financial records and will have appropriate internal controls in place to act as evidence for all payments made. We will declare and keep a written record of the amount and reason for hospitality or gifts accepted and given, and understand that gifts and acts of hospitality are subject to managerial review.

10. Monitoring and reviewing

10.1 [COMPANY NAME] ’s compliance manager is responsible for monitoring the effectiveness of this policy and will review the implementation of it on a regular basis. They will assess its suitability, adequacy, and effectiveness.
10.2 Internal control systems and procedures designed to prevent bribery and corruption are subject to regular audits to ensure that they are effective in practice.
10.3 Any need for improvements will be applied as soon as possible. Employees are encouraged to offer their feedback on this policy if they have any suggestions for how it may be improved. Feedback of this nature should be addressed to the compliance manager.
10.4 This policy does not form part of an employee’s contract of employment and [COMPANY NAME] may amend it at any time so to improve its effectiveness at combating bribery and corruption.

—————————End of example————————————— 

Employee’s Code of Conduct

A code of conduct is a set of rules outlining the social norms and religious rules and responsibilities of, or proper practices for, an individual, party, or organization and can be defined as “Principles, values, standards, or rules of behavior that guide the decisions, procedures, and systems of an organization in a way that (a) contributes to the welfare of its key stakeholders, and (b) respects the rights of all constituents affected by its operations.“

A common code of conduct is written for employees of a company, which protects the business and informs the employees of the company’s expectations. It is ideal for even the smallest of companies to form a document containing important information on expectations for employees. The document does not need to be complex or have elaborate policies, but the file needs a simple basis of what the company expects from each employee. A Code of Conduct can be an important step in establishing an inclusive culture, but it is not a comprehensive solution on its own. An ethical culture is created by the organization’s leaders who manifest their ethics in their attitudes and behavior.] Studies of codes of conduct in the private sector show that their effective implementation must be part of a learning process that requires training, consistent enforcement, and continuous measurement/improvement. Simply requiring members to read the code is not enough to ensure that they understand it and will remember its contents. The proof of effectiveness is when employees/members feel comfortable enough to voice concerns and believe that the organization will respond with the appropriate action. There is no standard code of ethics, and broad guidelines are given which can be adapted according to the organizational culture and business requirement. Each organization’s Ethics & Compliance department is required to prepare a written Code of Conduct and implement the same within the organization. The main step has been mentioned with a brief narration and key activities required:

1.  Mandate & commitment from top management: The Code of Conduct defines the core values of the organization thus impacting the organization’s culture. It also has an impact on the reputation of the organization as it specifies the organization’s stance towards corporate social responsibility. The involvement of senior management is a must to provide direction, funding, and resources. Obtain a formal commitment from the management and board of directors to establish the Code of Conduct. Approval for budgets for development, implementation, and regular monitoring is required. Approval for staffing the department and establishing the reporting lines is a need.
2. Preparation of the policy document: The main policy document contains the values of the organization, management commitment to the same, details of the ethics program, and the monitoring process. Additionally, all supporting policies are mentioned. For example, if the code specifies fair and just treatment for employees, there should be additional policies relating to workplace aggression, diversity, sexual harassment, equal opportunity, etc. The core areas for the policy document needs to be identified. The main policy document needs to be supported by additional policies to ensure proper coverage and implementation. Benchmark the policy document with other organizations’ policy documents. Incorporate the legal requirements for the policy document.
3. Approval of draft policy document: After completion of the policy document and supplementary policies the same should be approved by the senior management. The draft policy document needs to be formally approved by the top management, audit committee, and board of directors. Obtain feedback from business users to determine if they are going to face any practical difficulties in implementing it.
4. Develop an implementation strategy: An implementation strategy is critical for the success of the program. A project plan should be developed along with the implementation strategy. The involvement of the Human Resources department is a must at this stage as they will be responsible for deploying training, incorporating the code of conduct in the appointment letters, establishing the reward system for maintaining ethics, and also the reasons for terminating employees on grounds of unethical behavior. The implementation process will require:
   • Department structure and staff requirements of the Ethics office.
   • Selection of vendors for hotline and web systems implementation in case it is not being done in-house.
   • Reward and recognition system to be established by HR.
   • Ethical values should ideally be incorporated in the balanced scorecard of the employee.
   • Training deployment strategy including the trainers, schedules, material, and evaluation system.
   • Investigation and reporting procedures for minor and major deviances
5. Training & Awareness: Communication is the key to a successful implementation of the Code of Conduct. Various methods and sources of training should be deployed simultaneously to train the staff and external stakeholders. A training calendar should be published for rolling out the training. Explore the following ideas for building awareness and training resources:
   • Prepare classroom training material for educating the staff on the detailed policies.
   • Develop a web-based training program that includes ethical tests, case studies, and business scenarios.
   • Publish relevant cases of ethical dilemmas on the intranet
   • Provide training to existing staff and incorporate the same in induction training for the new staff.
   • Publish the relevant policies on the web for external stakeholders like suppliers, etc.
   • Issue checklists for determining how to make decisions while facing ethical dilemmas.
6. Implementing the required hotlines and software to monitor complaints: The organization has an option to develop a web-based reporting tool internally or outsource it. Whichever the case may be, the final contact details and services should be published throughout the organization to enable staff to report complaints and discuss cases when they are facing ethical dilemmas. Undertake the following two steps for it:
   • Publish the contact numbers, email ids and websites for reporting complaints
   • Staff these 24/7 for effective monitoring or as per business requirement
7. Reporting deviances and taking corrective action: Minor and major breaches to the Code of Conduct should be investigated properly. The report should identify the people responsible for the breach, the level of it, corrective action to be taken, and modifications required to the existing policies if any. Do the following: Conduct investigations of the cases reported and submit reports to the audit committee and board of directors. Perform root cause analysis to determine the reason for deviances, and identify solutions to mitigate the risks.
8. Evaluating commitment to ethical values: Depending on the requirements, periodically, surveys and audits should be conducted to evaluate the adherence to the policies and the overall attitude of the organization towards ethics. One must be aware that having a Code of Conduct does not ensure that it will be followed, hence regular monitoring is required to assess adherence. Adopt the following practices:
   • Conduct an Organization Survey to evaluate employee understanding and commitment to the Code of Business Ethics.
   • Periodically audit the practices being followed by benchmarking them against the policy document.
9. Annual update: Policies are dynamic documents subject to revisions on the basis of changing economic and legal requirements. Do an overall assessment of the existing policies on annual basis, and incorporate changes after senior management approval. Also, for all additions and modifications, send a formal communication to the staff. Use the following process:
   • Conduct an annual review of the policies.
   • Address gaps and deficiencies identified in the policies
   • Obtain management approval for the same
   • Roll out the updated policies and provide training to the staff.

The advantage of implementing a Code of Conduct is that it enhances the corporate governance efforts of the organization by establishing a uniform set of core values and behavior for all the staff. The staff knows what is the right course of action, whom to approach in a dilemma, and what will be the risks of adopting unethical behavior patterns. Due to this, the reputation and legal risks of the organization are also reduced since it is mandatory for employees to follow the law.

Example of Employee Code of conduct

In order to establish a harmonious and stable corporate environment for the sustainable development of the Company (as defined below) and realize the Company’s vision of “world-leading broadband communication and information service provider”, employees of the Company must adhere to the ethics and code of conduct in respect to their honesty, credibility, and sense of responsibility, and endeavor to maximize the interest of customers, shareholders, employees, and the society. All of the above serve as the basis of this Employee Code of conduct (the “Code of Conduct”).

1 General Provisions

1.1. Scope of Application
1.1.1. This Code of conduct is necessary to maintain the objectiveness and coordination of internal activities of the Company and important for the Company to convey its corporate spirit, quality of service, and corporate value to its customers, employees, shareholders, and society, and must be complied with by all the employees (the “Employees”) of [COMPANY NAME] and its branch companies and subsidiaries (the “Company”);
1.1.2. For Employees governed by the Code of Conduct for Management Personnel, the provisions of the Code of conduct for Management Personnel shall apply. For provisions not included in the Code of conduct for Management Personnel but included in this Code of Conduct, such provisions of this Code of Conduct shall apply;
1.1.3. Service agreements entered into between the Company and any staffing service providers shall expressly specify that staff seconded the Company shall comply with this Code of Conduct.
1.2. Performance of Duties
1.2.1. Employees of the Company should report any fraudulent behavior or behavior that violates this Code of conduct to the Supervision Department of the Company in accordance with the related reporting and processing policies and procedures;
1.2.2. The Company will provide appropriate channels, such as posting this Code of Conduct on the Company’s website, producing it prior to any business activity, or incorporating it into commercial contracts, to ensure that parties that have business relations with the Company, such as suppliers, customers, agents, investors, creditors, and debtors, are able to understand the principles and spirit of this Code of Conduct in an accurate and timely manner.

2 Honesty and Credibility

2.1. Honesty and credibility are the fundamental principles of moral characters of the Company and all Employees. All Employees shall strive to maintain honesty and credibility in their work. Employees shall be honest and credible to customers, fellow tradesmen, partners, colleagues, shareholders, the country, and society.
2.2. Due fulfillment of responsibilities is an important approach for Employees to realize the principles of honesty and credibility. Employees should be responsible and self-disciplined, adhere to principles, be loyal to their duties, serve customers with enthusiasm and efficiency, handle the duties of their positions with a sense of responsibility, safeguard the interest of the Company as well as the rights and benefits of the shareholders and should not be concerned only about their own reputation or financial gains.
2.3. Employees should develop honesty and credibility as part of their fundamental professional ethics and reflect the same in their work, faithfully carrying out their commitments. Honesty and credibility should be fundamental to the Company’s development and success and instrumental to the realization of the Company’s core values.
2.4. Employees should view their performance reports appropriately and truthfully report their performance and keep accurate billing records, in order to ensure the truthfulness and reliability of accounting information and book records, the completeness of financial reporting procedures, and the accuracy of the information submitted. False accounts, figures, or performance results are strictly prohibited.
2.5. Employees are prohibited from providing any false or misleading information within and without the Company. The information disclosure procedures shall be strictly followed.
2.6. Employees should strengthen the prevention of fraudulent behavior, in order to timely report and effectively prevent any fraudulent behavior. The Company encourages honesty and credibility as one aspect of the corporate culture by advocating and protecting Employee whistleblowing actions that truthfully expose fraudulent behaviors or behaviors that violate laws and regulations.
2.7. Employees have the obligation to comply with the current policies, laws, regulations, and other regulatory requirements of India and of the place of the Company’s listing, registration, and business operation, and perform their duties according to the current rules as well as the Articles of Association of the Company.

3 Conflict of Interest

3.1. “Conflict of interest” in this Code of Conduct shall mean any conflict that has occurred or may occur between the personal interest of Employees and the interest of the Company, or between the Employees’ personal interest and their duties. In case of a conflict of interest, Employees should promptly report to their supervisors or the Supervision Department of the Company and proceed pursuant to the responses received in a timely manner.
3.2. Employees should abide by the Articles of Association and various rules and codes of the Company, faithfully perform their duties, and consciously prevent any conflict of interest for the best interest of the Company and its shareholders.
3.3. Employees should strictly comply with the laws, regulations and regulatory requirements in respect of anti-commercial bribery, distinguish normal commercial activities from improper business behaviors, firmly rectify any improper business behavior that violates commercial morality and fair competition, and cooperate with the regulatory authorities in their investigation of any commercial bribery cases.
3.4. Employees are prohibited from illegally or inappropriately utilizing their positions or the inherent power thereof, information related to the Company’s operations or financial condition, or any information that may have a material effect on the market price of the Company’s securities for their or their families’ benefits. These activities include direct trading of securities, leaking information to others, and suggesting others for such trading.
3.5. Employees are prohibited from carrying out, causing others to carry out, or invest in any business activities that may compete with the Company’s businesses or business activities that have a conflict of interest with the Company, or with their positions.
3.6. Employees are prohibited from conducting any connected transactions that may be detrimental to the Company’s interests with any economic entities in which they or their relatives serve or hold any investment or other forms of interest in. Employees are prohibited from holding any consulting, advisory, or direct or indirect employment relationship with any customer, supplier, or competitor of the Company or hold any substantial investment interest therein.
3.7. Employees should strictly abide by the related rules and policies of the Company in respect of “excuse from the position” and “excuse from the business”.

4 Relationship with Related Parties

4.1. “Relationship with related parties” in this Code of Conduct shall mean the relationship between Employees and related parties such as customers, business partners, competitors, regulators, and other employees.
4.2. Employees should treat customers, business partners, competitors, regulators, and other employees fairly.
4.3. Employees should adhere to the “Customers First” service concept and give customer service top priority.
4.3.1. Employees should develop the market-oriented service concept and focus on providing excellent services to customers;
4.3.2. Employees should protect the customers’ confidentiality and freedom of communication and should not disclose customers’ information and confidential data without customers’ consent;
4.3.3. In marketing activities, Employees should truthfully inform customers of the Company’s services and products and fully respect customers’ freedom in making purchase decisions;
4.3.4. All Employees should respect customers’ rights and benefits and protect the legitimate interests of the Company.
4.4. When working with business partners, employees of the Company should be consistent in their words and actions.
4.4.1. In selecting production chain partners, Employees of the Company should treat all candidates fairly and objectively and reasonably select the ultimate partner through tendering and bidding and other fair means in accordance with the Company’s rules;
4.4.2. When working with business partners, all Employees of the Company should consciously safeguard the legitimate interests of the Company, strictly abide by the laws and regulations prohibiting unfair competition, monopoly, corruption, and bribery, strictly implement Company’s policies and procedures in commercial contracting and avoid unnecessary commercial risks;
4.4.3. Employees should have respect for the Company’s business partners and should not infringe upon the legitimate interests of the business partners in order to achieve mutually beneficial results for the Company and its partners.
4.5. Employees should strive to maintain a normal market competition environment and a good development environment for the Company.
4.5.1. Employees should follow society’s moral standards and the rules of the competition and are prohibited from taking inappropriate measures to interfere and interrupt network interconnection;
4.5.2. Employees should try to expand the Company’s market share by capitalizing on the Company’s advantages in services, products, and brands and are prohibited from using inappropriate means such as exaggeration or distortion of facts and defaming our competitors’ product quality, service quality, financial condition, or business reputation;
4.5.3. Employees are prohibited from using any illegal or inappropriate means to obtain any commercial secrets or other confidential information of the Company’s competitors in relation to their products, services, or marketing strategies;
4.6. All Employees of the Company should submit to the lawful supervision of the regulatory authorities, communicate as appropriate and assist in maintaining the regulation and order of the industrial market.
4.6.1. Employees should submit to the lawful supervision of the state and capital markets regulatory authorities and safeguard the legitimate interests of the Company;
4.6.2. Employees should have normal interactions with regulatory authorities and are prohibited from any inappropriate trading activities;
4.6.3. Relevant personnel should provide truthful and reliable information required by the regulatory authorities. For any omission or error, Employees should communicate with the regulatory authorities promptly and rectify such omission or error in accordance with the relevant procedures.
4.7. Employees of the Company should treat each other with trust and as equals and work as a team.
4.7.1. Employees should be warm and kind to colleagues, respect each person’s dignity, privacy, and religious beliefs;
4.7.2. Employees should work as a team and use their expertise to promote innovation and teamwork.

5 Information Disclosure and Confidentiality

5.1. Employees should strictly abide by the Company’s confidentiality rules and undertake to safeguard the Company’s commercial secrets and customers’ confidential information during the stipulated confidentiality period.
5.2. The State’s communications secrets, the Company’s commercial secrets and customer confidential information shall mean the proprietary or confidential information that has not been made public and, once made public, will be detrimental to the interests of the State, the Company and the customer, respectively, including, but not limited to, the State’s communications secrets, the Company’s operation information, strategic plans, customer data, remuneration information, marketing, and sales strategies or any other confidential information.
5.3. Employees should safely keep confidential documents, materials, and their storage media appropriately.
5.4. Employees must enter into confidentiality agreements with relevant parties when representing the Company in cooperative or business activities if disclosure of confidential information is involved.
5.5. Employees should not exchange any confidential information pertaining to the Company with any individuals, companies, or institutions or use them without authorization or entering into a confidential agreement, whether or not they are employed at the time by the Company or have benefited from such exchange or use.
5.6. Employees should strictly follow the Company’s information disclosure procedures and are prohibited from, without the Company’s permission, disclosing any confidential information of the Company to the public in their own names or in the name of the Company or make public statements relating to the Company. They are further prohibited from dispersing any false information.

6 Protecting Company Assets

6.1. Company Assets shall mean various tangible or intangible assets, trade secrets, or other professional information that the Company owns or has the right to dispose of, including favorable business opportunities.
6.2. Employees should make reasonable use of and protect Company Assets, and ensure that Company Assets are reasonably utilized to serve lawful commercial purposes. Employees are prohibited from damaging, wasting, encroaching on, embezzling, or abusing Company Assets in any way. Employees should always economize.
6.3. Employees should be risk-conscious, follow the Company’s cost control and management policies strictly and with discipline, and minimize operational risks. Management at each level and all Employees should actively minimize the potential operational risks and strengthen the monitoring and control of operational risks.
6.4. Employees should comply with safety rules and prevent accidents in order to minimize the Company’s asset loss and the Employees’ personal damages.

7 Reporting and Sanction

7.1. Any Employee who has violated this Code of Ethics is subject to Company sanctions, which include, but are not limited to, administrative sanction, termination of the labor contract, and transfer to the judicial branch.
7.2. Every employee is obligated to timely report to supervisory departments any behavior that violates this Code of Ethics pursuant to relevant rules on reporting and handling of the Company. The audit committee of the Board of Directors, Supervision Department, Audit Department, and other departments of the Company are responsible for the supervision and handling of any violation of the Company’s rules and policies. Employees can report via any of the following means:
Mail: [Company mail address ]
Internet:[xx@yy.com]
Telephone and fax: [company phone no].
7.3. The Company encourages employees to report any violation of laws, policies, or regulations. The Company welcomes Employees’ comments and suggestions on operations and management of the Company through various communication channels including “Meet with the President” Day. Management at each level should treat employee comments seriously. Policies on reporting and handling should clearly specify that the Company should provide appropriate protection to whistleblowers and maintain information and records of such whistleblowing confidential. The Company should ensure the independence of personnel receiving and processing information provided by whistleblowers, differentiate authorization levels for relevant personnel, and the de-classification authorization of archives. Personnel responsible for receiving, recording, and processing or having access to reported information should sign additional confidential agreements specifying their obligations with regard to confidentiality. The Company should also reinforce the security measures for mailboxes, hotlines, and email boxes for whistleblowing, distinguish responsibilities between the management of reported information and report investigation and strictly follow the procedures for use of information and archives.
7.4. The Company protects employees reporting violations of laws, policies, or regulations. Reporting via telephone or mail can be anonymous. Employees who leak information or retaliate against whistleblowers shall be subject to removal from position or termination of employment. Employees that violate the laws will be handed over to the prosecution.

8 Supplementary Clauses

8.1. This Code of Conduct is a regulatory document setting forth professional standards for employees of the Company. As an attachment to the labor contract, it has the same legally binding force and effect as the labor contract. Employees should also comply with the State’s laws, regulations, and administrative rules, the Articles of Associations of the Company, and various current rules and regulations within the Company.
8.2. When employees sign their labor contracts, they should also sign Employee Statement I (See Exhibit I), indicating that they know and will comply with the various provisions of this Code of Ethics and monitor and report any behavior in violation of this Code of Ethics.
8.3. Human Resource departments at each level should publicize and implement this Code of Ethics by various means, including training. They should also conduct training via mail or office system and have Employees sign Employee Statement II (see Exhibit II) annually, collect information on fraudulent behaviors and behaviors that violate this Code of Ethics and submit to supervisory organizations for investigation and decision.
8.4. This Code of Ethics is reviewed by the Legal Department of the Company and by the Employees’ Congress. It shall take effect upon approval by the Board of Directors of the Company, which also has the interpreting authority. Termination or any modification of this Code of Ethics should be approved by the Board of Directors.

Exhibit I:  Employees Statement I

I have carefully read and understood the requirements of this Employee Code of Conduct (the “Code”) of [Company name]. I acknowledge that it is an exhibit to my labor contract with equal legal binding force and effect and undertake to abide by this Code. I hereby declare the following:
1. I will abide by professional ethics and not commit fraudulent acts or behaviors in violation of this Code;
2. I will timely report any fraudulent behavior or behaviors in violation of this Code.

(Signature)

Date:

Exhibit II: Employees Statement II

1. I have strictly complied with the Employees Code of Conduct of [Company name] (the “Code”) from _________,  to _________, and have not committed any acts in violation of this Code;
2. I am not aware of any acts committed by other employees that are fraudulent or in violation of this Code. I have truthfully reported all such acts that I’m aware of to the Supervision Department.

(Signature)

Date:

—————————End of example—————————————

Example of Whistleblowing  Policy of Oman LNG L.C.C

1. Introduction
Oman LNG is committed to the highest possible standards in terms of governance practices, openness/transparency, honesty, accountability, professionalism, and duty of care in delivering one’s responsibilities as prescribed in OLNG’s “Statement of General Business Principles” and “Code of Conduct”.

2. Purpose
This Policy aims to encourage every individual working for or dealing with the Company to report any Unethical Practices at any level of the organizational structure with complete comfort, confidence, and protection. Also, it aims to define and establish the position of the Company on the framework for reporting Unethical Practices and establish suitable steps to investigate and take necessary corrective actions.

3. Definition
a. “Unethical Practice” means any behavior or practice of the Company, its employees, contractors, suppliers, or their individual employees in relation to their business dealings with the Company which is believed to be inconsistent with the Company’s General Business Principles and its general spirit, and includes, but is not limited to, the following suspected activities / improper practices:

• Fraud or fraudulent financial reporting;
• Manipulation of Company data/records, including forging official documents;
• Abuse of authority at any defined level in the Company;
•  Disclosure of confidential/proprietary information to unauthorized personnel;
•  Knowingly violating applicable laws and regulations, thereby exposing the Company to penalties, fines, or any legal action;
• Any instances of misappropriation or abuse of Company property/assets;
• Actively violating any laid down Company policy, including the Code of Conduct;
• The economically wasteful act or action;
•  Criminal activity;
•  Harassment of any nature to employees or any other third party.
•  Using confidential information acquired in the course of one’s work for personal advantage;
•  Any other activities whether unethical or improper in nature and damaging the interests of the Company;
•  Attempts to conceal any of the above.

b. “Whistleblower” means any person (employee, director, customer, vendor, or any other individual stakeholder) reporting an Unethical Practice under this policy.

4.  Reporting Unethical Practice

a. The Company has introduced this policy to enable you to raise your concerns about Unethical Practices at an early stage and in the right way. If something is troubling you which you think the Company’s management or Board should know about or look into, then please refer to this policy.

b. Normally, concerns should be raised with the appropriate department that the issue is dealt with within the Company and should be handled in line with company policies and procedures. It is recognized, however, that there may be occasions where the use of the normal chain of command may not be appropriate. Persons may believe their concerns:

• are overly sensitive;
• would  not be receiving appropriate attention;
• are of particular significance;
• the line manager/department is the perpetrator of the issue to be addressed or
• the person may be sufficiently uncomfortable such that it warrants the use of another confidential reporting channel. 

Hence, the Whistleblower may report such Unethical Practice in writing to WhistleBlow@omanlng.co.om. This mailbox is regularly reviewed by the Chief Internal Auditor at the Company. 

c. The Chief Internal Auditor shall never reveal the name of the Whistleblower without his/her consent unless required by law. If they at some point in time are ordered and required by law to report the name of the Whistleblower, they shall inform the Whistleblower, unless they have lawful reasons not to do so.  Where the Whistleblower feels very exposed and is afraid of being victimized (s)he can e-mail anonymously when reporting the issue by hiding his / her identity. In this respect, the Whistleblower shall provide and deliver all related information and facts with the initial report to facilitate the investigation process. The Whistleblower can remain anonymous in follow-up communications and clarifications by providing a discreet e-mail address.

d. The Whistleblower must address the following aspects, while reporting any issues under this policy:

• A clear understanding of the issue being raised.
• The issue should not be merely speculative in nature but should be based on actual facts.
• Should contain as much specific information as possible to allow proper inquiry/ investigation.
• If the Whistleblower has a personal interest in the matter, (s)he will be required to disclose this.

5. Protection to Whistleblower

The identity of the Whistleblower shall be kept confidential at all times unless otherwise agreed with the Whistleblower or required by law (e.g. during the course of any legal proceedings, where the Whistleblower is required to give evidence in court). No unfair treatment shall be vetted out towards any Whistleblower acting in good faith by virtue of his/her having reported issues under this policy and the Company shall ensure that full protection is granted to him/her against any action.

—————————End of example————————————— 

The scope of  QMS must do two things :1. Meet requirements consistently and 2. Enhance customer satisfaction by the effective application of  QMS,    continual improvement of  QMS, and providing assurance of conformity to customer and applicable regulatory requirements. Your organization must have the capability to determine your customer needs and requirements; design and develop a product; know-how and capacity to manufacture a product; package product; deliver on time; provide service and support; etc. It must have the ability to repeat your capability within specified parameters for quality as defined by customers, your own organization, or regulatory bodies. To achieve and demonstrate your capabilities, you must effectively plan, operate and control the processes, within your organization that provides them. These processes collectively form the scope of your quality management system (QMS).  The effective application of your QMS can be determined by – how well QMS activities and results measure up to planned performance indicators. Continual improvement of the QMS is achieved by – increasing the ability of the QMS to meet requirements through raising the performance indicators and more efficient use of resources.   Assurance of conformity to requirements may be achieved by providing confidence that requirements will be fulfilled. This confidence may be achieved through – implementing prevention-based controls; conducting internal/external audits; 3rd party certification of your QMS; etc.   This standard provides specific requirements to effectively plan, operate, control, and improve your QMS processes. These requirements focus on prevention-based controls and to a lesser extent detection-based controls, as well as continual improvement of your QMS.   It is important to note that the does not specify requirements for the product. The focus is on your QMS and its processes. By effectively controlling and continually improving your QMS processes, there will obviously be a positive impact on product quality performance. look at regulatory requirements applicable to your organization. These requirements may come from your customer; the industry you are in; from within your own organization; or state or federal organizations. You may need to apply regulatory requirements to your suppliers and outsourced processes (subcontractors). Your ultimate objective is to enhance customer satisfaction. You achieve this by planning, operating, and improving your QMS to effectively meet customer and regulatory requirements. As this standard represents specific automotive OEMs, your QMS must provide objective evidence that your QMS processes can identify and manage these requirements and that customer-specific requirements are effectively implemented.

Scope refers to the type of automotive supply chain facilities, IATF 16949 is applicable to. “Automotive” includes cars, trucks (light, medium, and heavy), buses, motorcycles. It excludes industrial, agricultural, off-highway (mining, forestry, construction, etc.). It includes all supplier ‘sites’  providing value-added parts, components, products, sub-assemblies, and services up the supply chain to the OEM. TS 16949 requirements may be applied to any site in the supply chain by its customer. It applies to all supply chain facilities or ‘sites’ that manufacture production materials; production and service parts; assemblies; or provide (value-added) finishing services such as heat treating, welding, painting; etc., for the automotive OEM’s subscribing to this standard. This means that all Tier 1 suppliers providing such products or services directly to subscribing automotive OEMs, must get IATF 16949 certification and they in turn may flow IATF 16949 conformity or certification requirements down to Tier 2 suppliers and so on. The flow down to tier 2 or 3 has now become more the norm than the exception. The ultimate aim is that all suppliers must be certified to IATF 16949 standard. This standard cannot be applied to:

• Automotive after-market service parts made to original subscribing OEM specifications, but not procured and released through them.
• Manufacturers of tooling; production equipment; jigs; fixtures; molds; etc used by the auto industry.
• Remanufactured automobile parts.
• Distribution centers; warehouses; parts packagers; logistics support; and sequencers.

Determine whether your activities or location is a site or support function. Note that the definition of ‘site is a location where value-added manufacturing occurs and a support function is a value-adding non-manufacturing process that supports a site. The support function may be on-site or at a remote location.   The rules for third-party Certification Body (Registrar) auditing of sites and remote locations are specified in an IATF document called “Automotive Certification Scheme for IATF 16949:2016 – Rules for achieving IATF recognition”. The general rule is that sites may obtain stand-alone IATF 16949 certification, but support functions, cannot obtain stand-alone certification.    Support functions may include a variety of non-manufacturing activities such as – design; purchasing; HR; sales; distribution centers; warehousing; sequencing; logistics; etc.     All support functions (whether on-site or off-site) that support a site must be included in that site’s QMS scope. As such they must be audited to all applicable IATF 16949 requirements including their interaction with site activities. Both manufacturing, as well as support activities, maybe outsourced (i.e. performed by an independently owned organization, on your site, or off-site). Organizations performing outsourced manufacturing activity must be subject to the same TS 16949 requirements that would apply if the activity were done by your organization. Such organizations can obtain independent IATF 16949 certification if required by their customers.  Organizations performing outsourced support functions (e.g. warehousing or HR services) may be subject to specific IATF 16949 requirements imposed by their customers, however, they cannot obtain independent IATF 16949 certification for such support activities. They may obtain independent ISO 9001 certification. The organizations subscribing to the TS 16949 standard include General Motors; Ford; Daimler Chrysler; Fiat; PSA Peugeot-Citreon; Renault SA; FIEV: Opel Vauxhall; Audi; BMW; VW; Mercedes Benz; etc. The Japanese OEM’s while participating in the development of the IATF 16949 standard, do not formally subscribe to it or require it of their supply chain.

ISO 9001:2015 4.3 Determining the Scope of the Quality Management System

For explanation on ISO 9001:2015 4.3.Determining the scope of the Quality Management System click here. 

IATF 16949:2016 4.3.1 Determining the Scope of the Quality Management System- Supplement

All Supporting functions, whether they’re done in the same place as the main work or from somewhere else (like design offices, main offices, and distribution centers) should be part of the Scope of the Quality Management system(QMS) . The only time you’re allowed to not include them in the scope is when it is related to the product design and development requirements , as described in ISO 9001, Section 8.3. If you choose to leave these parts out, you need to have a good reason and write it down. But you can’t leave out the manufacturing process design.

Explanation:

In order to establish a QMS (Quality Management System) according to IATF 16949, you first need to define everything the QMS will apply to. This requirement is nothing new to quality standards, or any other management system standard, for that matter. Although it seems like just a formality, defining the scope is one of the crucial steps in the implementation and ongoing maintenance of the QMS. You will basically define to what processes, locations, products, and services your QMS applies, and this will provide input for the certification body and auditors. Requirements for the scope in IATF 16949 are based mostly on ISO 9001, but as with many other requirements, the automotive industry goes a bit further. Since ISO 9001 requirements are the first we need to meet in the implementation and are not stated in the text of the IATF 16949 standard, let’s examine them first.

Section 4.3 of the ISO 9001:2015 standard details the requirements for determining the scope of the Quality Management System. In a note about the QMS, it is stated that the QMS can include the whole organization, specifically identified functions of the organization, specifically identified sections of the organization, or one or more functions across a group of organizations. To start, there are three considerations to be included when determining the scope:

• external and internal issues that are relevant to the purpose of the organization, the strategic direction, and the ability to achieve intended results
• requirements of relevant interested parties
• the product and service of the organization

In addition, the scope must state the products and services covered by the QMS, and justification for any instances where the ISO 9001 standard cannot be applied—but this requirement is further limited by IATF 16949, as you will see below. Although ISO 9001 allows organizations to decide which functions or sections will be included in the scope, IATF 16949 requires supporting functions, whether on-site or remote, to be included in the scope of the QMS. Supporting functions can be design centers, corporate headquarters, and distribution centers. This leaves far less freedom for the organization when defining the scope, and the aim is to ensure that all operations that affect the quality of products and services and/or customer satisfaction are included in the QMS scope. This will make the implementation much harder for some organizations, especially for big companies that have many locations on several continents. Customer-specific requirements also need to be evaluated and included in the scope of the QMS. In practice, this means that the organization will have to consider these requirements, and see how they reflect on the QMS, and act accordingly. For some organizations, this won’t bring anything new; however, for companies where their customers define processes, products, or services it means that they will have to include all of this in the scope of the QMS. Furthermore, the standard in this section defines the exclusions. IATF 16949 allows exclusions only from clause 8.3, and even here, with many limitations. Basically, the only requirements that can be excluded are related to the design and development of products and services. Permitted exclusions do not include manufacturing process design. Naturally, the organization will also have to provide and document justifications for exclusions. Finally, there is a requirement to document the scope; unlike ISO 9001, which doesn’t specify where and how IATF 16949 requires the Quality Manual to include the information about the scope and justifications for any exclusions.

Usually, the scope of the QMS covers the entire organization. Some noted exceptions are when your QMS only covers one physical location of a multi-location company, or when your manufacturing or service is distinctly split between industries (e.g., in a plant with three assembly lines where assembly lines 1 and 2 are for automotive and need to have a QMS certified to the ISO/TS 16949 QMS standard for automotive, but you want line 3 to be certified to ISO 9001 because many of the automotive requirements do not apply). So, your scope should identify the physical locations of the QMS, products or services that are created within the QMS processes, and the industries that are applicable, if this is relevant. It should be clear enough to identify what your business does, and if not all parts of the business are applicable, it should be identified clearly which parts are.

Your scope does not have a size limit and should include enough information to determine what is covered by the processes of the QMS. However, it is important to make clear what is included and what is not. If it is not clear to you what processes in your company are covered by your QMS, then how will it be clear to an outside auditor or other interested parties? Making your scope statement simple and easy to read can help to focus your QMS efforts, and prevent unnecessary questions about activities that may not be applicable to your QMS certification. The definition of a management system in ISO 9000:2015 for the first time provides an option to scope the system down to a single function or discipline. This was never the intent of a QMS, which was always intended to apply to an entire organization. ISO 9001:2015 also eliminated the term “permissible exclusions” by saying that if a requirement can be applied, it must be applied. Minimalists can now argue they only must include one function in their systems and incorporate only those requirements that apply to that function. IATF 16949:2016 addresses this problem in sub-clause 4.3.1, which requires support processes and value-adding sites to be included in a QMS’s scope. The previous 2008 version of ISO 9001 never mentioned omitting applicable requirements due to the geographic location of the processes. In IATF 16949:2016, where you choose to locate activities is your organization’s prerogative, but all applicable processes and requirements must be in the QMS regardless of where an organization chooses to locate and perform them. Individuals, such as auditors, who must verify whether an organization is conforming to applicable requirements must visit the locations in which those processes are being performed to verify conformance. The new ISO 9000:2015 definition of “management system” now allows for a QMS scope to be as narrow as one function. Furthermore, top management is aligned to the scope of the QMS. If a minimalist organization chose to include only the purchasing department in its scope, top management would be the purchasing executive. There is another argument that can be used by minimalist ISO 9001 implementers. A clause in IATF 16949:2016 indicates that if an ISO 9001 requirement can be applied, it must be, and product quality cannot be compromised.

For an example on how a scope could be derived please click here

Clause 4.3.2 Customer Specific requirements

“The organization should look at what each customer wants as part of its customer-specific requirements and include those things in scope of its QMS.”

Explanation:

Customer specific requirements (CSRs) as defined by IATF 16949 is “interpretations of or supplemental requirements linked to a specific clause(s) of this Automotive QMS standards“

Customer-specific requirements are the requirements created by the customer with the expectation that the supplier will identify, implement, and audit these customer-specific requirements with the same intensity that they do the basic requirements of the standard. Customer-specific requirements are requirements that are outside the TS document. Had all the subscribers to the document being able to agree on these unique, very specific, company-specific requirements, then those requirements would have been written as part of the text inside TS. It is important that the audit team receiving details of customer-specific requirements well in advance of any audit (initial, surveillance, or renewal) from the organization, using them as a basis for the audit planning process. Failure to do so is viewed as an audit failure. Customer-specific requirements are those that are agreed to between the supplier and the customer. They typically fall into the following categories:

• Part-specific requirements (dimensions, materials, performance characteristics, etc.)
• Delivery requirements
• Boiler-plate requirements (typically found in the purchase order)
• General requirements (PPAP, APQP, etc.)
• Process requirements (example: heat treat)

The terms customer-specific requirements and supplier quality manuals are in many ways interchangeable. Some customers refer to their documents directly as ‘Customer Specific Requirements’ while others call their documents ‘Supplier Manuals’ or ‘Supplier Quality Manuals’. The distinction, in part, is that ‘Supplier Manuals’ or ‘Supplier Quality Manuals’ often contain customer-specific requirements, as well as policies, terms, and conditions unrelated to quality. Customer-specific requirements, in their truest form, seek to expand the standard, or define how a customer wants a portion of the standard to be met. Customer-specific requirements are a component of lATF 16949 that cannot be ignored. ln fact, customer-specific requirements are more important in lATF 16949 than they were in QS-9000, which considered them as part of the requirements. Furthermore. the customer-specific requirements of Daimler Chrysler, Ford. and GM was the only essential “requirements” in implementing and auditing QS-9000. IATF I6949 changes this situation. The International Automotive Task Force (IATF), which consists of nine OEMs which include the following vehicle manufacturers: BMW Group, FCA US LLC, Daimler AG, FCA Italy Spa, Ford Motor Company, General Motors Company, PSA Group, Renault, Volkswagen AG and the vehicle manufacturers respective trade associations – AIAG (U.S.), ANFIA (Italy), FIEV (France), SMMT (U.K.) and VDA QMC (Germany) used a different strategy to create IATF 16949. When all of the IATF members could not agree on a certain clause or process, the objecting OEM put that particular clause into its own customer-specific requirements. Consequently, there are many more customer core requirements. The five Automotive Industry Action Group (AIAG) reference manuals, which were understood to be core requirements of QS-9000. are now customer-specific requirements of DaimlerChrysler. Ford. and GM.

The figure above shows that ISO 9001 is considered a base set of requirements that IATF 16949 builds upon for the automotive sector. IATF I6949 tells the supplier to conform to the company- (i.e.customer specific requirements in addition to IATF l6949’s requirements. Additional requirements may include division-specific requirements, commodity-specific requirements. or part-specific requirements. Examples of division-specific requirements include a semiconductor commodity supplier to a Daimler Chrysler plant. or a heat treat supplier to a Ford Powertrain division. The semiconductor supplier has to contend with the following requirements:
ISO 9001,  IATF 16949,  five reference manuals. which are part of DaimlerChrysler’s requirements: semiconductor commodity-specific requirements issued by the Automotive Electronics Council: and part-specific requirements from a contract review. Similarly, the heat treat supplier to Ford Powertrain has to implement ISO 9001, IATF 16949. five reference manuals. heat treat requirements specific to Ford. a DCP control plan methodology specific to the Ford Powertrain division. and part-specific requirements of that particular heat-treated part. derived from contract review. Needless to say. the customer-specific requirements have gained a whole new degree of importance in IATF In fact. customer-specific requirements will be It challenge when implementing and/or auditing IATF I6949.

Documentation Requirements For Customer-Specific  Requirements

Customer-specific documentation requirements are stated in the customer-specific documents of DaimlerChrysler. Ford, and GM. The Daimler Chrysler requirement says. “All IATF 16949 requirements and the requirements of this document (i.e.. customer-specific requirements) shall be documented in the organization’s quality system.” The Ford and GM customer-specific documents say. “All IATF 16949:2016 requirements and the requirements of this document shall be addressed by the organization’s quality system.” The DaimlerChrysler requirement asks the organization to trace each “shall“ to ensure that it has been included in the documented system. The Ford and GM requirements ask the organization and the auditor to ensure that each “shall” has been addressed by the organization’s business/quality system. Daimler Chrysler’s documentation requirements are more precise and place a greater documentation burden on the organization. Organizations should map the customer-specific requirements into their process documentation or work instructions. Through this method. both current and future employees can become knowledgeable of customer-specific requirements as they work within a process. If your organization does not use this strategy. it will have difficulty separating out customer-specific requirements and addressing the issue of how employees are to ensure process repeatability. For example. clause 8.3.5.2 of the GM customer-specific requirements says. “The organization shall have a method to identify, control, and monitor the high-risk items on those critical operations. There shall be rapid feedback and feed-forward between inspection stations and manufacturing, between departments, and between shifts. ” This is a detail that needs to be built into the process. It is not possible for a management system to address such a requirement without building it into a process. work instruction. form, or checklist.

Implementing customer specific Requirements. 

The strategy for addressing customer-specific requirements should be as follows. First. the organization must identify and assemble all of the customer-specific requirements from its customer base.

Customer Specific requirement checklist: for Automotive industry (considered requirements of IATF 16949)

• It is important that utilization of accredited laboratory facilities should be specified by as per government-approved certifying body.
• To verify, is customer approved sub-contractor service to be utilized? The approved vendor list index such information.
• Most important is transportation mode for shipping the materials should be specified, where containers / or and any vehicle type / or and specified as surface transportation.
• Some analytical and statistical details that possible to demand by the customer which is conducted internally for process and activities, like control plan, PFMEA, PPAP (PPAP is widely recommended and used in the automotive industry, in with some customers are demand as necessary requirements)
• Some customer is demand detailed information about traceability requirements.
• The stability of processes: ongoing process capability requirement should be specified; most customers can ask for it.
• It should be clear with the customer-specific requirements, PPAP submission, and sample size, grade, and specification should be identified and confirmed from customers.
• Is there a customer-specified method for handing complaints? Specified format for responding like 8D format, most customers are preferring standard formats but some customers are expecting some unique requirements as its application requirements.
• Specific packing and labeling requirements should be specified. Generally packaging and labeling requirements mostly different for a single product from different customers, so it is very important to specific requirements are collected and approved by customers.

Some other requirements like MSA approval requirements, shipping notification, quality records and reviews, inspection reports, special characters and their symbol identifications, internal quality auditors’ qualifications, non-conformance details, etc. International standards – requirements mostly IATF 16949 requirements are Measurement system Analysis are consider as the primary requirement for the manufacturers of the automotive applications and same for the supplier chain that provided material to OEM & automotive applications assembling, supply chain also needs to update with the same technical specification which is automotive industries are following.

Implementation begins with training. Key supplier personnel must be trained in customer-specific requirements. Customer requirements typically come in two levels of specificity: identifying how a process should operate. or requiring an entirely new process or method. Detailed customer specifics can be implemented into processes by following a documentation strategy. Mapping the customer-specific requirements to processes is the least risky, and so the best. documentation strategy. Adopt a common process for the entire organization and clearly indicate different ways tasks should be performed to satisfy different customers. Organizations should follow these steps when adopting customer-specific requirements:

1. Adopt the most stringent requirement.
2. Describe how tasks may be different for different customers.
3. Add different forms for different customers if the submission methods differ.
4. Measure processes differently if customer measurement criteria vary.

Some customer criteria cannot be implemented just by mapping them into existing processes. Customer specifics may ask suppliers to adopt a certain system. For example. Daimler Chrysler requires the use of Power way. and Ford requires the use of a particular CAD system. Sometimes, the requirements mandate an entire implementation for e.g., MS-9000 or MMOG (by Ford) or Ford Ql requirements. Teams must be formed for these specific implementations and the mandates must be completed as a part of ISO/T S 16949 implementation.

Auditing Requirements  For Customer-Specific Requirements

Utilizing document review is the best method for determining whether the organization has already considered all of the customer-specific requirements. The internal auditor needs to have a detailed document review checklist with the “shalls” clearly delineated. The organization must complete the checklist, showing where it believes the customer-specific requirements are documented. The auditor will check to see if the processes indeed demonstrate evidence of compliance with the customer-specific requirements. As mentioned previously. some requirements are processes that would only be audited during an onsite audit. Once the auditor has checked each process and ensured that the processes demonstrate evidence of compliance with the customer’s specifics. then the requirements can be discarded and the process documentation used for the on-site audit. Trying to audit customer-specific requirements during an onsite audit without the document review is difficult and time-consuming. To understand the specific requirements matrix, let’s see what can consider requirements that customers can demands? And what kinds of customer demands or requirements are considered as specific. As on base of supplier’s previous experience with customers & routine supplies than extra things are requested by the customer that never asked before those requirements are considered as specific requirements, No it is not completely true, actually customer-specific requirements are considered on the basis of the customer’s requirements those are affecting the customer’s applications & business that concern with the quality of the products, some applications are very critical that required special measurements & Analysis to approve for the assembling, most of automotive customers requirements are almost specific. The reason very states that application of the product and its fitting criteria’s required tolerances of approval is very close that need to the analysis of the product to enhance quality with minor or zero tolerances with comparing customer’s required tolerances, there is no space for huge variation, application requirements variation of product an be very low that critical to maintaining for a supplier, that should need care at all the parameters, instructions and its follow-up strongly.

Customer Specific requirements matrix, base requirement is PPAP ( Part Production Approval Process ), it’s a specific requirement, the reason that customer buy the material for the assembling with a specific design that can possible are done in the assembly area, to match with the design of the customer engineering shop, product’s first part will be going to approval for,. Customer’s engineers are check as design provided to the supplier, match all possibilities to understand the further requirements, changes, or modifications to the finalized product. The customer-specific requirements matrix can be developed when we really fully understand the customer-specific requirements or customer’s end application’s requirements. the product we are manufacturing is installed/used at any particular part or utilize for a specific purpose of course against the customers must ask for unique requirements to match its requirements queries. To understand the customer-specific requirements, needs to verify what the really customer expects?

Conformance of products and processes is the ability of a product, service, or process to meet its design specifications. Design specifications are an interpretation of what the customer needs. Of course, a product having a high quality of conformance may still not be perceived by a customer as being an acceptable product if the person who created the design specifications did not correctly interpret what the customer wanted. Conformance is measured within an acceptable tolerance range. For example, if customers expect delivery of a car within 10 minutes of its scheduled delivery date, then any delivery time within that time frame has a high quality of conformance, while any longer interval does not. Thus, it equates to conformance to specifications within an acceptable tolerance range.

It is possible for a product to be of extremely high quality in terms of being produced within a tight tolerance range, using premium materials, and including all possible features. However, if the design specifications call for a less expensive product with fewer features, then the product is considered to have a low quality of conformance. This means that a high cost does not necessarily equate to a high quality of conformance. As an example, if a car is designed to sell at a low price, have excellent fuel economy, and operate reliably, then those are the key specifications that the actual vehicle must meet in order to have a high quality of conformance. If the vehicle were to have an oversized engine that provided more torque than necessary, it would have a low quality of conformance, because including such an engine would increase the price of the car and result in a lower fuel economy. A management technique is to track how persistently a product or service is measured close to the outer boundary established for conformance. If the measurement remains near the boundary for a significant period of time, it is likely that a breach of the measurement threshold will occur soon, so management can begin to direct attention to rectifying the issue. For example, a delivery that is consistently within just a few moments of the maximum allowable delivery threshold should be investigated. Such investigations may locate problems that can be rectified, or perhaps detect intentional measurement errors to keep the reported amounts within the conformance threshold.

Before we discuss on Conformance of products and processes, we must discuss three aspects associated with definition of quality: quality of design, quality of conformance. and quality of performance.

1. Quality of Design
   Quality is all about set conditions that the product or service must minimally have to satisfy the requirements of the customer. Thus. the product or service must be designed in such a way so as to meet at least minimally the needs of the consumer. However. the design must be simple and also less expensive so as to meet the customers‘ product or service expectations. Quality of design is influenced by many factors. such as product type, cost, profit, policy, the demand of the availability of parts and materials, and product reliability.
2. Quality of Conformance
   Quality of conformance is basically the standards defined in the design phase after the product is manufactured or while the service is delivered. This phase is also concerned about is control starting from raw material to the finished product. Three broad aspects are covered in this definition. viz. defect detection, defect root cause analysis. and defect prevention. Defect prevention deals with the means to deter the occurrence of defects and is usually achieved using statistical process control techniques defects maybe by inspection. testing or statistical data analysis collected fiom process, the root causes behind the presence of defects are investigated. and finally corrective actions are taken to prevent the recurrence of the defect.
3. Quality of Performance
   Quality of performance is how well the product functions or service performs when put to use. It measures the degree to which the product or Service satisfies the customer from the perspective of both design and the quality of conformance. Meeting customer expectations is the focus when we talk about performance. Automobile industry conduct test drive of vehicles to collect information about mileage, oil consumption. Bulbs are life tested to understand their reliability during useful life. The customer survey is conducted to find customer‘s perception about service delivered. If the product or service does not live up to customer expectations then adjustments are needed in the design or conformance phase.

IATF 16949:2016 Clause 4.4.1.1 Conformance of products and processes

The organization must make sure that all its products and processes, including service parts and those outsourced, meet the relevant standards and rules set by customers, laws, and regulations.

Explanation:

All customers have needs, requirements, wants, and expectations. Needs are essential to maintain certain standards, or essential for products and services, to fulfill the purpose for which they have been acquired. Requirements are what is requested of others and may encompass needs but often are not realized until after we have been made.  Hence requirements at the moment of sale may or may not express all needs. Requirements may include wants — nice to have but not essential. Expectations are implied needs or requirements. They have not been requested because it is taken for granted — regarded as to be understood as the accepted norm. They may be things to which customers are accustomed, based on fashion, style, trends, or previous experience. In supplying products or services there are three fundamental parameters that determine their saleability. They are price, quality, and delivery. Customers require products and services of a given quality to be delivered by or be available by a given time and to be of a price that reflects value for money. If you want to know who does the best-unemployed loans able to offer you a good service, check outwww.pickaloan.co.uk for more details. These are the requirements of customers. An organization will survive only if it creates and retains satisfied customers and this will only be achieved if it offers for sale products or services that respond to customer needs and expectations as well as requirements. While the price is a function of cost, profit margin, and market forces, and delivery is a function of the organization’s efficiency and effectiveness, quality is determined by the extent to which a product or service successfully serves the purposes of the user during usage (not just at the point of sale). Price and delivery are both transient features, whereas the impact of quality is sustained long after the attraction or the pain of price and delivery have subsided. A product that possesses features that satisfy customer needs is a quality product. Likewise, one that possesses features that dissatisfy customers is not a quality product. The customer is the only one who can decide whether the quality of the products and services you supply is satisfactory and you will be conscious of this either by direct feedback or by loss of sales, reduction in market share, and, ultimately, loss of business.

Quality characteristics

Any feature or characteristic of a product or service which is needed to satisfy customer needs or achieve fitness for use is a quality characteristic. When dealing with products the characteristics are almost always technical characteristics, whereas service quality characteristics have a human dimension. Some typical quality characteristics are given in the table below.

These are the characteristics that need to be specified and their achievement controlled, assured, improved, managed, and demonstrated. When the value of these characteristics is quantified or qualified they are termed quality requirements or requirements for quality. Requirements for quality can be defined as an expression of the needs or their translation into a set of quantitatively or qualitatively slated requirements for the characteristics of an entity to enable its realization and examination.  Technical requirements for a product or service are quality requirements. In practice, characteristics are usually classified into the categories critical, major, and minor. The terms can be defined in simple terms as follows:

1. Critical characteristic—Any feature whose Failure can reasonably be expected to present a safety hazard either to the user of the product or to anyone depending on the product functioning properly.
2. Major characteristic—Any Feature, other than critical. whose failure would likely result in a reduction of the usability of the product.
3. Minor characteristic—Any feature, other than major or critical. whose failure would likely be noticeable to the user.
4. Incidental characteristic—Any Feature other than critical, major, or minor.

Of course, it is possible to develop classification schemes that are more detailed. However, the above definitions suffice for the vast majority of applications. Most often classifications of critical characteristics are noted on the drawing as well as in the manufacturing plan, as well as in such other ways as to give the user ample warning of potential hazards.

A classification of defects is the enumeration of possible defects of the unit of product classified according to their seriousness.

1. Defect—Any nonconformance of the unit of the product with specified requirements.
2. Defective—A product with one or more defects.
3. Critical defect—A critical defect is a defect that judgment and experience indicate would result in hazardous or unsafe conditions for individuals using, maintaining. or depending upon the product or at defect that judgment and experience indicate is likely to prevent the performance of the tactical function of a major end item such as cars, trucks, Ship, aircraft. tank, missile. or space vehicle.
4. Critical defective—A critical detective is a unit of Product that contains one or more critical defects and may also contain major and/or minor defects.
5. Major defect—A major defect is a defect, other than critical, that is likely to result in failure or to reduce materially the usability of the unit of product For its intended purpose.
6. Major defective—A major defective is a unit of product that contains one or more major defects and may also contain minor defects but contains no critical defects.
7. Minor defect—A minor defect is a defect that is not likely to reduce materially the usability of the unit of product for its intended purpose or is a departure From established standards having little bearing on the effective use or operation of the unit.
8. Minor defective—A minor defective is a unit of product that contains one or more minor defects but contains no critical or major defect.

Design Review and Qualification

A great deal of what We learn comes from experience. The more we do a thing, the more we learn about doing it better. As a corollary, when something is new or untried we tend to make more mistakes. Design review and qualification are performed to apply the lessons learned from experience with other products and projects to the new situation. The objective is to introduce the new item with a minimum of startup problems, errors, and engineering changes. This involves such activities as:

• Locating qualified suppliers
• Identifying special personnel, equipment, handling, storage, quality, and regulatory requirements
• Providing information to marketing for forecasting, promotional. and public-relations purposes.

The design review and qualification activity is usually performed after the development of an acceptable prototype and before full—scale production. Design review often takes place in formal and informal meetings involving manufacturing, quality, and engineering personnel. In some cases, customer personnel are also present. The meetings involve the discussion of preliminary engineering drawings and design concepts. The purpose is to determine if the designs can be produced (or procured) and inspected within the cost and schedule constraints set by management. If not, one of two courses of action must be taken: 1) change the design or 2) acquire the needed production or inspection capabilities. The design review is commonly where critical and major characteristics are identified. This information is used to design functional test and inspection equipment, as well as to focus manufacturing and quality efforts on high—priority items. Formal Failure Mode, Effects and Criticality Analysis (FMECA), and Fault Tree Analysis (FTA) is also performed to assist in identification of important features. When feasible. a pilot run will be scheduled to confirm readiness for full-scale production. Pilot runs present an excellent opportunity for process capability analysis (PCA) to verify that the personnel, machines, tooling, materials, and procedure can meet the engineering requirements. The pilot run usually involves a small number of parts produced under conditions that simulate the full—scale production environment. Parts produced in the pilot run are subject to intense scrutiny to determine any shortcomings in the design, manufacturing, or quality plans. Ideally, the pilot run will encompass the entire spectrum of production, from raw materials to storage to transportation, installation, and operation in the field. Properly done, design review and qualification will result in a full-scale production plan that will minimize startup problems, errors, and engineering changes after startup. The production plan will include error-free engineering drawings, a manufacturing plan, and a quality plan. .

Process Qualification and Validation Methods

Process qualification and validation primarily control issues. One objective is to identify those processes that are capable of meeting management and engineering requirements if properly controlled. Another objective is to assure that processes are actually performing at the level which they are capable of performing, This requires that process capability be analyzed using statistical methods and that products are produced only on those processes capable of holding the required tolerances.

Dimensions of quality

In addition to quality parameters there are three dimensions of quality

• The business quality dimension. This is the extent to which the business services the needs of society. Customers are not only interested in the quality of particular products and services but judge suppliers by the general level of quality products they provide and continuity of supply, their care of the environment, and their adherence to health, safety, and legal regulations.
• The product quality dimension. This is the extent to which the products and service provided meet the needs of specific customers.
• The organization quality dimension. This is the extent to which the organization maximizes its efficiency and effectiveness, achieving minimum waste, efficient management, and good human relations Companies that do not operate efficiently or do not meet their employees‘ expectations will generally find their failure costs to be high and will lose their best people. This directly affects all aspects of quality.

Many organizations only concentrate on the product quality dimension, but the three are interrelated and interdependent. Deterioration in one leads to a deterioration in the others, perhaps not immediately but eventually. As mentioned previously, it is quite possible for an organization to satisfy the customers for its products and services and fail to satisfy the needs of society. Within an organization, the working environment may be oppressive — there may be political infighting and the source of revenue so secure that no effort is made to reduce waste. Even so, such organizations may produce products and services which satisfy their customers. We must separate these three concepts to avoid confusion.

There are three primary organization levels: the enterprise level, the business level, and the operations level‘. Between each level there are barriers. At the enterprise level, the executive management responds to the voice of ownership and is primarily concerned with profit, return on capital employed, market share, etc. At the business level, the managers are concerned with products and services and hence respond to the voice of the customer. At the operational level, the middle managers, supervisors, operators, etc. focus on processes that produce products and services and hence respond to the voice of the processes carried out within their own function. In reality, these levels overlap, particularly in small organizations. The CEO of a small company will be involved at all three levels whereas, in the large multinational, the CEO spends all of the time at the enterprise level, barely touching the business level, except when major deals with potential customers are being negotiated. Once the contract is won, the CEO of the multinational may confine his/her involvement to monitoring performance through metrics and goals. Quality should be a strategic issue that involves the owners as it delivers fiscal performance. Low quality will cause fiscal performance ultimately to decline. The typical focus for a quality system is at the operations level. It is seen as an initiative for work process improvement. The documentation is often developed at the work process level and focused on functions. Much of the effort is focused on the processes within the functions rather than across the functions and only involves the business level at the customer interface, as illustrated in Table:.

Quality management

The basic goal of quality management is the elimination of failure: both in the concept and in the reality of our products, services, and processes. In an ideal world, if we could design products, services, and processes that could not fail we would have achieved the ultimate goal. Failure means not only that products, services, and processes would fail to fulfill their function but that their function was not what our customers desired. Hence quality management is a means for planning, organizing, and controlling the prevention of failure. All the tools and techniques that are used in quality management services to improve our ability to succeed in our pursuit of excellence. Quality does not appear by chance, or if it does it may not be repeated. One has to design quality into the products and services. It has often been said that one cannot inspect the quality of a product. A product remains the same after inspection as it did before, so no amount of inspection will change the quality of the product. However, what inspection does is measure quality in a way that allows us to make decisions on whether to release a piece of work. Work that passes inspection should be quality work but inspection unfortunately is not 100% reliable. Most inspection relies on the human judgment of the inspector and human judgment can be affected by many factors, some of which are outside our control (such as the private life, health, or mood of the inspector).

Several methods have evolved to achieve, sustain, and improve quality, they are quality control, quality improvement, and quality assurance, which collectively are known as quality management.

Quality control (QC)

Quality control is the operational techniques and activities that are used to fulfill requirements for quality. This implies that any activities, whether sewing the improvement, control, management, or assurance of quality, could be a quality control activity. They prevent change and when applied to quality regulate quality performance and prevent undesirable changes in the quality standards. Quality control is a process for maintaining standards and not for creating them. Standards are maintained through a process of selection, measurement, and correction of work, so that only those products or services that emerge from the process meet the standards. In simple terms, quality control prevents undesirable changes from being present in the quality of the product or service being supplied. The simplest form of quality control is illustrated Quality control can be applied to particular products, to processes that produce the products, or to the output of the whole organization by measuring the overall quality performance of the organization. Quality control is often regarded as a post-event activity: i.e. a means of detecting whether quality has been achieved and taking action to correct any deficiencies. However, one can control results by installing sensors before, during, or after the results are created. It all depends on where you install the sensor, what you measure, and the consequences of failure. Some failures cannot be allowed to occur and so must be prevented from happening through rigorous planning and design. Other failures are not so critical but must be corrected immediately using automatic controls or mistake-proofing. Where the consequences are less severe or where other types of sensors are not practical or possible human inspection and test can be used as a means of detecting the failure. Where the failure cannot be measured without observing trends over longer periods, you can use information controls. They do not stop immediate operations but may well be used to stop further operations when limits are exceeded. The progressive development of controls from having no control of quality to installing controls at all key stages from the beginning to the end of the life cycle is illustrated in Figure below As can be seen, if you have no controls, quality products are produced by chance and not design. The more controls you install the more certain you are of producing products of consistent quality but there is a need for balance to be achieved.

It is often deemed that quality assurance serves prevention and quality control detection, but a control installed to detect failure before it occurs serves prevention, such as reducing the tolerance band to well within the specification limits. So quality control can prevent failure. Assurance is the result of an examination whereas control produces the result. Quality assurance does not change the product, quality control does. “Quality control” is also the term used as the name of a department. In most cases, Quality Control Departments perform inspection and test activities and the name derives from the authority that such departments have been given. They sort good products from bad products and authorize the release of the good products. It is also common to find that Quality Control Departments perform supplier control activities, which are called Supplier Quality Assurance or Vendor Control. In this respect, they are authorized to release products from suppliers into the organization either from the supplier’s premises or on receipt in the organization. In recent times the inspection and test activities have been transferred into the production departments of organizations, sometimes retaining the labels and sometimes reverting to the inspection and test labels. Control of quality, or anything else for that matter, can be accomplished by the following steps:

1. Determine what parameter is to be controlled.
2. Establish its criticality and whether you need to control before, during, or after results are produced.
3. Establish a specification for the parameter to be controlled which provides limits of acceptability and units of measure.
4. Produce plans for control which specify the means by which the characteristics will be achieved and variation detected and removed.
5. Organize resources to implement the plans for quality control.
6. Install a sensor at an appropriate point in the process to sense variance from specification.
7. Collect and transmit data to a place for analysis.
8. Verify the results and diagnose the cause of variance.
9. Propose remedies and decide on the action needed to restore the status quo.
10. Take the agreed action and check that the variance has been corrected.

Quality improvement (Ql)

Quality improvement is the actions taken throughout the organization to increase the effectiveness of activities and processes to provide added benefits to both the organization and its customers. In simple terms, quality improvement is anything that causes a beneficial change in quality performance. There are two basic ways of bringing about improvement in quality performance. One is by better control and the other by raising standards. We don’t have suitable words to define these two concepts. Doing better what you already do is an improvement but so is doing something new. Juran uses the term control for maintaining standards and the term breakthrough for achieving new standards. Imai uses the term improvement when change is gradual and innovation when it is radical. Hammer uses the term re-engineering for radical changes. All beneficial change results in improvement, whether gradual or radical. Quality improvement (for better control) is about improving the rate at which an agreed standard is achieved. It is therefore a process for reducing the spread of variation so that all products meet agreed standards. The performance of products or processes may vary due to either random or assignable causes of variation. By investigating the symptoms of failure and determining the root cause, the assignable causes can be eliminated and the random causes reduced so that the performance of processes becomes predictable. A typical quality improvement of this type might be to reduce the spread of variation in a parameter so that the average value coincides with the nominal value (i.e. bring the parameter under control). Another example might be to reduce the defect rate from 1 in 100 to 1 in 1,000,000. Another might be simply to correct the weaknesses in the registered quality system so that it will pass reassessment.

Quality improvement (innovation), is about raising standards and setting a new level. New standards are created through a process that starts at a feasibility stage and progresses through research and development to result in a new standard, proven for repeatable applications. Such standards result from innovations in technology, marketing, and management. A typical quality improvement might be to redesign a range of products to increase the achieved reliability from 1 failure every 5,000 hours to 1 failure every 100,000 hours. Another example might be to improve the efficiency of the service organization so as to reduce the guaranteed call-out time from the specified 36 hours to 12 hours. The transition between where quality improvement stops and quality control begins is where the level has been set and the mechanisms are in place to keep quality on or above the set level. In simple terms, if quality improvement reduces quality costs from 25% of turnover to 10% of turnover, the objective of quality control is to prevent the quality costs from rising above 10% of turnover. Improving quality by raising standards can be accomplished by the following steps:

1. Determine the objective to be achieved, e.g. new markets, products, or technologies, or new levels of organizational efficiency or managerial effectiveness, new national standards, or government legislation. These provide the reasons for needing change.
2. Determine the policies needed for improvement, i.e. the broad guidelines to enable management to cause or stimulate the improvement.
3. Conduct a feasibility study. This should discover whether accomplishment of the objective is feasible and propose several strategies or conceptual solutions for consideration. If feasible, approval to proceed should be secured.
4. Produce plans for the improvement which specify the means by which the objective will be achieved.
5. Organize the resources to implement the plan.
6. Carry out research, analysis, and design to define a possible solution and credible alternatives.
7. Model and develop the best solution and carry out tests to prove it fulfills the objective.
8. Identify and overcome any resistance to the change in standards.
9. Implement the change, i.e. put new products into production and new services into operation.
10. Put in place the controls to hold the new level of performance.

This improvement process will require controls to keep improvement projects on course towards their objectives. The controls applied should be designed in the manner described previously.

Quality assurance (QA)

Quality assurance is all those planned and systematic actions necessary to provide adequate confidence that an entity will fulfill requirements for quality. Both customers and managers have a need for quality assurance as they are not in a position to oversee operations for themselves. They need to place trust in the producing operations, thus avoiding constant intervention. Customers and managers need:

1. Knowledge of what is to be supplied. (This may be gained from the sales literature, contract, or agreement.)
2. Knowledge of how the product or service is intended to be supplied. (This may be gained from the supplier’s proposal or offer.)
3. The knowledge that the declared intentions will satisfy customer requirements if met. (This may be gained from personal assessment or reliance on independent certifications.)
4. The knowledge that the declared intentions are actually being followed. (This may be gained by personal assessment or reliance on independent audits.)
5. The knowledge that the products and services meet your requirements. (This may be gained by personal assessment or reliance on independent audits.)

You can gain assurance of quality by testing the product/service against prescribed standards to establish its capability to meet them. However, this only gives confidence in the specific product or service purchased and not in its continuity or consistency during subsequent supply. Another way is to assess the organization that supplies the products/services against prescribed standards to establish its capability to produce products of a certain standard. This approach may provide assurance of continuity and consistency of supply. Quality assurance activities do not control quality, they establish the extent to which quality will be, is being, or has been controlled. Quality control concerns the operational means to fulfill quality requirements, and quality assurance aims at providing confidence in this fulfillment both within the organization and externally to customers and authorities. All quality assurance activities are post-event activities and off-line and serve to build confidence in results, in claims, in predictions, etc. Quite often, the means to provide the assurance need to be built into the process, such as creating records, documenting plans, documenting specifications, reporting reviews, etc. Such documents and activities also serve to control quality as well as assure it  Assurance is not an action but a result. It results from obtaining reliable information that testifies the accuracy or validity of some event or product.  Quality Assurance Departments are often formed to provide both customer and management with confidence that quality will be, is being, and has been achieved. However, another way of looking upon Quality Assurance Departments is Corporate Quality Control. Instead of measuring the quality of products, they are measuring the quality of the business and by doing so are able to assure management and customers of the quality of products and services. Assurance of quality can be gained by the following steps

1. Acquire the documents that declare the organization’s plans for achieving quality.
2. Produce a plan that defines how an assurance of quality will be obtained, i.e. a quality assurance plan.
3. Organize the resources to implement the plans for quality assurance.
4. Establish whether the organization’s proposed product or service possesses characteristics which will satisfy customer needs.
5. Assess operations, products, and services of the organization and determine where and what the quality risks are.
6. Establish whether the organization’s plans make adequate provision for the control, elimination, or reduction of the identified risks.
7. Determine the extent to which the organization’s plans are being implemented and risks contained.
8. Establish whether the product or service being supplied has the prescribed characteristics.

Product Safety has gained significant importance within the global automotive industry during the last few years. The numbers of re-calls were 4-times as high in 2016 as they were in 2006. The impact of those re-calls on manufacturing companies is devastating. Newspapers regularly report about major recalls in the automotive sector, in which even small product defects led to a global disaster. During a re-call, companies not only have to face direct costs but also damages to the brand image. Furthermore, there are severe penal risks for acting negligently or on intentional purpose.  Observing the increased numbers of re-calls, one might think that products became a lot more unsafe in recent years. The actual cause can rather be found in the occurrence of more strict legal requirements, increasingly stricter authority- activities, and the validity of different legal requirements in different countries. Accordingly, organizations have to follow more different and more strict external requirements, while at the same time authorities are way more active and globally interlinked than in the past. In parallel to this development, global automotive manufactures are urged to handle a constantly increasing degree of complexity. This is mainly caused by an increased variety of parts that are being produced and handled, the increasing amount and difficulties of internal and external interfaces in a global production network, and the increased manufacturing complexity. Although organizations are facing this higher complexity and stricter legal requirements, they still have to fulfill customer‘s expectations towards safety and quality. Customers do not accept a lack of quality and neither they would accept any unsafe products at any time, that’s why many companies are investing in marketing and marketing research to know exactly what the clients want, and some even will Buy Instagram followers to have a bigger client database. A recent survey showed, that safety and quality are rated as the two most relevant factors for customers during their vehicle selection process in today’s time as well as in a 25-year forecast. Safety and quality represent a key to market success within the global automotive industry. Due to the severe risks of product liability and the high degree of complexity, organizations need to be aware of, which of their processes in the value creation chain have an impact on the safety of their products. With this knowledge, they are able to install appropriate measures that ensure the conformity of processes and products and thereby contribute to improved Product safety and minimized liability risks.

Definition of product Safety

IATF defines Product Safety as ” standards relating to the design and manufacturing of products to ensure they do not represent harm or hazards to customers“. Product Safety represents a subset of quality. ISO 9000 defines Quality as the degree to which a set of inherent characteristics fulfills the requirements. The mentioned characteristics can thereby be considered as many different and numerous aspects. This includes for instance things like appearance or sustainability. Eventually, it is always the customer that judges the quality of a product or service. The special thing with the quality-characteristic safety is that no customer would ever accept any compromises and therefore always expects its complete fulfillment. Product safety can be termed as “Reliability in regard to safety-relevant defects”. Resulting in the logic that safety-relevant defects furthermore are considered as all defects that may result in a danger to humans participating in the traffic. Besides the organizational framework, the activities within the product creation process have a direct impact on the safety of the product.

Product safety is a term used to describe policies designed to protect people from risks associated with consumer products they buy and use every day. Product safety is the ability of a product to be safe for intended use, as determined when evaluated against a set of established rules. The legislation sets out clear test and documentary requirements that manufacturers and distributors must follow to demonstrate that their products meet defined safety criteria and are safe for the intended use. Evidence that the prescribed legislation has been conformed with can be demanded by the enforcement authorities within strict time frames. All consumer products must be safe and meet consumer guarantees under the product safety laws. There should be some safety standards. These standards are designed to ensure the safety of products, activities or processes, etc. The Indian consumer has the ‘right to be protected against marketing of goods and services which are hazardous to life and property (Consumer Protection Act 1986). There are many rules & regulations concerning consumer product safety in India. There are general like the Sale of Goods Act, 1930, Consumer Protection Act, 1986, Bureau of Indian Standards and Import Policy 2012 for the safety of the consumer products. To implement the rules there are mechanisms enforced by regulatory bodies. These mechanisms are operated through the Bureau of Indian Standards Act.

Cluase 4.4.1.2 Product safety

It is required that the organization must have documented processes for the management of product-safety-related products and manufacturing processes. The documented process must include if applicable identification by the organization of statutory and regulatory product safety requirements. The documented process must include if applicable customer notification of requirements in the identification of statutory and regulatory product – safety requirements. The documented process must include if applicable special approvals for design FMEA. The documented process must include if applicable identification of product safety-related characteristics. The documented process must include if applicable identification and controls of safety-related characteristics of the product and at the point of manufacture. The documented process must include if applicable special approval of control plans and process FMEAs. The documented process must include if applicable reaction plans. It must be defined responsibilities, the definition of the escalation process, and the flow of information, including top management, and customer notification. The documented process must include training identified by the organization or customer or personnel involved in product—safety-related products and associated manufacturing processes. The documented process must include changes of product or process shall be approved prior to implementation including evaluation of potential effects on product safety from the process and product changes. The documented process must include the transfer of requirements with regard to product safety throughout the supply chain, including customer-designated sources. It must include product traceability by manufactured lot (at a minimum) throughout the supply chain. It must also include The documented process must include if applicable lessons learned for new product introduction.
NOTE: Special approval is an additional approval by the function (typically the customer) that is responsible to approve such documents with safety—related content.

Explanation:

The new clause titled Product Safety requires a documented process for the management of product safety. This clause defines 13 normative elements that must be included in the documented product safety process. These 13 requirements include identification of product safety characteristics, the inclusion of safety characteristics with approvals in design and process FMEAs, control of safety characteristics at the point of the manufacturer with documentation in control plans with specific reaction plans, and defined responsibilities for product safety management including the definition of an escalation process and flow of information, including top management, and customer notification. Additionally, that personnel involved in product safety-related processes will have specific training. The new standard also requires the identification and review of safety targets as part of the product design inputs. Work instructions are required to include rules for operator safety. Product identification and traceability has been expanded to ensure the clear start and stop points for the product received by the customer or in the field that may contain quality and/or safety-related nonconformities with the same requirements extended to externally provided products with safety/regulatory characteristics. The IATF stated this requirement was strengthened to support industry lessons learned related to field issues. Control of reworked products is a new requirement in the rev 2016 standard. Within this new clause, the organization is required to obtain approval from the customer prior to commencing rework of any safety and regulatory characteristics related to the product. Disposition of Nonconforming products is another scope expansion of the new standard requiring products not meeting safety and regulatory requirements to be scrapped and rendered unusable prior to disposal. Lastly, the management review inputs are required to include a review of actual field failures and their impact on safety or the environment. The justification given by the IATF for the expansion of these requirements was to address current and emerging issues the automotive industry is facing related to product and process safety.  While some of these changes are incorporating present customer-specific requirements, others are clearly intended to drive increased awareness of safety-related issues throughout the automotive supply chain. The following 13 elements need to be included in the documented product safety process.

• Statutory and regulatory requirements for product safety – the organization needs to identify all legal and other requirements related to product safety. This can include the methods of identification and review of this information.
• Customer requirements regarding product safety – usually, this information is clearly stated by the customer, but there are always some requirements that are implied and are part of the Statutory and regulatory requirements for product safety.
• Safety-related characteristics of the product – considering the lifecycle of the product and how it is used, the organization needs to identify those characteristics that are relevant for product safety.
• Product safety-related controls at the point of manufacture – the organization needs to establish appropriate process controls to ensure that the product meets safety requirements.
• Special approval of process FMEA and control plans – special approval is additional approval by the function (usually the customer) that is responsible for approving such documents with safety-related content.
• Reaction plans – these usually include containment of the product and 100% inspection if necessary.
• Responsibilities, including the escalation plan and flow of information to the top management and the customer.
• Training for the personnel involved in the product safety and manufacturing process (training requirements can come from the organization itself or from the customer).
• Approval of the changes in the product or process, including evaluation of the effects of the changes on the product safety.
• Transfer of the product safety requirements throughout the supply chain, including customer-designated sources.
• The new standard also requires the identification and review of safety targets as part of the product design inputs.
• Product identification and traceability have been expanded to ensure the clear start and stop points for the product received by the customer, or in the field, that may contain quality- and/or safety-related nonconformities, with the same requirements extended to externally provided products with safety/regulatory characteristics. The IATF stated that this requirement was strengthened to support industry lessons learned related to field issues.
• Control of reworked products is a new requirement in the 2016 revision of the standard. Within this new clause, the organization is required to obtain approval from the customer prior to commencing rework of any safety and regulatory characteristics related to the product.
• Disposition of non-conforming products is another scope expansion of the new standard, requiring products not meeting safety and regulatory requirements to be scrapped and rendered unusable prior to disposal.
• Lastly, the management review inputs are required to include a review of actual field failures and their impact on safety or the environment.

Ten Principles of Safety Management

1. Establish and observe a written corporate safety policy.
2. Create an independent safety review process.
3. Identify and evaluate the severity and foreseeability of product hazards.
4. Conduct a design review assessing the risk of injury by considering the hazards, the environment, and foreseeable use.
5. First attempt to eliminate hazards. If not possible, then reduce the opportunity for injury by guarding against the hazards.
6. Warn users of product dangers and motivate them to avoid injury.
7. Promote only the safe use of a product.
8. Maintain safety-related records during the useful life of the product.
9. Continuously monitor the safety performance of the product in the hands of users.
10. Promptly notify product users and institute recall procedures where necessary to substantially reduce or eliminate injury.

1. Establish and observe a written corporate safety policy.

A written corporate safety policy is the ultimate responsibility of top management. The document is designed to detail executive commitment, both statutory and voluntary, to the concept of system safety; a before-the-fact management system designed to ensure the production and distribution of reasonably safe products. Oral direction such as “safety is everyone’s responsibility” provides inadequate instructions to the organization. The policy must describe management commitment to clear identification of the responsible corporate units for the tasks of hazard identification, risk assessment, and injury control. The primary goal of a written safety policy is the creation of a management system to substantially reduce or eliminating injury to consumers.

2. Create an independent safety review process.

The independence of the safety function within the management structure is crucial to successful analysis of potential product dangers. The corporate Safety director is an advisory role, with the authority to interact with technical functions such as product design, engineering, human factors, communications, and legal. The safety manager must be able to order safety-related analyses by the various technical divisions and have the authority to integrate the results for presentation directly to top management for decisions on injury control. It is critical that the safety management office be independent of production and distribution. Giving a production manager primary responsibility for safety will divide his or her loyalties and compromise injury control before management review. The safety director often will preside over a safety review board is compromised of members from the technical divisions.

3. Identify and evaluate the severity and foreseeability of product hazards.

A hazard is the inherent capability of a product to do harm. It is most often the result of an energy transfer or release, with such transfer creating an impact on the product user. The appropriate analysis must include a focus on whether the hazard is latent to the user while foreseeable to the producer and the impact on certain vulnerable population groups. The vast majority of car drivers do not understand that Petrol and LPG leakage can create dangerous conditions when the safety valve fails to operate. A little spark can create a catastrophic explosion. Children cannot recognize strangulation hazards in and around Safety belts. Manufacturers and distributors must proceed with extra caution where the hazard is not immediately apparent to the user.

4. Conduct a design review assessing the risk of injury by considering the hazards, the environment, and foreseeable use.

Risk of injury is the opportunity for a specific set of conditions to create harm: Under what circumstances can the user be injured? An examination of the identified hazards, the environment in which it is intended to be used and foreseeable use and misuse of the product by the user population must be considered. An all-terrain vehicle, or ATV, can be an inherently unstable 300-pound machine that can throw a rider. Crushing injuries can occur in addition to the impact by overturning. ATVs are intended to be used in uncontrolled, wilderness environments, such as mountainous paths, sand dunes, and over obstacles. By creating a recreational, sometimes uninhibited setting, ATV riders can foreseeable use the product by going fast, racing with friends, or even by partaking in alcoholic beverages. While not always appropriate behavior to a safety analyst, it is foreseeable that these situations will occur and must be considered to effect reasonable safeguards to prevent injury.

5. First attempt to eliminate hazards. If not possible, then reduce the opportunity for injury by guarding against the hazards.

By eliminating a specific hazard, certain injuries cannot occur. Some automotive workshops have pits to enable work to be done. The vehicle is driven over the pit, and the mechanic works from beneath. Because carbon monoxide (from the vehicle exhaust) is heavier than air, the fumes may build up in the ‘confined space’ under the vehicle. These fumes need not be only from the vehicle being worked on: if other engines are running nearby, there is still a significant risk of exhaust emissions collecting in the pit. Using a hoist eliminates the danger. But in other cases, this is often not possible. Gasoline creates toxic and explosive fumes. It is not possible to eliminate them without destroying their usefulness. Gasoline can, however, be stored in an appropriate canister to prevent the fumes from leaking into a water heater closet in the garage causing an explosion and severe burn injuries. A power mower employs a steel blade rotating at over 200 mph, but lawnmowers can incorporate devices to shut down the blade when the operator releases the controls and can shield user access to the rotating blades.

6. Warn users of product dangers and motivate them to avoid injury.

In addition to the elimination of hazards, product warnings and instructions must assist the user to avoid dangers, including those that remain after thorough attempts to eliminate or guard. An explicit warning including a signal word, statement of the hazard, appropriate behavior, and a description of the consequences of the danger are required. A pictogram illustrating the consequences is often needed to communicate the danger, especially to those who cannot read the words. This communication of the consequences is particularly important in motivating the user to avoid the danger.

7. Promote only the safe use of a product.

Advertising and product promotion sometimes subtly and deceptively promote consumer misuse. Motorcycles promoting speeds up to 150 mph certainly encourage users to go fast, if not to the limit.  In the early years of sales, ATVs were advertised as safe, family fun. Print advertisements said the ATVs could traverse “an astonishing array of terrain”, over “rocks, boulders and fallen logs” and “where some animals can’t go.” Small, instantly removed disclaimers are insufficient to warn users of the dangers of actions depicted in advertisements. Positive statements providing safe use instructions with sufficient frequency to influence behavior are necessary to reinforce the safe activity.

8. Maintain safety-related records during the useful life of the product.

An effective product safety system requires records in sufficient detail to allow for timely detection of safety hazards and trends, and for tracing product defects in assembly, components, and overall design. Records necessary to provide sufficient data for management decisions include safety-related product changes, test results, consumer complaints, product liability lawsuits, location of products within the distribution chain, government injury data, and engineering reports. An integral part of the corporate safety policy is the establishment of a system of records and a directive concerning the retention of those documents. A document destruction policy of three years concerning a product with a useful life of seven years deprives the organization of the opportunity to protect product users from danger.

9. Continuously monitor the safety performance of the product in the hands of users.

Once a manufacturer/distributor has concluded that a product is reasonably safe based on pre-production review and analysis, the product is ready for distribution to users. Feedback from product users is critical to determining whether subsequent corrective action is necessary.  A major producer of valves distributed approximately 15,000 valves to OEM manufacturers. Reports from the field indicated the seals were not properly chlorinated, thus allowing the gasket to tear and leak gas. The company notified the Consumer Product Safety Commission under section 15(b) that the product possibly “contained a defect which could create a substantial product hazard”. An appropriate corrective action plan including the recall of the valve and notification to consumers was taken to protect consumers from the dangers of gas explosions.

10. Promptly notify product users and institute recall procedures where necessary to substantially reduce or eliminate injury.

Upon discovery of a product hazard after distribution to the public, immediate notification of the danger and quick steps to protect users from injury is critical. Time is of the essence. Knowledgeable product users can help reduce both injuries and claims. Efficient recall procedures can remove hazardous products from the stream of commerce. A few years ago, a combination of manufacturing flaws turned Toyota’s fleet of vehicles into automotive runaways. In some cases, the floor mats became lodged under the accelerator, jamming it down. In others, the gas pedal would simply stick. After more than 60 cases of runaway vehicles were reported, 30 of which resulted in at least one death, Toyota went into crisis mode and issued two separate recalls in 2009 and 2010 to “reconfigure” the accelerator setup. Company officials have estimated the cost of the blunder will top $5 billion, after all, is said and done, making it the costliest recall ever recorded.

Basic elements of  Product Safety 

Product safety involves the application of the principles of Safety Management to the design and marketing of products. Basic elements of product safety programming are designed to identify and evaluate potential product hazards for systematic control using the techniques of safety management. A Product Safety program must include a clear, explicit, and documented statement of product safety policy. It must include a clear, explicit, and documented assignment of individual responsibility for the conduct of product safety activity. It must also include a clear, explicit, and documented product safety program plan outlining the specific steps, procedures, and techniques to be followed on conducting product safety activity during the product design and marketing processes to achieve product safety goals. As a starting point, a documented search for authoritative literature and relevant standards relating to potential safety concerns associated with the product to be designed or marketed. The conduct of explicit and documented activity giving attention to the systematic discovery or identification of reasonably anticipated potential product or system hazards, followed by an evaluation of those hazards in terms of associated risk factors (likely loss event probability and severity). The documented use of the core concepts and principles of safety management and safety engineering, and the cardinal rules of hazard control, to reasonably eliminate or minimize unacceptable product hazards (though, in order of preference and effectiveness, use of design, safeguarding, or warning means). Product safety programs should appropriately include the following:

1. Corporate Safety Policies
   Safety Product policy is a widely publicized explicit formal statement, as a matter of record, regarding top management’s commitment to state-of-the-art
   product safety and the preeminent importance of product safety during product (system) design, production, and distribution. To establish a policy the organization must:
   • Develop a mission statement to prevent unreasonable risks of injury, signed by the CEO and distributed to all employees.
   • Use all technically feasible and economically practical safety measures to substantially reduce or eliminate injuries, and to meet or exceed all applicable safety standards.
   • Create a multi-disciplinary Safety Review Committee to audit product safety policies and to consider product hazards, the environment of use, and foreseeable consumer behavior.
   • Collect and maintain safety-related data throughout the product life cycle including technical documents, injury data, complaints/returns, product liability litigation, government analyses, and other information concerning the risks of injury.
2. Product Hazards
   • Review the inherent capability of the product to create harm through a transfer of mechanical, thermal, electrical, chemical, biological, or radiation energy.
   • Evaluate injury potential and severity.
   • The study intended and foreseeable product use in concert with operator capabilities based on demographics, anthropometric, educational level, and physical capacity.
3. Foreseeable Use
   • Investigate how injuries occur by reviewing historical data, manuals and instructions, professional journals, and electronic databases.
   • Review government injury databases
   • Analyze internal corporate safety data on product use including customer complaints, warranty returns, toll-free lines, internal intuitive brainstorming sessions, focus groups, surveys, behavioral testing, and computer models.
4. Risk Factors
   • The environment of use including weather, family/peers, job stress, location, ambient conditions, terrain, noise, temperature.
   • Promotion – Marketing, advertising, distribution, public relations, word of mouth, packaging, product form, and shape, point of purchase materials.
   • Vulnerable population groups such as children, seniors, and the disabled, concerning products that exceed the physical or cognitive capabilities of operators.
   • Hazard perception of the user includes the severity of the injury, likelihood or frequency of injury, magnitude of the danger, and prior experiences such as familiarity with product operations, lack of prior injury, overconfidence, and first impression of hazards and risks.
   • Benefit or value of unintended use including time savings, ease of operation, overcoming poor performance, and peer group acceptance.
5. Safety Measures
   • Eliminate the hazard to remove the inherent capability to do harm, or if not possible, place a physical barrier, guard, or interlock between the product hazard and the user.
   • Warn the user of the danger and motivate them to avoid injury using signal words, hazard, pictorial, instructions, and statements of consequences.
   • Promote safety education including safety alerts, injury data, training, owner’s manuals, point of purchase displays.
6. Corrective Action
   • Analysts must monitor the safety performance of products by systematic collection of injury data and other consumer use.
   • When an unreasonable risk is identified, modify future production and initiate a recall applying appropriate safety measures to repair, replace, or repurchase the defective or non-complying products.
   • The public notice includes direct mail, service bulletins, public media, paid advertising, dealer notice, point of sale posters.
   • Government requirements, Defect Notification for Motor Vehicles and Equipment such as child safety seats, and Market Withdrawal and Recall Policies.

Establishing framework for product safety

The risks for organizations and individuals that origin from PS are enormous. For example, Product liability payments are one the most severe management failures that occur because of not handling PS appropriately. Due to the inherent risks of product liability, the application of Reliable Management seems to be a necessary tool. Reliability Management can be defined as taking adequate measures to protect people, the environment, and assets from harmful consequences. Reliable management can be considered as the decisive aspect to actually focus on the essential tasks. Consequently, organizations have the responsibility to allocate their resources according to where they are most required and where most of the risks can potentially be reduced. There is not a way to eliminate risks, but therefore they need to be managed. The organizations need to know, which are their individual and relevant process that has an impact on Product Safety. If organizations have identified them, it will allow them to allocate their available resources according to the importance of the process. This again enhances the chances that tasks are fulfilled according to their requirements.

Laws and regulations can have specific impacts on products and processes. Within Product Safety, they do play a significant role. The legal requirements have their origin from product liability. Product Safety can be considered as the tool, which tries to convert legal requirements from product liability into safe products. The organizations have two main tasks for Product Safety in order to fulfill the legal requirements. Firstly, the creation of safety by the technology. This implies the technical development of a safe product (eg reliability engineering, testing, etc.). Secondly, the creation of safety by an organization that is capable of creating safety (e.g. clear responsibilities, communication, etc.). This needs to be supplemented with the creation of verification data, which allows proving the conformity of manufactured products. This became, due to the increasing numbers of lawsuits, a lot more important. The legal situation states that manufacturers are in the role to prove the product was safe at the time it was launched into the Market. Therefore, these verification records are of crucial character and can actually be decisive for the result of lawsuits. To engineers, legal requirements often seem to be described in a rather general and vague language. In order to fulfill requirements from the law legal requirements can be converted into specific working instructions. Practitioners, which in most cases do not have legal backgrounds, do require legal certainty. They need to know, what their duties are and how they can fulfill these. Therefore, specific working instructions can be created for all the processes that impact product safety.

Method of identifying the processes that are relevant for Product Safety

1. Create a preliminary list of potentially relevant processes for Product Safety
   The first step involves the investigation of which process could possibly have an impact on PS. Therefore, interviews and comprehensive literature reviews regarding the areas of product-creation-process, reliability engineering, and enterprise models are of specific importance. All identified tasks and processes are thereby allocated to the departments that will hold responsibility for process ownership.
2. Discuss preliminary Product Safety process with practitioners and experts from your organization
   During the second step, the preliminary Product Safety process is discussed with experts from the respective departments. A workshop with at least three members from preferably different plants is considered an important instrument to hold this discussion. This has the advantage that the proposed actions are discussed from different angles and different historical backgrounds. The active involvement of future applicants in the identification process is considered a crucial step. People are more likely to accept developments and changes, once they contributed to them. After workshops with all departments have been held, one more workshop with a focus on cross-divisional topics and interfaces between departments is advisable. Eventually, the necessity of this task has to be decided individually.
3. Group and create a short description of all considered Processes
   Within this step, all discussed processes are grouped and consolidated. Next, a short description of each of the processes task with its purpose and goal is being created in order to avoid misunderstandings, when talking about those processes. The thereby existing list can be called ‘Preliminary Processes’.
4. Apply the Product Safety Filter
   The filter distinguishes those activities that actually have a proven impact on Product Safety from those that only seem to be relevant. Eventually, only established process safety processes are qualified for a special treatment, which should ensure that they are conducted in the best possible way. Special treatment means that additional resources or special treatment are involved. Therefore, it is important that organizations identify the correct processes and treat only those with special care. In order to identify the process that has an impact on PS, a set of criteria has been developed. These criteria are derived from the overall goal, which is minimizing product liability risks. This goal is supported if at least one of the following two criteria applies: A special treatment of a task leads to either an improvement of the safety of a product or the minimization of liability risks. Since these two criteria are terms with a wide meaning and purpose, they need to be elaborated in order to ensure the correct filtration.

 The following checklist can be used for both internal audits as well as Gap Analysis tools. The checklist given below has the requirements as given in standard IATF 16949:2016 and has to be used along with the requirements as given in Standard ISO 9001:2015. Please click here for ISO 9001:2015 Internal audit checklist

Back to Home Page

If you need assistance or have any doubt and need to ask any question contact me at preteshbiswas@gmail.com. You can also contribute to this discussion and I shall be happy to publish them. Your comment and suggestion are also welcome.