Global Standards

An important part of sustainability are internal and external standards. When a process is changed, the new process must be auditable. An example is the auditing requirements of the International Standard Organization (ISO) and other certifying organizations. Change is not complete without ensuring process consistency and auditability. Standards form a basis for evaluation criteria that competitive organizations jointly use, as an industry, to regulate public products and services. They also impact suppliers, customers, and society. Global and local standards exist for almost every product and service sold today. Design teams and other functions such as testing, marketing, and finance should help create the standards that control how products and services are designed, produced, tested, and sold. The advantage of industry standards is that they are well written by competitors forming committees based on extensive industry experience. They are a consensus of the industry’s best practices for designing, producing, and testing. But, depending on how they are written, they can promote or inhibit competition. Some are written to exclude new market entrants. Internal proprietary information will not be included in industry standards. Normally, internal standards will exceed industry standards because this is how organizations compete, i.e., on performance advantages relative to competitors. Highly adaptable organizations can also meet regional variations of a standard to satisfy localized preferences. In summary, it is important that organizations support the creation and updating of their industry’s standards for the benefit of everyone.

Figure 14.1 provides a partial listing of global organizations that actively create and manage standards. It is a long list because of the importance of the work. Each country will have unique industrial standards by industry. In fact, within a single industry there may be several standards organizations that focus on different areas such as testing. Although standards help support competitive practices, they can also be manipulated to favor one country or organization relative to others if the committees creating them


Common standards organizations.

are not fully representative of an industry. Large countries or groups of regional countries can minimize external competition by creating standards with a very narrow scope and requiring performance that competitive products or services cannot achieve. In an absence of political influence, there is a general tendency for cooperation in standards development. International standards organizations act as umbrella organizations that facilitate global commercial activities. As a result, global supply chains must simultaneously satisfy diverse types of standards to successfully operate across the world.

To the right of the standards listing in Figure 14.1 is a hierarchal listing that shows a sequence of steps for how standards influence deign and operations. Products and services need to satisfy diverse stakeholder groups. These include governmental regulatory requirements, industry standards, specific customer performance requirements, and internal design standards. Understanding and meeting or exceeding relevant standards helps organizations increase their competitiveness.

Global standards influence commerce across several industries and numerous organizations. Normally they are integrated into an industry framework that encompass different standards. A few will be described in this chapter. The first is the Supply Chain Operations Reference Model® (SCOR). SCOR is a trademark of the Supply Chain Council. The SCOR model breaks a supply chain into five components or process workflows. These are demand and supply planning; sourcing strategies; the transformation processes that vary by industry and include processes such as make-to-stock, make-to-order, assemble-to-order, and engineer-to-order; the warehousing and delivery of products; and the reverse logistical functions needed to process returns. These are further broken down into specific sub-processes. Standards have been developed for each of these as well as lower-level operations and work tasks. The goals of the SCOR model are to value stream map (VSM) the supply chain and value flow map (VFM) its processes and analyze all operations to compare their actual performance to the model’s best-in-class performance benchmarks. The SCOR model provides operational definitions, expected performance metrics, and best- in-class tools, methods, and systems for its members to use for their supply chain improvements. This enables them to adapt processes to improve performance. Some metrics of the SCOR model include perfect order fulfillment, order fulfillment cycle time, system flexibility, lead times, and other performance metrics that are predictors of best-in-class global supply chain performance. Many of these are the same as those discussed in Chapter 13.

An interesting feature of the SCOR model is that it uses a generic modeling technique to fit any supply chain but then allows subsequent modifications to supply and demand, warehousing, and related supply chain processes. The modeling approach also applies specific standards to describe key supply chain operations. As an example, in the sourcing component, S, is source stocked product, S2 is source make-to-order products, and S3 is source engineer-to-order. Using this approach, each part of a global supply chain can be integrated into the SCOR model process by process. The analysis can be further decomposed into operations and work tasks. As an example, S( or source stocked product can be discomposed into operational tasks, such as Su or schedule product deliveries, St 2 or receive product, St 3 or verify product, and S4 or authorize supplier payment. Each of these has a best-practice standard. The SCOR model is an example of a very well thought out and proactive standardization model that is highly flexible and adaptable as well as useful for improving global supply chain design and performance.

The International Standards Organization (ISO) is a benchmark against which manufacturing organizations are compared and evaluated across the world. There are many ISO standards that apply to diverse industries and functions in each industry. There also higher-level standards that provide guidance for how organizations approach standardization for consistent performance and most recently to improve performance and maintain process standardization. As an example, ISO 9000 was created to provide a framework of minimum quality system requirements. Associated with ISO 9000 are standards that document basic quality system requirements. These include document control, control of records, internal quality audits, non-conforming material control and disposition, corrective and preventive action systems.

As a follow up to ISO 9000, ISO 9001 was developed for organizations to demonstrate that they meet customer’s contractual requirements. A criticism of the ISO 9001 system is that it is not proactive for helping improve quality systems, rather it is an auditing and status-quo evaluation method. In response to this criticism, the ISO organization developed ISO 9004. ISO 9004 is used to demonstrate the potential for process improvement. Strict adherence to agreed upon ISO standards is critical to being able to sell products and services because it is the basis on which global industries and organizations evaluate performance and conformance to standards.

Every country utilizes financial accounting standards, which can vary from country to country. In the United Sates, the Financial Accounting

Foundation (FAF) and its governing board of trustees is responsible for guiding the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). These three entities are supported by constituencies including accountants, audited organizations, governmental agencies, and any other interested stakeholders. Figure 14.2 describes the basic elements of these relationships.

FASB and its associated organizations develop accounting standards and procedures that are helpful for collection, analysis, and management of financial information within the United States. In a manner like SCOR and ISO, FASB helps standardize work, but specifically work related to accounting and finance. The objectives of the FAF are to ensure that its


Financial accounting standards.

standards are fair and neutral so not to harm its stakeholders or the public. A cost to benefit analysis of newly developed standards is an important responsibility of FAF, so its standards are not unfair.

The Sarbanes-Oxley Act of 2002 was enacted by the U.S. Congress because of issues with public accounting and financial audits. The most prevalent issue was a conflict of interest between organization being audited and their independent auditors. Sarbanes-Oxley forces the chief executive officers of organizations to guarantee accurate disclosure in their financial statements. The common theme is accurate disclosure and independence of financial reporting. There are criminal penalties for falsifying financial records.

Specifically, Sarbanes-Oxley creates an oversight board (Title I) that sets registration with board, auditing, and quality control and independence standards and rules. Auditor independence (Title II) prohibits services outside of the scope of auditor practice and conflicts of interest. Title III guides the responsibilities of organizations regarding improper auditor influence. Transactions involving management and major stockholders and disclosure of the auditing committee’s financial experts are described in Title IV. Statements of conflict of interest and the treatment of security analysts by registered securities associations is controlled by Title V. The balance of requirements include appropriation of resources (Title VI), various commissioned reports (Title VII), criminal penalties for altering documents (Title VIIII), criminal penalties for mail and wire fraud (Tilt IX), signing of corporate tax returns (Title X), and increased criminal penalties for tampering with records (Title XI). Auditing of financial reporting models have been updated to take into consideration the Sarbanes-Oxley Act of 2002. This Act provides an excellent basis on which to design accounting and financial control systems and their processes.

The standards of the Occupational Safety and Health Administration (OSH A) require reporting of incidents of worker injury and death and the elimination of their causes. OSHA standards are extensive and cover all known materials and situations that could harm employees. The six major OSHA standards include hazardous communication relative to hazardous chemicals in the workplace, including material fact sheets and standards; emergency action planning controls the actions employees must take in situations involving fire or other emergencies; fire safety requires employers to have a fire-prevention plan and standards in place at all locations; exit route planning requires that employers have exit routes and standards; all walking and working surfaces such as stairways, ladders, and other surfaces must be safely maintained; finally, medical and first aid requirements are required to be met in anticipation of expected incidents. These standards ensure that workers understand the materials and conditions in which they work, and the actions needed to prevent accidents, injuries, and deaths.

The standards developed, disseminated, and maintained by the Federal Drug Administration (FDA) are extensive and apply to products and services that impact the health of individuals in the United States. As an example, for medical devices, some requirements include pre-inspections, such as the application of good manufacturing practice (GMP) guidelines, directed device inspection, comprehensive device inspection, pre-approval device inspection, sterile devices. The regulations surrounding medical device manufacturing ensure organizations employ GMPs to develop and manufacture products or provide any associated thorough evaluation of performance data, clinical trials, and process audits.

The Automotive Industry Action Group (AIAG) develops standards for the design, manufacture, and production of automotive products. AIAG standards help suppliers and customers design, test, and manufacture products using best-in-class tools and methods. AIAG standards provide forms, checklists, templates, tools, and methods that ensure all information necessary to produce and validate performance is available to suppliers, customers, and other supply chain stakeholders. The AIAG standard is a phased methodology applied to a new product as it moves through the concept phase, the product and process design phases, the product validation phase, and finally into full-scale production. In parallel, quality assurance systems monitor performance to continually improve the design and production processes. It should also be noted that the tools and methods must be used in sequence, so the successful completion of a prior phase enables moving into the next phase.

Inputs to the AIAG planning phase include gathering the voice of the customer, marketing strategy, as well as previous product and process data from similar designs including testing information. The output of the planning phase is a preliminary bill of material (BOM), a design failure mode and effects analysis (DFMEA), a preliminary process flow, a list of special product features and functions, and related characteristics. These are used to create prototypes and to build a preliminary quality assurance plan. To the extent there are similar products in production, it is useful to review their performance to identify potential weaknesses in the new design. The DFMEA is also useful for looking for potential weaknesses in a new product. Design documentation will be updated when the team evaluates alternative designs and tests prototype versions of the final design.

The inputs into the product design phase are the outputs from the planning phase. In this phase, the team builds prototypes and develops documentation describing the new design using product drawings, performance specifications, and testing evaluations. A preliminary quality control plan is also created. The documentation reflects all current knowledge of the new design. The outputs of this phase include final DFMEA manufacturing recommendations, performance specifications, prototypes, engineering drawings, finalization of new equipment and testing requirements, special product characteristic lists, and a quality control plan finalized for design requirements. Design reviews are held throughout the product design phase with stakeholders, including sales, marketing, finance, manufacturing, quality assurance, and others.

The outputs from the product design phase become inputs to the process design phase. The process design team works concurrently with the design team to begin creating the supporting manufacturing process. Packaging standards and specifications, process flow charts, equipment layouts, process instructions including testing and auditing procedures, measurement systems analyses, preliminary capability studies, and a process failure mode and effects analysis (PFMEA) are developed. The next phase will control scale-up.

Customer requirements are tested and verified in the product and process validation phase. The outputs include a production trial using all specified materials, components, procedures, and measurement systems under production conditions. These include preliminary process capability studies, production part approvals by the customer, production validation testing, packaging evaluations, the production control plan, and the quality planning sign-off with management reporting. Once a new product has been qualified through the AIAG phases, it matures and goes through the classic product life cycle described in Figure 3.7. During these phases, the goal is to create products and supporting processes that meet all customer and stakeholder requirements.

The Malcolm Baldrige quality award was developed as an incentive for organizations in the United States to improve quality. The process starts with a self-assessment of organizational performance according to several criteria. The first criterion is leadership, which includes fiscal accountability, auditor independence, and strategic plans to increase productivity. The second category is an evaluation of strategic planning and its tactical linkage and execution, including its resource allocation with key performance measures indicative of success. The third category includes customer and market evaluations measured by gathering and analyzing the voice of the customer; it also includes customer relationship-building and retention statistics. Measurement, analysis, and knowledge management are the evaluation criteria of the fourth category, which is focused on ensuring data are effectively collected and managed across the organization to manage and improve financial and operational performance. In the fifth category, the hire and promotion of employees, the organization of work, and employee training and development are evaluated. Its sixth category focuses on identifying core processes that create value, and this information is used to understand how an organization reduces costs and improves productivity. The seventh category focuses on results such as customer satisfaction, market share, and financial performance. The self- assessment is just the first step of a Malcolm Baldrige evaluation process. After an organization calculates the benchmark score against the seven evaluation criteria, they have an option to ask for a formal assessment by Malcolm Baldrige auditors. In this evaluation process, independent auditors use detailed criteria and checklists to evaluate the organization. Recommendations are also provided to help the organization improve its quality system and operational performance.

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