As part of a nationwide drive to curb air pollution in China, local government in Shanghai has recently ordered the shutdown of many factories that did not meet the environmental protection requirements.

On the evening of September 18, 2017, a “Letter of Assistance” from the Shanghai factory of Schaeffler, the top global automotive supplier of high-precision components and systems for engine, transmission, and chassis, to the Shanghai Government appeared online. The letter said its exclusive raw material supplier for needle roller bearings was ordered to be shut down immediately, but requested that the government make an exception so the supplier could continue production for three more months because it needed the time to develop an alternative supplier. Otherwise, Schaeffler Shanghai claimed in the letter, the immediate shutdown would result in production stoppage of over 200 car models at 49 OEMs such as Cadillac and Buick at SAIC General Motors, with a potential production reduction of more than 3 million vehicles in China, or the equivalent loss of 300 billion CNY (or 45 billion USD) in output values.

While the letter caused heated debates within the industry, we want to focus on the incident from the perspective of the supplier evaluation, selection, and monitoring requirement of automotive QMS standard.

According to IATF16949:2016, Clause 8.4: Control of externally provided processes, products and services, organizations need to ensure the externally provided processes, products and services meet requirements. When applying supplier selection, performance-monitoring and evaluations, organizations should always follow the risk-based-thinking approach.

Requirements of laws and regulations

When working with approved or newly developed suppliers, companies need to fully consider legal and regulatory requirements on the environment, occupational health, and safety. Suppliers’ compliance with environment, occupational health, and safety standards should be analyzed and evaluated for their capability to comply and extent of implementation.

Supplier selection & procurement planning

Suppliers should constantly be evaluated based on planning for the risks of their product conformity and continuous supply to customers. When making procurement planning, companies should consider the supplier risks of continuous supply and reduce dependence on exclusive suppliers, while selecting two or more alternative suppliers based on the level of the potential supplier risks.

Supplier development & QMS audits

The development and audits of active suppliers should be planned with priority, category and schedule. When conducting QMS audits on active suppliers, especially those supplying products to OEM customers both domestically and internationally, companies should not only evaluate the suppliers’ QMS but also the environmental management system (EMS) and the Occupational Health and Safety Management System (OHSMS).

Supplier monitoring

While the suppliers’ performance such as product conformity, delivery time, special quality status, and quality complaints should be monitored as general part of supplier management, 2nd party audits and risk analysis should be undertaken on their own suppliers of main components or outsourced processes. On-site verifications and validations of these suppliers are sometimes necessary. For those outsourced products and processes with legal or regulatory requirements, it is also necessary to request their suppliers to submit qualification certificates and related documents issued by either the professional organizations or the government bodies.

This article was first published in November of 2017