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Overview:

ISO 9001:2015’s new clause for “actions to address risks and opportunities” is among the biggest revisions to the standard. Risks and opportunities that relate to waste or muda, and also to changes in technology, markets, and distribution channels are however not explicitly covered, and are therefore not explicitly auditable, even under the new standard.

This credit risk mitigation presentation will therefore focus on use of the standard as a servant whose purpose is to promote the organization’s competitiveness and profitability, rather than a master whose requirements the organization has to satisfy to get the ISO certificate. ISO 9001 becomes the servant when the organization uses it as a framework to drive continual improvement and to identify risks and opportunities that lie well beyond the scope of the standard.

Why Should You Attend:

ISO 9001:2015 requires “actions to address risks and opportunities” (clause 6.1) with regard to (1) the context of the organization (clause 4.1) and needs and expectations of interested parties (clause 4.2). The failure of Kodak’s world-class and ISO 9001 registered photographic film division shows, however, that mere conformance to the standard is not adequate to ensure profitability or even survival.

The standard also has no explicit requirement to address any of the Toyota production system’s Seven Wastes, except of course for poor quality. The other six wastes (muda) can however be far more costly than poor quality. They are also asymptomatic (without symptoms) so, unlike poor quality, they rarely announce their presence. The organization must seek them out systematically to achieve optimum results. The good news is that, once the organization has identified the waste, it is relatively easy to adapt existing corrective and preventive action (CAPA) processes to remove it.

Areas Covered in this Webinar:

ISO 9001:2015 tells us what we must do with regard to “actions to address risks and opportunities.” The scope of this clause includes the context of the organization, and needs and expectations of interested parties. This presentation will however focus not on what we have to do to meet the standard’s basic requirements, but on what we ought to do to achieve sustained world-class performance.

ISO 9001 originated from a military specification for quality assurance requirements, and it has focused historically on quality. The scope of risks and opportunities includes, however, not only quality (only one of the TPS Seven Wastes) but also waste or muda, supply chain risks, and external risks and opportunities from new technology and new product distribution channels. As an example of the latter, the countries that controlled the western end of the Silk Road in the 15th century had a great moneymaking monopoly on trade from the Far East—until Vasco da Gama ruined their day by circumnavigating Africa. The Internet is doing something similar to many brick and mortar enterprises today. The digital photography that Kodak helped invent rendered the company’s world class photographic film almost entirely obsolete.

General Carl von Clausewitz’s term “friction” meanwhile applies squarely to many forms of internally controllable waste or muda. Friction means simply everyday annoyances that force people to correct or work around seemingly minor problems, but ultimately degrade the organization’s performance. Awareness of friction is a prerequisite for its removal.

Risk is meanwhile the consequences of an undesirable occurrence times its probability. Probability (or frequency) involves, however, not just the chance of an individual occurrence—the focus of the occurrence rating in failure mode effects analysis (FMEA)—but also the frequency of exposure to the risk. The concept that risk = np rather than just p, where p is the chance of an individual occurrence and n the number of exposures, leads in turn to the principle that only engineering controls (error-proofing, poka-yoke) countermeasures can ensure that the problem never occurs. The Army’s Risk Management process makes it clear that engineering controls are superior to administrative controls that rely on worker vigilance for effectiveness.

The supply chain is an enormous source of risk because interruption of purchased goods will render even the leanest and best-quality factory unable to produce anything. A reliable supply chain is, in fact, a prerequisite for just in time control systems that carry little or no protective inventory. Henry Ford, whose logistics system was compared to a “continent-spanning conveyor” (Norwood, 1931. Ford: Men and Methods), pointed this out explicitly in My Life and Work (1922).

Organizations can also create their own risks as shown by Mylan’s price hikes on its Epi-Pen epinephrine injector. It was only a matter of time until competitors stepped in to offer generic alternatives.

Learning Objectives:

ISO 9001 originated to address quality risks in complex organizations with handoffs between processes over which no individual person had total control.
ISO 9001 has focused heavily on risks associated with poor quality, but not on other forms of waste or muda that can easily be far more costly than poor quality. Poor quality makes its presence known very quickly if it is not prevented, and it often is, by planning for quality through, for example, FMEA.
“Risk = np and not just p.” This principle is straight from the Army’s Risk Management Process, which recognizes that risk is not just the chance of an individual occurrence (p), but also the number of times (n) we are exposed to it. This requires engineering controls, error-proofing, or poka-yoke to make the undesirable occurrence impossible (p=0) because, if p>0, the problem will eventually occur if we are exposed to the risk enough times. (The application here is primarily to quality and safety.)
The Army’s Risk Management Process is a free (public domain, publication of the U.S. Government) off the shelf resource on risk management. It encompasses most if not all the provisions of ISO 31000:2009.
It is vital to address supply chain risks, as well as risks associated with changing technology and distribution channels, regardless of whether ISO 9001:2015 requires explicit consideration of these matters. (Clause 4.1 could however be construed in this manner, as it requires the organization to consider “internal and external issues” that could affect its ability to “achieve the intended result(s) of its quality management system.”)
The Epi-Pen controversy underscores the risks associated with raising prices to the point where competitors will step in to follow the advice of the Mob Museum in Las Vegas: “Give the people what they want.” Changes of this nature often encourage or even compel innovation by competitors and other stakeholders.

Who Will Benefit:

All management, noting that ISO 9001:2015 is explicitly the responsibility of the management team rather than a management representative. Quality and manufacturing engineers and technicians also may benefit from some of the principles for identifying risks and opportunities.

Speaker Profile:

William A. Levinson, P.E., is the principal of Levinson Productivity Systems, P.C. He is an ASQ Fellow, Certified Quality Engineer, Quality Auditor, Quality Manager, Reliability Engineer, and Six Sigma Black Belt.

He is also the author of several books on quality, productivity, and management, of which the most recent is The Expanded and Annotated My Life and Work: Henry Ford’s Universal Code for World-Class Success.

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