8 STAGES OF INCOMING MATERIALS

PROCEDURE # 32 Rev. 0 – July 2014 Page 1 out of 21

TITLE

8 STAGES OF INCOMING MATERIALS

UPDATES

Pages
Rel. Effective from Amendments description
Amended
1 2014/07/18 First release for CNH Industrial All

EMEA
DRAWN UP Gaetano Bonanno Business
Process

Business
CHECKED BY Massimo Testaquatra
Process

Head of
OWNED BY Piero Blunda Supplier
Quality

Global
MANAGED BY Fabiana Bobba
Planning

APPROVED BY

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SUMMARY

1 PURPOSE ........................................................................................ 4
2 8 STAGES OF INCOMING MATERIAL ............................................... 4
2.1 Activities and Ownership .......................................................................................... 7
3 CURRENT PRODUCTION ................................................................. 8
3.1 Part number classification ........................................................................................ 8
3.2 Supplier classification .............................................................................................. 10
3.3 Project priority definition ........................................................................................ 12
3.4 Process Control Map ................................................................................................. 14
3.5 Process Evaluation (8 stages) .............................................................................. 16
3.6 5 Questions for Zero Defects ................................................................................ 18
3.7 Stage Target................................................................................................................ 19
4 KEY INDICATORS ......................................................................... 21

LIST OF ANNEXES
1 PN Classification Table
2 Supplier Classification Table
3 S&P Matrix
4 Process Control Map
5 8 Stages Table

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MARKS, ABBREVIATIONS AND SYMBOLS UTILIZED IN THE TEXT

ACPU Average Cost Per Unit
CPA Customer Product Audit
CQA Customer Quality Audit
CSL Controlled Shipment Level
FTQ First Time Quality
Performance Index. Absolute number of Bills for relative Weight,
PQ referred to a single drawing/Supplier, in the considered period. (ex
IP).
Performance Index – Quality. Assessment of the global incidence
of the PI of a Supplier or Supplier/Sector Family in relation to the
PIQ total number of supplied pieces, and therefore homogeneous
indicator for a comparison between Suppliers or Suppliers / Sector
Family. (ex IP/E).
KAI Key Activity Indicator
KPI Key Performance Indicator
Addictional Quality Requirements (ex MQR). Document part of the
AQR
Request For Quotation package
NCB’s New Car Buyers
NCT Not Conformance Ticket
PQA Product QualityAudit
QA Matrix Quality Assurance Matrix
QAS Quality Audit Survey
QT Quality Tracking
SQE Supplier Quality Engineer
Supply Quality Performance: IT system supporting 08018
SQP
procedure

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1 PURPOSE
Define activities and responsibilities aimed to consider Customer & Supplier process as unique,
common and tuned to satisfy Customer Quality expectations, minimizing costs.
Following procedure integrates World Class Manufacturing methodologies with CNH Industrial
procedures.

This procedure shall be applied only on those components / characteristics for which has been
previously decided to operate with the “8 stages” method.

2 8 STAGES OF INCOMING MATERIAL

In accordance to 8 Stages of Incoming Material approach, Customer & Supplier are considered
as a unique and common process tuned to satisfy Customer Quality expectations, minimizing
costs.
The aim is to move from the lower to the higher Stages, shifting controls from product to
process causal parameters, making more robust the common process.

Following Table details per each stage, which are the main requirements for Customer plant /
Supplier process to assure 100% of components conformity to final Customer.

SUPPLIER CUSTOMER
Production Inspection Inspection Production
Stage
Department Department Department Department
0 - - - -

1 - - - 100% inspection

2 - - 100% inspection

3 - 100% inspection 100% inspection

Sampling inspection
4 - 100% inspection
or check inspection
Sampling inspection
5 100% inspection Sampling inspection
or check inspection
Check inspection
6 Process control Sampling inspection
or no inspection
Check inspection
7 Process control Check inspection
or no inspection
8 Process control No inspection No inspection

(Tab.#1): 8 stages of incoming Material

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Some additional comments should be useful:

 100% Inspection by measuring: control with measurements made by 100%

frequency. It can be manual or automated. If automatic, does not provide line stop in
the event of not-compliance.
 100% sensory inspection: inspection carried out by an operator to 100% of
delivered components (e.g. Visual inspection).
 Sampling inspection: Product checks by frequency and size pre-defined by a control
plan. The sampling can be visual (e.g. for aesthetic characteristics, presence of all
components, etc.) or carried out through the use of proper measuring devices.
 Random check /check inspection: product checks performed without defined
frequency and size. The check inspection is generally fast; it can be visual (e.g. for
aesthetic characteristics, presence of all components, etc.) or carried out by mean of
proper measuring device.

The additional Stage Zero (0 - zero) have to be considered proper stage to allocate a part
number in case of occurred not-conformity.
As a consequence of an occurred not-conformity each CNH Industrial Plant has to react as
prescribed by 08018 Norm and Procedure no. 16 and as per the additional norms defined by
each CNH Industrial sectors.
Must quickly move from Stage 0 - via Stage 1 and 2 - to Stage 3, moving the activities out of
the CNH Industrial Plant, then move step by step up to Stage 8.
In case of a containment in place, e.g. CSL1 / CSL2, the requested percentage of checks
before delivering parts to Customer plant is equivalent to a Stage 3 / 4.
CSL status shall be managed in accordance to 08018 and Procedure 16.

The are two different phases to be considered:

- Reactive phase (P/Ns with occurred not-conformity)
- Preventive phase

In the Reactive phase the priorities are given by QA Matrix/Suppliers Table and the first aim is
to remove the non conformity; each CNH Industrial Plant has to react as prescribed by related
procedures.
After the non conformity has been removed (for one or more characteristics), the P/N enter in
the preventive phase.

In the preventive phase must be considered also all the other Part numbers which are
managed in the Plant and for which there hasn’t been recent quality problems (or there hasn’t
been quality problems yet). The priorities are given by the S&P Matrix.

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The following picture resumes the flow of activities:

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2.1 Activities and Ownership

A summary for a better understanding of the activities and ownership:

Activity Reference Guidelines Responsible

Define Part number

S & P Matrix Plant Quality
priority / Supplier priority

- Supplier Quality for

Process control
supplier controls
Level Mapping and Process Process Control Map
Evaluation (8 Stages) - Plant Quality for in
user plant controls

- 8 stages Target Chart

- Best Supplier process
benchmarking
Set Target Stage Supplier Quality
- Technological limit
- Internal procedure /know how

Supplier process
Supplier / Supplier
improvement to reach PDCA
Quality
8°Stage or Target Stage

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3 CURRENT PRODUCTION

Below are detailed main activities to be done in case of current production:

(Fig.#2) Activity Flow Chart - Current Production

3.1 Part number classification

8 Stages from a “Current Production” environment must judge the number of characteristics to
include. The balance is between including as many as needed without overburdening the
process.

Moving from part number drawing, the characteristics to include should consider:
- all significant characteristics already defined by Engineering
- those additional, if any, considered “critical” by Customer Plant (for example known to
have been a problem, customer or Plant).

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The significant characteristics have to be listed and detailed as shown in the following
spreadsheet:

(Fig.#3) Part number classification Stages

Per each characteristic proper “rank” have to be assigned, taking into account the potential
effect of the not-conformity from a Customer prospective.

Each part number is then classified in accordance to the following rules:

Component AA: component with at least one AA characteristic

Component A: component with at least one A characteristic and no AA characteristics
Component B: component with at least one B characteristic and no AA/A characteristics
Component C: component with only C characteristics

Next table show the classification of the component:

Safety/Homologation/ Regulatory AA

Functionality

Comfort A

Cosmetical/Aesthetical

Assembly/Workability B

Other C

Note: in Powertrain, the Cosmetical / Aesthetical characteristics of the components are

classified as "B" and not "A".

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Responsibility:

 Significant characteristics definition and proper classification in term of safety,

functionality, aesthetic / cosmetic and assembly / workability: Engineering

 Associate rank per each part number characteristics: Customer plant

3.2 Supplier classification

Suppliers are classified taking into account three main indicators:

a) Supplier Historical performances (A variable)

b) Supplier Plant location (B variable)
c) Collaboration (C variable)

Responsibility

Customer Plant shall classify Suppliers in accordance to the rules following described, at least
once per year:

Supplier historical performances

Supplier performances are evaluated taking into account PIQ (ex IP/E), key performance
indicator defined by 08018 procedure.

PIQ performances are tracked by CNH Industrial IT system, SQP.

For CNH Industrial, suppliers are ordered by considering their performances (from the best to
the worst) then properly stratified in three main subgroups.
Variable A value is directly assigned per each subgroups following the guidelines below
described:

 PQ not exceeding #40, total delivered quantity 6 months rolling Variable A = 1

 PQ on range of 40 - 100 total delivered quantity 6 months rolling Variable A = 5
 PQ exceeding #100 total delivered quantity 6 months rolling Variable A = 10

The Chrysler Group LLC equivalent standard is the Supplier Quality Bid List scoring:
 Above 80 = Green  Variable A = 1
 60-79 = Yellow  Variable A = 5
 Below 60 = Red  Variable A = 10

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Supplier plant location

Variable B value is driven by following rules:

 Supplier and Customer plants are located in the same country

 Variable B = 1
 Supplier Plant is located in a different country but in the same continent
respect to Customer plant  Variable B = 5
 Supplier plant is located in another continent respect to Customer plant
 Variable B=10

Supplier collaboration

Objective metrics are adopted to properly evaluate Supplier collaboration; guidelines are
following briefly resumed, with reference to 08018 procedure:

 High Supplier Collaboration: Suppliers always grant answers within 36 working

hours from Quality bills, notified by Customer plant as a consequence of not-
conforming parts delivery, not–conforming documents or documents not sent.
No SQP bills “Item 19” emitted  Variable C = 1

 Average Supplier Collaboration: Supplier not always grant answers within 36

working hours from Quality bills notified from Customer plant as a consequence of
not-conforming parts delivery, not–conforming documents or documents not sent.
SQP bills “Item 19” ≤ 3  Variable C = 5

 Low Supplier Collaboration: Suppliers usually do not answer within 36 working hours
from Quality bills, notified from Customer plant as a consequence of not-conforming
parts delivery, not-conforming documents or documents not sent.
SQP bills “Item 19” ≥ 4  Variable C = 10

Then Supplier classification (D) is calculated multiplying values of variables A,B,C (AxBxC=D):

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Supplier Assessment = Media (Performance*Location*Collaboration)

Perform ance
P/N Location Collaboration Score P/N Score Supplier
[IP/E]
Componente 1xx 1 5 1 5
Componente 2xx 5 5 1 25

Supplier 1
……………………….
15

(Fig.#4) Supplier classification table

Suppliers shall be stratified in accordance to the following table in four different Supplier class,
choosing proper ranges of D values.

Supplier class D
AA > 100
A 26-100
B 6-25
C 1-5

If Supplier is delivering different part numbers from the same location, final Supplier
classification “rank” can be considered the average value of D.

3.3 Project priority definition

With reference to current production, project priority has to be defined through the use of
Supplier & Part numbers matrix.

Supplier classification
AA A B C
P/N classification

AA

(Fig.#5) Suppliers & Part numbers matrix

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(Fig.#6) Example of Suppliers & Part numbers matrix

Responsibility:

Customer plant is responsible to define Suppliers & Part numbers matrix.

Red status represent parts delivered by poor performing Suppliers with potential safety or
functionally related negative impact to the Customer. For these reasons red status has to be
considered top priority. Then, as a consequence, will be taken into account yellow and green
part numbers/Suppliers.

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Note: The S&P Matrix must be used only to define projects priority, not to measure improvement.

3.4 Process Control Map

Supplier Quality shall map Supplier process detailing, per each process step, different type of
controls adopted to check / monitor significant characteristics defined.
Control in process step Improvement
FEATURE Actual Stage
Stage
At Supplier In Plant
Due date
Receveing During Output Before Receveing Line: Line:
Description Characteristic Line: Output
Inspection Production Production Expedition Inspection before assembly in process

(Fig.#7) Process control map

In the FEATURE column shall be listed all significant characteristics tracked by the Part number
classification table, refer to Fig. #3.
Columns related to Supplier process controls have to be filled by Supplier and then verified by
Supplier Quality during process audit.

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Following table gives rules to describe different type of controls adopted by Supplier /
Customer plants:

(Fig.#8) Symbols to identify controls

Process Control are defined as the sum of all the activities performed to monitor the
parameters of machine components which could affect product Quality level.

The difference between Stage 6, 7 and 8 can be better explained referring to the following
statements:

“In stage 6 still all the parameters are not identified, so there are not yet reached zero
defects (in the process).
In stage 7 the suppliers identified all the parameters to guarantee sustained quality so
you so you get 0 defects in the process but they don’t have clear maintenance scheduled
to sustain what they have achieved.
In stage 8 suppliers also have maintenance scheduled to sustain their process capability
into the right zone”.

Then at “Stage 6” many quality parameters are identified, but not all, affecting product
Quality and as a consequence in process scraps are still generated but controlled in the
process. Controls on the defined machine parameters are in place.

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At “Stage 7” all parameters of each machine components affecting product Quality are
identified/known and no defects occur in the process, but the activities of “self-
maintenance” and “professional- maintenance” don’t guarantee sustaining zero scraps
conditions.

At “Stage 8” all parameters of each machine components affecting product Quality are
identified/known, no defects occur in the process and the activities of “self-maintenance”
and “professional maintenance” to sustain zero scrap conditions are fully in place.

3.5 Process Evaluation (8 stages)

Once mapped the process, it’s required to allocate the part number to the proper Stages.
With reference to process control map (example fig. #7), process Stage is driven by the lower
Stage identified of all the characteristics.

Below some examples as reference:

Control in process step

FEATURE Actual Stage
In Plant

Receveing During Output Before Receveing Line: Line:

Description Characteristic
Inspection Production Production Expedition Inspection before assembly in process
Line: Output 4

Conformità molla
L T 5

T
Corretto
orientamento tubo
guida L 5

Corretta tipologia
di cuscinetto L T 5

Ø boccole
U
XYZ

4
fissaggio (FC2)

U
Errore posizione
boccole fissaggio 4
(FC2)

Presenza o-ring
 L T 5

Presenza fermaglio
T 5

(Fig.#9) Example of Stage 4 process

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(Fig.#10) Example of Stage 5 process

(Fig.#11) Example of Stage 6 process

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3.6 5 Questions for Zero Defects

Five Questions for Zero Defects needs to be applied to validate the actual process robustness
and all ‘improvement actions’ effectiveness.

A minimum score of 80% for each 5QFZD is considered robust and sustainable.
A score of <80% cannot be closed and must be improved.

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3.7 Stage Target

Theoretically per each part numbers the Stage Target has to be considered the 8 th or at least,
with reference to the figure below (Fig. #12), “green area” achievement.
These are the targets to be considered if not differently specified by:

 Benchmarking of Supplier best competitor process

 Technological limit
 Internal Quality Procedure / Know how / Lesson learned
P/N classification

AA

B X X
C

0 1 2 3 4 5 6 7 8
Stages

(Fig.#12) 8 Stages Target Chart

8 Stages approach requires pace and rigor to be fully implemented till the achievement of the
target.

Responsibility:

Supplier Quality is responsible to set Target Stage for each Part Number.

Below is shown an example of Stage improvements:

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P/N classification

AA

B X X
C

0 1 2 3 4 5 6 7 8
Stages

(Fig. #13) Example of Stage improvement

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4 KEY INDICATORS

To evaluate the 8 Stages effectiveness, at least following KPI and KAI have to be tracked:

 Supplier performance: PPM, PIQ as defined per 08018 procedure;

 CNH Industrial external indicators :, Warranty, R/100, F/100, etc.

It should also be useful to track following KPI:

 Customer plant Internal rework hours/costs

 Customer plant Internal check hours/costs

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