SUPPLIER QUALITY MANUAL Control of Nonconforming Product

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1 If the sample of product taken from a supplier s shipment is nonconforming, the entire shipment will be appropriately segregated and the inspection results will be forwarded to the Quality Engineer for review and to determine if additional information or further inspection is required. The product will then be identified and handled as follows: If the Quality Engineer concurs that the product is unacceptable, the affected skids will be identified as nonconforming. If the Quality Engineer determines that the product is non-conforming, but the nature of the defect, subsequent processing or in-process inspection will ensure compliance with customer specifications and requirements, a Deviation Agreement request may be initiated and the following steps will be taken with the supplier of the non-conforming product. Nonconforming Product Background Nonconforming parts are parts failing to conform to quality requirements. AMC judges the nonconformity to be the supplier's responsibility if any of the following conditions exist: The part does not conform to the current drawing or specification. The part does not conform to applicable quality standards. The part does not conform to limit or master sample guidelines. The part does not perform or function per design intent. The part does not conform to expected commercial quality. The part fails within accepted warranty period for the end user. Requirements When AMC informs the supplier that nonconforming parts have been found, the supplier is required to: 1. Undertake inspection, segregation, and/or repair of suspect parts. 2. Analyze the cause(s) of nonconformance and implement corrective action. 3. Report results of sorts, suspect lot range information, repairs, investigations and corrective actions to AMC. 4. Reflect results to similar systems or processes and to the supplier s problem history records. Note The supplier must immediately notify, in writing, the AMC Quality Representative at the affected production facility and follow the nonconformance requirements when: 1. The supplier determines that a nonconforming product has been shipped from the supplier s facility to an AMC production facility. 2. The supplier has been notified by the National Highway Traffic Safety Administration (NHTSA), other governmental authority, or another motor vehicle manufacturer that the product they have shipped to an AMC production facility is or may be nonconforming, or Page 1 of 5

2 that a product supplied to another vehicle manufacturer that is identical or substantially similar to the product that was shipped to a AMC production facility is or may be nonconforming. 3. The supplier commences an investigation relating to potential defects and/or potential nonconforming Federal Motor Vehicle Safety Standards (FMVSS). 4. The supplier notifies NHTSA of or reports to NHTSA about a death claim and/or notice it has received. Notice to the AMC Quality Representative under this paragraph shall, at the latest, be concurrent with the submission or quarterly reports or other notification to NHTSA. Nonconforming Product Undertake Inspection, Segregation and/or Repair The following list clarifies the requirement to undertake inspection, segregation, and/or repair of suspect parts. Inspection, segregation, and/or repair may be required at a supplier, at a warehouse or consolidation center, or at an AMC facility. Any required inspection, segregation, and/or repair will be undertaken without delay, upon direction from AMC. If temporary workers are used to inspect, segregate and/or repair suspect parts, those workers are contracted by the supplier from a temporary service and are supervised by the supplier. The supplier is responsible to provide the necessary tools and supplies for repair/rework/sort. All supplier associates or contracted temporary workers at AMC facilities must wear safety shoes and safety glasses, as necessary, for the supplier associates. If additional safety equipment (e.g. bump caps or sleeve covers) is provided by AMC, the supplier is responsible for those items. The supplier is responsible for all labor and material costs of inspection, segregation, and/or repair incurred by AMC for the repair of completed motors or sub-assemblies due to the supplier s nonconforming parts. This includes time spent containing and/or repairing parts/units. The supplier is responsible for the costs of any expendable items (e.g. gloves, sandpaper, sealer, etc.) used in the inspection, segregation, and/or repair. The supplier is responsible for the cost of any complete or partially complete motors or sub-assemblies that cannot be offered for retail sale due to the supplier s nonconforming part. At AMC s discretion, suspect lot(s) of parts may be returned to the supplier for inspection, segregation, and/or repair. In this case, the entire lot(s) may be charged as rejects for financial and inventory reconciliation. Page 2 of 5

3 The supplier decides disposition of nonconforming parts (does AMC return or scrap the parts). The supplier is responsible for the costs of returning nonconforming parts to the supplier. In the event that AMC requires the legal destruction of non-hazardous materials and/or parts; the supplier must allow AMC to witness the destruction and/or provide photo/video proof of the same. The supplier submits an operation standard for AMC confirmation prior to actual repair/rework/sort activity. Supplier/sort associates must have knowledge of the repair/rework/sort requirements. Supplier Associates must conform to ISO procedures; specifically concerning chemical usage. As needed, the supplier shall sign a Nonconforming Product Sorting Notice to approve related compensation to AMC for any incurred sorting expenses. Nonconforming Product Analyze the Cause, Implement Corrective Action The following list clarifies the requirement to analyze the cause(s) of the nonconformance and implement appropriate corrective action. The supplier is responsible to identify the root cause of the nonconformance and to implement an effective countermeasure to prevent recurrence. Corrective actions are applied to similar systems or processes. The supplier is responsible for testing and related costs to confirm the root cause of the nonconformance. During the time an investigation is being conducted to determine the root cause and an effective countermeasure to be implemented, if the supplier is conducting a sort and product is still being shipped to AMC, the initial shipment of all skids will be marked with a 100% Certified label. This identification will demonstrate that the sort had determined that no nonconforming product exists in that shipment. The supplier will send an Advanced Shipping Notice (ASN) to AMC providing the related details of the initial shipment of 100% certified parts. Once the root cause has been determined and an effective countermeasure has been agreed upon between the supplier and AMC, final corrective action requires the use of the IPP system. The corrective action requires revision of quality documents if the change has an effect to the documents (e.g. PFMEA, Control Plans, and Process Operation Standards). Report Results to AMC The following list clarifies the requirement to report results of sorts, suspect lot range information, repairs, investigations and corrective actions to AMC. Page 3 of 5

4 At AMC discretion, results of sorts, repairs, investigations and corrective action is reported in the method required by the AMC SQE. AMC considers the scope and severity of the problem when setting the extent of reporting results. Preliminary results may be required at AMC s discretion. Reflect Results The supplier is responsible to apply preventive actions to similar systems or processes (parallel analysis). Nonconforming Product Additional Clarifications The following list clarifies additional requirements. Failure to properly adhere to the IPP system may negatively impact supplier s performance rating. The affected plant s Quality Departments have final responsibility to judge part quality conformance and responsibility for any nonconformance. The appropriate Quality Department reviews any rejections disputed by the supplier. The supplier has one month from the time a report is closed to dispute the report. Supplier Initial Response The supplier s initial response is required within 24 hrs from the time of notification from AMC. The initial response includes Method of containment Action plan Any investigation or analysis results available Others items as requested by AMC Supplier Final Response Reply by due dates specified according to the level of concern and method noted on the Reject Report. The supplier s final response includes: Appropriate management approval (prior to returning to AMC) When attachments are used indicate on the reply form (e.g. attachments 4 pages ) and attach in a logical sequence. If corrective actions cannot be fully implemented by the response date, a schedule of correction activity must be submitted. If the due date for the response cannot be met, the supplier must contact the AMC Quality Representative prior to the due date. A new due date may be arranged provided the supplier is making a good faith effort to resolve the problem. Page 4 of 5

5 For suppliers whose quality rating falls in the Requires Investigation rating in accordance to the Supplier Performance Evaluation System, a letter will be issued by American Mitsuba Corporation and the supplier shall be responsible for implementing action for improvement as described. Non-conforming Product Charge Backs AMC charges the supplier for expenses due to nonconforming product. Examples of items charged for include (but are not limited to): Downtime AMC materials the supplier uses to sort or repair parts AMC s expenses for containing, sorting, repairing Consolidation Center or in-house at AMC fees (e.g. access to parts or pallet moves) Shipping fees for replacement parts (including export customers) Investigation costs (e.g. layouts, testing, etc.) Warranty claims from end user IPP Related Reject Reports The IPP procedure states, "If changed parts which require advance approval are shipped without that approval, those parts may be rejected and may impact the supplier s performance rating. Rejecting may occur whether or not an IPP tag was sent." Nonapproved parts sent without approval will receive a reject report. Note: If a supplier continuously sends reject parts to American Mitsuba Corporation they will be subject to Controlled Shipping (CSL1, 2). Controlled Shipping requires the supplier to immediately put in place a redundant inspection process to sort for nonconforming product/material, while implementing a rootcause problem solving process. Related and Supporting Documentation Initial Part Production (IPP) System Control Supplier Performance Evaluation System AMCQA- Form 002, 5 Principles for Problem Solving AMCQA- Form 009, 8 D Report AMCQA- Form 007, IPP Tag Nonconforming Product Sorting Notice Page 5 of 5