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Company Confidential
Registration Management Committee
1
Focus on Customer Expectations/Requirements &
Contract Review
July 18-19, 2013
A. Michael McRandall
Perry Johnson Registrars, Inc.
Brian Simons The Boeing Company
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Workshop Goals
• Contract Review Clarifications
– DoD requirements
– Customer specific flow downs
• Clarify Industry Outlook
– Where is it headed?
– What will be the recognized impact(s)?
– Third Party Audit focus to address impact(s)
2
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Workshop Agenda
• Introductions
• Some Contract Review Tips
• Current Market Outlook (CMO)
– Source: The Boeing Company
• Customer Expectations
• Impacts to Quality Management System
– Breakout session and report out
• Audit Planning and Conduct Considerations
– Breakout session and report out
• Summary and wrap-up
3
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Contract Review Tips – What Do You Know About DPAS?
• Defense Priority & Allocations System regulation implements the priorities and allocations authority of the Defense Production Act
• The DPA’s definition of “national defense” includes programs for military and energy production or construction, military or critical infrastructure assistance to any foreign nation, homeland security, stockpiling, space, and any directly related activity
4
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
DPAS Pop Quiz
An organization, which makes only one specific product – at a rate of 1 per month, has taken on a DPAS rated order. On January 1st they contracted to make 5 units with a delivery date of 5/30 on a DPAS rated order: DXC9. On February 1st they are solicited, by a different customer, to contract for 4 units with a delivery date of 5/30 on a DPAS rated order: DXA1.
What should be their course of action?
5
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
DPAS Pop Quiz Response
Given the known information, the options are actually rather limited.
What this organization should do when faced with the stated scenario is to quote the best possible delivery date for the second solicitation. The first DX order takes priority and will not be rescheduled for another. Contrary to a common misconception, the program identifiers (C9 and A1), noted in the pop quiz on the previous slide, do not set priorities for rated orders.
6
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Priority Ratings
• DPAS rules are a standard part of the U.S. defense contracting process:
– (DX) Highest national defense urgency
» All DX rated orders have equal priority and take preference over DO and unrated orders (based on ship schedule)
– (DO) Critical to national defense
» All DO rated orders have equal priority and take preference over unrated orders (based on ship schedule)
• Program ID represents an approved program and delegated DPAS agency, Examples: A1, G2, N7 – Program ID does not, by itself, indicate any priority
7
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
DPAS Key Elements
• Preferential Scheduling
– A company in receipt of a rated order must schedule operations, including the acquisition of all needed production items, in order to satisfy the delivery requirements of each rated order.
– Companies are required to reschedule unrated orders if they conflict with performance against a rated order and must reschedule “DO” rated orders if they conflict with performance against a “DX” rated order.
8
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Contractor Responsibilities
• Contractors receiving DPAS rated orders must comply with the following:
– Must give rated orders preferential treatment over unrated orders
– All rated orders must be scheduled to the extent possible to ensure delivery by the required delivery date
– Flow DPAS requirements to all sub-tier suppliers within the supply chain
– Must be thoroughly familiar with the DPAS regulation and must comply
– All rated orders shall be accepted and must be filled regardless of any other rated or unrated orders that have been accepted
9
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Most Frequent Findings by DCMA
• Typical Corrective Action Issues
– Lack of flow-down to the subcontractors
– Contractor’s internal processes or systems do not identify rated versus non-rated orders
– Commercial (non-rated) orders prioritized over DPAS rated orders
– DO rated orders prioritized over DX rated orders
– Contractor fails to inform the buying activity in advance of rated orders being shipped late
– Late deliveries of DPAS rated orders
10
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Customer QA Clauses and SOW A Little Reiteration
• Customer QA clauses should be flowed down both internally and to suppliers - as applicable.
– Not every requirement applies to all situations
» EX: Raw material certifications would not be a required flow down to a supplier who is performing NDT only
• SOWs (Statements of Work), when included as part of the contract, should be reviewed by the audit team for specific flow down requirements, in particular, key characteristics and special processes (more on this, later in the session)
11
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Driven By Growth
We will now be taking a look at industry growth, both current and projected, and the impact of this growth on the audit community (auditors and auditees).
The numbers pointed out during this part of the session are primarily related to the commercial aviation industry, though the impact of any growth should be addressed in the same fashion.
12
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
20-year forecast: strong long-term growth
3.2% World
economy (GDP)
5.0% Airline traffic
(RPK)
5.2% Cargo traffic (RTK)
2011 to 2031
Number of airline
passengers 4.0%
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Emerging markets are driving the economic growth
1.9
4.3
4.6
Source: IHS Global Insight
Annual GDP growth 2011 – 2031
1.3
2.6
2.8
3.2
3.4
3.9
4.1
4.4
6.5
7.1
Northeast Asia
Southeast Asia
Asia Pacific
Europe
North America
Oceania
World
CIS
Latin America
Middle East
Africa
South Asia
China
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Air travel growth varies by market
N. America – Latin America
Africa – Europe
Middle East – Asia Pacific
Europe – Asia Pacific
2011 traffic
RPKs, billions *includes within China
Within / to CIS
Europe – Latin America
Within Latin America
Transpacific
North Atlantic
Within Europe
Within China
Within North America
Asia Pacific*
World Average Growth:
5.0%
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
Added traffic 2012-2031
Annual growth%
3.5%
5.7%
4.8%
6.5%
5.1%
4.8%
4.8%
4.6%
3.8%
7.2%
6.9%
2.2%
6.7%
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
34,000
Older, less efficient airplanes will be replaced with more efficient, newer generation airplanes
19,890
39,780
5,780 Retained fleet
14,110 Replacement
41%
19,890 Growth
59%
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Air traffic growth Robust market
demand
2031
4,000
6,000
8,000
10,000
12,000
2,000
20111991
0
53%72%
Other
China
Asia Pacific(excl. China)
Europe
North
America
40%
Middle East
Air traffic, RPKs (billions)
14,000
20-year market: 34,000 new airplanes valued at $4.5 trillion
Commercial Airplane Market 2012 - 2031
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
In Service Launched Offerable
Single-Aisle 126-200+ Seats
Large 400+ Seats
Twin-Aisle 230-399 Seats
Small Single-Aisle
90-125 Seats
Regional 30-89 Seats
Russian (Sukhoi) Superjet 100
Chinese (AVIC1) ARJ21
A350
Bombardier CSeries
Bombardier CRJ1000
Bombardier CRJ 700/900 Japanese (MHI) MRJ70/90
Bombardier CRJ 200
Embraer 190/195
Embraer 170/175
Embraer ERJ 135/140/145
Russian MS-21 Chinese C919
Duopoly is Over - Competition is Fierce
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Market Outlook Summary
• Aircraft demand reflects strong long-term growth
• Existing OEMs planning to increase production rates and develop new products
• New OEMs expected to enter the commercial market, increasing competition
• Increased focus on affordability by airline customers
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RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
OEM Supplier Expectations
• Manage new work statement
– New parts/end-items, technology, engineering responsibility, shared risk, integrator, etc.
• Achieve significant cost reduction (affordability)
• Support aggressive product delivery requirements
• Improve product quality
– Reduce and/or eliminate customer identified nonconformances and notifications of escape
20
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Quality Management System Impacts
• Breakout session:
– Form teams (4-5 per team)
– Each team to brainstorm/discuss QMS impacts
» Identify at least 5 (five) impacts and why
» Associate each impact with 1 or more AS9100C clauses
» Focus on the “key” QMS processes
» Time: 20 minutes
– Each team to report out top 3 impacts (or differences from other teams)
» Time: 30 minutes (7-8 minutes per team)
21
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Quality Management System Impacts
• Breakout session (Cont.)
• Example:
– Impact - New and/or expanded facility
– AS9100C - Clause 6.3 Infrastructure
– Why - To accommodate work statement growth due to increased delivery rates and/or new contracts
22
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Quality Management System Impacts
• Management Review - 5.6
– Why - Top Management must address work statement changes and effects on QMS (input), and make decisions regarding resources, improvement, etc. (output)
• Competence, Training and Awareness - 6.2.2
– Why - New/inexperienced personnel, employee rotation/movement, new product/processes, certification requirements, contract employees, etc.
23
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Quality Management System Impacts
• Planning of Product Realization - 7.1
– Why - New product, technology, process, etc.
• Project Management - 7.1.1
– Why - New product, facility, equipment, major tooling, IT systems, etc.
• Risk Management - 7.1.2
– Why - New product realization strategies (e.g. outsourcing to low cost countries, automation, etc.)… Capacity and capability issues should be considered as part of Risk Management
24
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Quality Management System Impacts
• Control of Work Transfers - 7.1.4
– Why - Temporary facilities, outsourcing, transfer to “sister” facility, etc.
• Review of Requirements Related to the Product - 7.2.2 (Contract Review)
– Why - New work statement, responsibilities, delivery/quality/cost commitments, etc.
25
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Quality Management System Impacts
• Purchasing - 7.4.1
– Why - Expanding supplier base, new suppliers, lower cost countries (e.g. SE Asia and India, E. Europe)
– Outsourcing more complex product and processes
– Supplier personnel working inside organization’s facility and utilizing QMS (e.g. contract employees)
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RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Quality Management System Impacts
• Verification of Purchased Product 7.4.3
– Why - Increased volume/variety of received product resulting in pressure to improve throughput and release to manufacturing
– Reduced inspection requirements (e.g. ID and damage only, skip lot, sampling inspection, etc.)
– Delegation of product verification (e.g. Supplier Certification, Dock-to-stock, etc.)
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RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Quality Management System Impacts
• Control of Production and Service - 7.5.1
– Why - Cost reduction and delivery rate requirements will result in significant pressure to reduce production flow time, increase capacity, etc.
– Section 7.5.1 speaks to bullet points a-k. Upticks in production and the pressures associated with delivery expectations can create opportunities for omission. All of the noted bullet points can be considered potential omission risks.
– Product inspection/verification operations may be considered non-value added and reduced/eliminated as a result of lean manufacturing, kaizen events, flow reduction initiatives, etc.
28
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Quality Management System Impacts
• Production Process Verification - 7.5.1.1
– Why – As noted, cost reduction and delivery rate requirements will result in significant pressure to change (improve) existing processes.
– New/revised process methodologies must be verified – think “delta”.
– Changes with potential to affect fit, form or function should result in First Article Inspection activity (think “Partial”, per AS9102)
29
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Quality Management System Impacts
• Product Monitoring and Measurement 8.2.4
– Why - Cost reduction and delivery rate requirements could result in significant pressure to reduce inspection activities
– Reduced inspection activity
» Sampling inspection - See ARP9013 series
» CMM program changes - fewer points collected
» Reduction in part features inspected
– Delegation of inspection authority (Manufacturing self-inspection)
30
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Audit Planning and Conduct
• Breakout session:
– Form teams (4-5 per team)
– Each team to select 1 or more QMS impacts
» Identify improvements or changes to audit planning or conduct to address impacts
» Time: 15 minutes
– Each team to report out audit planning or conduct changes (or differences from other teams)
» Time: 20 minutes (5 minutes per team)
31
RMC Workshop Indianapolis, IN July 18-19, 2013
Registration Management Committee
Summary and wrap-up
• Market growth is positive for the industry, but it will bring significant pressures on the QMS
– Due to aggressive delivery and cost commitments
• Certification Body Auditors can add-value for the OEM and client by focusing on work statement change impacts to QMS processes
32