ISO 31000 – Student Manual

Case Study
This Tab contains the Case Study information for a fictitious organization
called “EXL Plastics”. While the organization is fictitious, the documentation
behind this Tab has been adapted from existing organizations with a
management system. EXL Plastics has now planned to implement the
principles of ISO 31000 in their organisation. The EXL Plastics description
and accompanying procedures should be referenced to complete the
exercises involving the Case Study.

Case Study RisM-020-01-EN-IN

©The British Standards Institution 2011 Issue 1.1-Mar 2012
RISM-999-010-ENIN 1 of 7
 ISO 31000 – Student Manual

EXL Plastics Co

EXL Plastics Co (EPC) is a company manufacturing injection plastic mouldings. The company
is located in Detroit, Michigan. A second-generation industrialist, Mr. Rob Brown, established
the plant in 1986. Rob started the venture together with his brother and a friend and this
partnership continues. Rob is the Managing Director and his friend Mr. Klose Friend, is the
joint Managing Director. His brother is Mr. Ted Brown and is a Director. Both Rob and Klose
studied at University of Illinois, Chicago and graduated in Economics. Rob completed his
Masters in Business Administration from Stanford, and majored in Marketing. Klose did not
continue his studies further but he worked for 3 years with a biaxial oriented polyethylene film
manufacturer located in Cincinnati. Ted graduated as a mechanical engineer from MIT. After
graduation, he joined his brother in his industry.

Exl Plastics

Rob Brown
Managing Director

Development
Management
Representative

Klose Friend
Tod Brown
Jt Managing
Director
Director

Adminstartion
Sales/Marketing
Quality
Assurance

General Manager Purchase Despatch Store

Supervisor 1 Supervisor 2 Supervisor 3

Production Production Production

EPC's main customer is General Motors Chevy Division, who takes almost 82% of the
produced parts. The main items supplied to GM are for the interiors, which are door handles,
bezels for stereo players for Cobalt, Aveo, Corvette, Malibu, Equinox, Corvette and the
Camaro models and inserts for the dashboards. They are also developing other parts for the
newer models especially the MUVs/SUVs such as the Tahoe and Silverado and the newly
launched Cruz. The company grew with GM and has expanded its production from 5000
pieces per day to its present capacity of 65000 pieces per day. The company started to
supply some components to the electronic industry, but only where the components are
complicated and the general competition is unable to compete. The parts are supplied to
Tefal for electric irons, Panasonic for Portable Music systems and recently the company-
started supplies to Honda and Toyota, but the volumes are very small.

The revenue for the company is USD 4.76 million each month. The cost of raw materials is
USD 2.43 per month. Wages for all employees including the MD are USD 1.2 million per
month. The company has total loans of USD 3.2 million, which are borrowed against the
property at an interest of 3.25% per annum. Profits are at 7.3 % which do not include the cost
of finance, which after taking that into account work to be at 0.29 million per month.

The company has defined its Strategic Objectives which are:

Case Study RisM-020-01-EN-IN
©The British Standards Institution 2011 Issue 1.1-Mar 2012
RISM-999-010-ENIN 2 of 7
 ISO 31000 – Student Manual

Double revenues in the next 3 years

Profitability to be 12% by the end of 2012
Diversify customer base by increasing supplies to Honda and Toyota by 400% in 2
years.
Reduce rework from current 0.5% to 500 ppm in 3 years.

The main 3 machines at present have been imported from Korea. These machines are
automated and the operator has only to feed in the chips and to ensure that there is no
hindrance to the operation. These machines can produce 1200 pieces per hour per machine
which has multiple cavities for moulding. The machines work in three shifts, but with operator
time off, machine maintenance, the actual production is 18 hours a day. The parts are what
are termed “appearance parts”, where visual appearance is of greatest importance that
includes surface flaws and colour variations. There are 4 other machines for the non-critical
parts as well. The company supplies 60% of the requirements of GM for the parts under
supply. The company is listed as an “on-line” vendor which means that components supplied
go directly onto the line for fitting and therefore to cater for any disruption due to sudden
power failures, which are rare, the company has installed 2 Diesel Generating sets of 750KVA
capacity. There is a die maintenance store cum workshop, but most of the major work is sub-
contracted, as the dies for multi cavity moulds are difficult to be repaired. All the machines are
housed in a single shed. The access to this facility is through a small one way street that
passes through the village of Hartmont. This village consists of 235 families and most
employees are from this village. They are rather stable, but of late the younger generation is
moving to other larger cities for better job opportunities. The facility lies next to the river, in the
flood basin. There has been no flooding in that area since there have been some dams built
on the river in the Canadian part and dykes had been constructed.

The dies for the main 3 machines are imported from Korea since they are very critical to the
process. This however poses a problem as the cycle time needed for introducing a new part
can be extremely high. This problem is now reduced with the use of CAD data that can be
transmitted by e-mail and the die development cycle is reduced, but the average cycle time is
over 8 months.

Case Study RisM-020-01-EN-IN

©The British Standards Institution 2011 Issue 1.1-Mar 2012
RISM-999-010-ENIN 3 of 7
 ISO 31000 – Student Manual

There is a small office block on the premises near the entrance of the building. The office
houses the offices of the MD, Jt. MD, Director and also the General Manager of the plant.
There is an administration section, which is also responsible for the pay and human
resources. There is a purchase section and the sales/marketing function is also housed here.

There are 56 employees in all. There are 28 on the shop floor, 3 in the maintenance, 3 in the
stores, 5 in administration, 3 in purchase, 3 in sales/marketing, 4 in dispatch, 2 in product
development and innovation, 3 in general management, 1 driver and 1 General Manager.

The raw materials are mainly procured from GE Plastics, but some plastic chips have to be
imported from Japan. The company has to pay cash for all purchases in advance. They do
have a 1-month credit from local traders and stockist who supply the same materials and at
times also supply imported chips to the company, with equivalent grades to the US
manufactured chips. There is a cost advantage of over 20% for the imported chips. Some of
the supplies come from Korea, but a major quantity comes from China. There is a
requirement from GM to qualify the chip supplier and any changes to this must be approved,
before supplies can start. The other main materials procured are cadmium-plated screws,
steel reinforcement inserts, and the packing cases. Most of the parts are shipped in
returnable bins made of plastic, but for the out station supplies and to the white goods
industry they are dispatched in cardboard cartons. For parts supplied as GM genuine spare
parts, there are also special cardboard packing boxes. The purchase department makes the
procurement of dies, however all technical content is provided by the product development
persons. Consumables like oils, diesel, etc. are also procured locally by the purchase
department.

The approval for the bulk purchases of plastic chips, packaging materials, and the
procurement of dies is done by the MD or in his absence the Jt. MD. All other purchases have
to be approved by the Jt. MD or in his absence the General Manager of the company. Only
small purchases made in cash do not require a purchase order and approval.

The MD who has the MBA in Marketing oversees the sales/marketing function. The
sales/marketing is not too complicated as the main customer GM releases new purchase
orders once per year in December, to be applied for all supplies for the following year.. The
main price negotiations are made between the MD and GM and the price agreed upon. There
is a similar arrangement between Honda and Toyota to cover the supplies. For those cases
where the parts are supplied to other than automotive customers, the sales department has to
make offers against enquiries received. Most of the enquiries are written communication, but
there are some occasions that quote are requested verbally, especially for small parts. The
practice is that the sales person speaks to the MD and the price is quoted.
Case Study RisM-020-01-EN-IN
©The British Standards Institution 2011 Issue 1.1-Mar 2012
RISM-999-010-ENIN 4 of 7
 ISO 31000 – Student Manual

The company also expects to develop new customers, especially as the market share of GM
is declining and the surplus capacities have to be utilised. There is also a very determined
move to export components to other GM plants in Europe and there have been various
representations made. The market is extremely competitive and there is an opportunity, for
the company to produce replacement parts for older models of cars, for which the original
parts are not available. The profitability is very high, however the cash turnaround cycle is
almost 6 months and large production volumes impose a severe cash flow issues, especially
impacting purchase of plastic chips. The company has purchased several used moulds for
most popular car models sold in identified markets of Europe. However the sale and
distribution activity has been sub-contracted to a company based in Houston. The MD, Jt.
MD, Director and the sales manager also make visits to potential stockist, buyers and agents
across Europe. There is no planned and systematic approach to any market, but the MD
believes that if they continue to explore several markets simultaneously, there is bound to be
a better chance of success. At times, the marketing approach takes a desperate note, and the
impression that time is running out and survival could be at stake.

The development ideas are identified by the sales/marketing as well as the MD, Jt. MD and
Director. The development is then handed over to the development engineers who then
undertake to analyse a similar part with regard to the properties and then they prepare a
suggested approach to develop the part. They are responsible for the costing of the parts to
be manufactured and the company will take into account scales of production, raw material
costs, production costs, depreciation costs, development costs etc. MD decides on the
projects that are to be continued by the company. On an average, there are 6 to 8 such
projects analysed, but mostly one to two projects are taken up for further development. These
projects may also be suggestions from the customers, who may be looking for alternative
sources or cheaper consistent suppliers. The turn around full cycle from concept to a part for
approval, produced by the company's own tooling, takes 8 to 9 months. Sometimes the
company invests large amounts, but in several instances they do not get orders for supplies.
GM has been asking them to reduce their cycle time to just 3 months, as is the benchmark in
Japan.

The company always believed that the production is the main area for focus of any successful
company and if the correct raw materials are used, and the correct processes implemented to
produce a consistent product. But despite the rather strong quality control emphasis, as well
as 100% checking of some critical parts, the overall rejections at the plant level is a
cumulative 0.5% a percentage that is very high given that the rest of the industry operates on
ppm counts of rejections. There are some line rejections, which are in the order of 1200ppm,
and there is 25ppm of warranty rejections. The company has tried to reduce rejections
especially on the shop floor, but invariably the efforts would be to increase inspection. The
company has installed a quality management system to the requirements of ISO/TS 16949,
which is the requirement from GM, but the system is applied minimally in practice. The
General Manager directly controls the production activity and 3 supervisors assist him. The
supervisors take the directions from the GM and they have sufficient authority to produce the
parts. The GM makes a production plan in a logbook and the supervisors refer to this and
then make adjustments and load the machines. One of the criteria for their loading is the
productivity incentive to the operators and the correct mix of parts is essential to meet the
targets based on numbers of pieces produced, irrespective of the type of parts. This has
worked efficiently, but there are some times when the organisation faces some delivery-
related problems. To overcome this, the management decided to have buffer stocks that will
ensure that the parts meant for their customers would never be exhausted and associated
problems would be non-existent. This buffer is a week to 10 days and occupies a large area
of the dispatch store. There are some associated problems with moving the parts produced
earlier as access to the parts is difficult. On clear sunny days, freshly produced parts are kept
in the open. Stored parts are shipped such that the parts do not remain for more than 4
months in the store.

The products are inspected on line by the operator who does a check twice per hour or when
there is a problem. He also inspects parts first produced at the start of the shift and at the end
Case Study RisM-020-01-EN-IN
©The British Standards Institution 2011 Issue 1.1-Mar 2012
RISM-999-010-ENIN 5 of 7
 ISO 31000 – Student Manual

of the shift. The production parts are also inspected once per hour by the patrol inspector,
who checks visually the parts and its dimensions and once per shift there are samples that
are tested for mechanical properties. The reaction to any failed test requirement is to contain
the suspect parts and then the GM decides the disposition, but in conjunction with the
development department. This kind of failures is rare, but they do occur. The management
has not seen it really worth improving the rejections due to this. The failed parts are mostly
sent to the replacement part market indirectly. They are sold to a scrap dealer who then
repacks the parts and supplies these to the replacement market. This practice is not in the
knowledge of the customers. Test records are kept in a logbook, but once a month, they are
transferred in the format approved by GM. Some control charts are maintained to show the
trends, but they are created on a weekly basis. Some appearance items are inspected 100%
to ensure that incorrect parts are not shipped to the customer. The customers are generally
quite pleased with EPC for a consistent performance. The laboratory tests are conducted in a
small test laboratory containing hardness testing, colour comparison, tensile testing, density
testing, impact testing. There is also a small test bench for life cycle testing of some of the
parts such as window handle. The tests are detailed and they also serve to provide the data
for the manufacturers test reports. The inspection department determines the sample and
assures independent tests. However, the MD does involve himself in all issues concerning the
failed tests and even though he insists that only good parts be sent to the customer, but often
he has to weigh the costs involved in rejections, hence he relaxes his tough demands. The
effect on the workforce is one where they do not believe in correct quality. Since the tests are
conducted in a random manner, there is no co-relation to the parts produced and the
production sequence itself.

Finished parts are sampled according to the sampling plan as per GM in the dock. The AQL
level has been defined as 1.5 for all parts.

Production is made in three shifts for the production floor. As the inspectors are not present in
the night shit, the operators checks the components themselves and the production
continues, but they mark the components, which represent the hourly production. The
company follows a "supermarket" system for replenishing the raw materials being consumed.
The supermarket stocks have been determined by the GM and stores department will
replenish materials that have been consumed. At the end of each day, the consumed stocks
are entered into the computer as updation of the stock position. The stock positions are
accessible by the purchase department, who make the reorder based on the levels indicated
in the computer.

There is a small store which stocks the raw materials and also consumables, spare parts etc.
The stores have a computer access to the data from the purchase where all purchase orders
are registered. They have min/max stock levels defined in their system and this is followed.
There was an attempt to reduce the delivery times of ordered materials in order to reduce
inventories. This was not really successful and thus a safe level system was considered. The
argument being that there was uncertainty in deliveries from suppliers and to ensure
uninterrupted supply to own customers and in time, it would only be possible when they
stocked up to meet possible shortages. When the goods are received, there is a Material
Receipt note prepared. These are sent to inspection section that perform inspection on the
incoming material and release the material for storage or usage. These are appropriately
tagged and stocked in identified locations. There is a procedure for rotating the stock and also
to ensure shelf life, however there is a practical problem in ensuring first in first out. Issue of
materials are regularised through signatures on issue vouchers that are signed by the HODs,
except for the "supermarket" items, which are accounted by the stores themselves through
the production records, that they receive from the production departments and the per part
material lists. The nature of the stocks of chips makes the storage hazardous and is a
potential fire hazard.

Inspected and cleared parts are shifted to the dispatch area and they are packed according to
the standard packing work instructions or by special packing instructions communicated by
the sales persons. Labels for special packaging requirements and the packaging boxes are
drawn from the stores and used by this section. Once packing is completed, the materials are
Case Study RisM-020-01-EN-IN
©The British Standards Institution 2011 Issue 1.1-Mar 2012
RISM-999-010-ENIN 6 of 7
 ISO 31000 – Student Manual

offered for dock inspection. Once cleared the packing lists are generated and handed to the
accounts department who make the invoice. All shipments must be accompanied by the
relevant invoice, packing list, and test reports, which are collected by the dispatch department
from all the sections. GM, Honda and Toyota require Advance Notification of shipped parts
through on-line entry into their respective databases. EPC does this using the internet
connectivity using a leased line provided by AT&T. This line uses the same telephone lines
that were there for the past 25 years. The parts will not be accepted unless the Advance
Notification is available. There have been instances where the internet was down due to
server problems and parts were not accepted onto the line.

The Quality manager is also the MR for the management systems and he organises Internal
Audits. He draws upon the auditor pool from the other departments. The audit findings are
then given in Corrective Action Requests that each department is to complete, by first
investigating the root cause and suggesting corrective actions, which are reviewed with the
GM and the MR. After implementation of corrective actions, these are communicated to the
MR who then deputes an auditor to verify the effectiveness of corrective actions. The reports
are discussed in the six monthly management review meeting. There is a separate Business
Review Meeting conducted each month and here all sections present their performance,
including the problems encountered. Decisions taken from these meetings are followed up by
the GM and MR.

Training activities are organised by the administration Section who get training needs
identified from the various sections and consults the Jt. MD and he prepares the training
calendar. They also maintain all records of employees including the yearly appraisals. They
are also responsible to arrange transportation for the parts to be shipped to the customers
and they maintain the fleet of trucks for local deliveries to GM and Toyota but make
requisitions for the longer distances. The company enters into annual contracts with 2
transporters. The administration section is also responsible for liaison with government, and
tax authorities
.
Recently Rob attended an alumni meet at Stanford and had an opportunity to hear Gary
Hammel deliver a lecture on the future of management. He covered the importance of
managing business risks. This lecture had a profound effect on Rob who recognized that
several problems in his company could have been effectively handled if the risks were
identified, analysed and treated before they adversely impacted the business. Upon his return
he explained all he learnt to Klose and Ted. They decided to introduce a Risk Culture into
their company.

Case Study RisM-020-01-EN-IN

©The British Standards Institution 2011 Issue 1.1-Mar 2012
RISM-999-010-ENIN 7 of 7