Material Quality Improvement and Material Selection Process Reengineering

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Material Quality Improvement and Material

Selection Process Reengineering

In PerkinElmer Health Sciences B.V.

October 2010

Master of Science in Business Administration Operations and Supply Chains

University of Groningen

Faculty of Economics and Business Department of Operations

Landleven 8, P.O.Box 800 9700AV Groningen

Supervisors University of Groningen Dr. G.C. Ruël (1st Supervisor)

Dr. Manda Broekhuis (2nd Supervisor) PerkinElmer Health Sciences B.V. Rigaweg 22

9723 TH Groningen

Supervisor PerkinElmer Health Sciences B.V.

Product & Process Improvement Manager, MSc MBA. Rob van Beurden

Author Le Le S1739824

 +31(0)634356077

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Preview

This report is the result of a six-month internship in PerkinElmer Health Sciences B.V. The experience is great and I have learned a lot during this half year.

Here, I would like to thank Ms. Gwenny Ruël. Without her effort, time and especially patience, I cannot finish my thesis. I also want to thank Ms. Manda Broekhuis. Thank you for your concern and suggestions when I suffered in hard days.

Furthermore, I want to thank all my colleagues at PerkinElmer Health Sciences B.V. A special thank to Mr. Rob van Beurden for giving me the opportunity to write my thesis at this company. I really appreciate every discussion and your suggestions.

Thank you very much for everyone who helped me to finish this report. Many thanks to my family and my friends Chen Li, Daisy Wu, Rekko Yuan, Ice Zhou and Rage Chen.

Finally, I hope you enjoy reading this report.

Le Le

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List of Frequently Used Abbreviations

APSS Advanced Planning Shipping System

ATO Assemble-to-Order

BPR Business Process Reengineering CSR Corporate Social Responsibility

EPA United States Environmental Production Agency

ETO Engineer-to-Order

GE General Electric

HP Hewlett-Packard

HR Human Resource

ISO International Organization for Standardization

LCA Life Cycle Assessment

LITES LITES Luminescence

LSC Liquid Scintillation Counting Cocktails & Vials

MTO Make-to-Order

MTS Make-to-Stock

NGOs Non-government organizations

OHSAS-18001 Occupational Health and Safety Assessment Series 18001 OPP Order penetration point

P24 P24 Alliance

PEHS PerkinElmer Health Sciences B.V. PPI Product & Process Improvement

PS Product Stewardship

PSI Product Stewardship Institute R&D Research and Development

UNGC UN Global Compact

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1. Company Introduction

›› In this chapter, general information of the company will be provided. Firstly, history of PerkinElmer and PerkinElmer Health Sciences B.V. (which will be abbreviated to PEHS in the rest of the report) will be introduced. Afterwards, organization structure and main products introduction of PEHS are the topics of the next two sections.

1.1 Company History

PerkinElmer is an American multinational technology corporation. It was founded in 1926 by Richard S. Perkin who was a banker and Charles W. Elmer, a court report at that time. The company started its business in optics design and consulting. 1950s and 1960s were the years for innovation. PerkinElmer took the lead in inventing several analytic equipments like the P-E Model 12 IR Spectrophotometer, P-E Model 154 Vapor Fractometer and the P-E model 137 Infracord IR Spectrophotometer etc. Then it came the time for key acquisitions, strategic partnerships and winning technology. PerkinElmer acquired and established strategic alliance with other companies like Vactec, Lumen Technologies and GE Medical Systems etc. to gain more professional knowledge and extend its business. Nowadays, PerkinElmer provides professional knowledge; components and equipments in everything which is needed to set up, run and automate a lab. Its specializations are mainly in life sciences, optical electronics and analytic instruments. As time goes on, PerkinElmer is a multinational company with around 8800 employees worldwide and branches in 150 countries. Its revenue reached about $1.8 billion in 2009.1

As one of the three production sites in Europe, PEHS was founded in 1972. PEHS is a company mainly engaging in manufacturing and selling chemical products other than drugs, which are used for scientific researches and experiments in biotech and pharmaceutical industries. The mission of the company is to be a safe and environmental-sustainable company and to develop and manufacture high quality products. Until year 2009, PEHS has 42 employees and the revenue was about $36 million for last year.

1.2 Organization Structure

The overall organization structure is presented in Figure 1. This figure is drawn from the detailed organization structure diagram given by PEHS, which can be found in Appendix 1. The first hierarchy is the site leader in charge of general management. The main functional departments are on the second hierarchy, which are product and process improvement (PPI) department, purchasing, operations, quality assurance, finance and human resource (HR) department. Departments under operations department are on the third hierarchy. They are planning, manufacturing and distribution.

Several issues need further explanations. Firstly, there is no marketing department here. Customer information is obtained from two other departments under PerkinElmer. They are product management department in Waltham of USA and customer care department in Brussels. Then, there is no real research and development (R&D) department here. It is in Montreal, Canada. However, PPI department serves the similar function as R&D. These two departments cooperate when new products are developed. Finally, the dotted line between manufacturing and quality control in Figure 1 means that quality control is also done by manufacturing staff. So they take multitasks.

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Figure 1 Organization Structure

1.3 Product Introduction

PEHS produces two main types of products. They are reagents and micro plates. There are four categories of products under reagents, which are Liquid Scintillation Counting Cocktails & Vials (LSC), Western Lightning (WL), LITES Luminescence (LITES) and P24 Alliance (P24). LSC and micro plates are two of the most important products here with largest number of products and highest turnover. According to the data last year, 320 kinds of LSC achieved $14.8 million turnover while 365 kinds of micro plates brought $12.4 million (Table 1). Products produced in PEHS can be applied in the area of life sciences, environmental testing, pharmaceutical companies, biotechnology companies, hospitals and universities.

Table 1 Product Information

Concerning the product life cycle in marketing area of the above five categories of products, their current situation can be seen in Figure 2. It can be found that all the products produced in PEHS are on the maturity or decline stage of product life cycle.

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Then, the extent to which a product is customer specific may affect the material selected and different focuses on performance objectives. Here, products in PEHS are re-categorized according to different manufacturing situations. They are engineer-to-order (ETO), make-to-order (MTO), assemble-to-order (ATO) and make-to-stock (MTS), depending on the position of order penetration point (OPP). After discussion with PPI manager, it is known that products produced here can be put into all four categories (Figure 3).

 Make-to-Stock: About half of (50%) all the products are MTS products. Products in this category are produced according to the inventory level instead of real customer orders. Once the inventory level is below a pre-defined amount according to information from ERP system, new products will be produced.

 Assemble-to-Order: In PEHS, 10% of all the products can be regarded as ATO products. ATO products are just referring to kitting products in PEHS, which are the combinations of the above mentioned five main kinds of products according to different customers’ requirements. Variations among different combinations do not change the specifications or function of products. Thus, ATO are not considered in this research.

 Make-to-Order: MTO products occupy 35% of the total. Products are produced after certain customer orders received in order to reduce inventory.

 Engineer-to-Order: The percentage of ETO products is 5%, which is comparatively low. The design and testing process are done jointly by PPI here and R&D department in Montreal, Canada. As a chemical company, ETO products are very important, which requires much effort in designing and material selection. So ETO products will also be considered.

Figure 3 Order Penetration Point

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2. Research Design

›› After getting a general idea of PEHS and its products, the management problem facing the company will be defined in the first section of this chapter. Building on a general analysis and exploration of the management problem, the research objective and research question will be formulated. Afterwards, the conceptual model will be constructed in order to execute this research, in which research variables and relationships among them will be illustrated. Together with the conceptual model, methodology will also be explained. The last few sections are research model, showing the research steps, sub-questions, data collection and the scope of this research.

2.1 Management Problem

With the development of human civilization, purely convenient and low-price products have been gradually unable to fulfill customers’ expectation. Customers have been starting to realize the responsibility to both the environment and society. Relatively low-price but environment-unfriendly products are being criticized by customers. Nowadays, customers pay more and more attention on the underlying aspects of products. They care more about issues like ‘Whether products are produced in an environment-friendly way’, ‘Do materials used pollute the environment a lot’ or ‘Are products being produced by child labor?’ etc. Product Stewardship (PS) and Corporate Social Responsibility (CSR) are two main concpets of responsibility issues, which are also focused by PerkinElmer starting from last year.

2.1.1 Environmental Responsibility

The emerging awareness of environmental responsibility from the public started in 1960s, which was the first wave that announced a transformation of industry attitude toward environment. During 1960s, despite the emergency of environmental organizations, environmental issues only caught people’s eyes when crises happened. Public acted in a reactive way instead of proactive. Then, great changes happened in 1970s. United States Environmental Production Agency (EPA) was established and a series of laws are enacted, aiming at cleaning up the environment. Those significant changes induced companies to think about environmental risk management systematically in order to prevent unplanned crises. In 1980s, more and more companies began to realize the relationship between production in an environment-friendly way and operational efficiency. They began to modify production processes and technologies to reduce pollution and waste during manufacturing. 1990s was a vital decade, because companies started to act in a proactive way. They decided to affirm their values and articulate a constructive approach toward stakeholder concerns. The concept ‘Product Stewardship’ firstly appeared as an ethical agreement by companies who would be responsible for their products in the whole product lifecycle2.

It is because that PS is a good and famous concept of environmental responsibility, so PS will be introduced briefly in order to show a clear picture of environmental responsibility. The definition of PS which is generally agreed by different European & US PS institutions and companies is that it is a principle that directs all participants involved in the product lifecycle of a product to take shared responsibility for the impacts to human health and the natural environment that result from the production, use, and end-of-life management of the product.

Because that there are no world-wide accepted principles under PS, so I decide to derive the main focuses from different sub-principles of PS, which are provided by different organizations so as to help different

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parties to form their own PS programs and help to clearly define roles for each stakeholder. Guiding sub-principles designed by OECD (Davis and Wilt, 1997), sub-principles from Product Stewardship Institute (PSI)3 and framework principles agreed by several states4 in US are studied. Besides manufacturers, other stakeholders related are also included. They are suppliers, consumers, distributors, retailers, consumers, governments, PS organizations and some non-government organizations (NGOs). Only focuses concerning manufacturers will be considered here, because this study is done in the position of PEHS, a manufacturer. Thus, the common focuses in different principles are whether a manufacturer performs in an environmental-friendly way in the following aspects:

 Raw material selection: Principles about this aspect appeal companies to take the environmental characteristics like recyclability, biodegradability and renewability etc. into consideration.

 Product design: Companies are asked to reduce environmental effects from the start of a product.  Relationship with suppliers: The goal of principles in this aspect is that companies should pay

attention on environmental problems of their suppliers.

 Process management: Environmental problems like waste, water used and pollution etc. need to be considered during manufacturing.

 Packaging: Companies are required to consider about the environmental effect from their packaging aspect.

2.1.2 Social Responsibility

CSR will be explained in more detail here, because it is a good and well-known concept of social responsibility. CSR, which is also called corporate citizenship, has a strong relationship with PS. Actually, it can be regarded as an extension in the scope of PS. After the emergence of PS in 1990s, more and more corporations began to develop a broader commitment to social and economic well-being in 2000s. That is to say, topics concern about not only issues around environmental responsibility but also around social responsibility. Compared with PS, CSR pays more attention on the human beings. The evolutionary journey can be found in Figure 4 (Fiksel, 2009). It can be seen that the direction of future development is to cover the full value chain and win the proactive worldwide engagement. Concerning the focuses of CSR, Welford (2004) summarizes 20 common elements (Appendix 2), which are mainly about the following aspects:

 Working conditions: The goal of this aspect is that companies should pay attention on safety and health issues for employees.

 Human rights: Issues like child labor, discrimination and fairness must be considered.

 Stakeholder relationship: Companies are required to have a close relationship with their stakeholders and also care about social responsibility issues of them.

Figure 4 Evolutionary Journey

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Principles from PSI: http://www.productstewardship.us/displaycommon.cfm?an=1&subarticlenbr=231

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2.1.3 Problem of PEHS

PerkinElmer started to realize responsibility issues from last year and issued its first CSR report at the beginning of 2010. However, PEHS has not involved responsibility issues as its routine. What PEHS has been doing till now is producing ‘Fit for purpose’ products rather than considering responsibility issues. Therefore, the management problem is that:

How to integrate environmental and social responsibility into daily operations in PEHS?

2.2 Research Objective

It is found that PEHS has the problem in practicing environmental and social responsibility issues into daily operations, which may has a potential risk that customers and society perceive the company in a negative manner. In order to go into more detail about how to translate responsibility issues into PEHS’s operations, I start by defining the research objective of this study.

2.2.1 Organization Quality

Because PEHS has a problem in combining environmental and social responsibility into daily operations, it can seen that it has potential problems or improvement aspects in organization quality. According to Schonsleben (2007), organization quality can be divided in view of four kinds of stakeholders. In this study, only quality in view of society and the environment will be discussed while the other three are business partners, employees and shareholders. Under this aspect, the quality of a company is proportionate to how well its processes, products and conduct fit into given frameworks, which are often laws, legislations or principles defined by a third party excluding companies themselves, business partners and customers. The quality of an enterprise can then be evaluated according to whether it adheres to these laws or principles as society requires. In this study, these frameworks are all defined relating with environmental and social responsibility. Examples could be UN Global Compact (UNGC), Responsible Care® and ISO standards etc., which focus on different aspects of responsibility issues and provide principles in more details.

2.2.2 Product Quality

Concerning product quality, most of the definitions focus mainly on functional perspective. According to Schonsleben (2007) again, product quality can be defined or judged by certain characteristics. These characteristics are features, performance and integrity etc. which are also defined by Slack and Lewis (2008). These functional criteria are about whether a certain product is fit for purpose or not.

However, a well functional product can be a product having a bad environmental effect. In this study, environmental and social aspects of a product are concerned based on the assumption that functional quality has already been met. According to the definition of organization quality, it is affected by how well products perform. Thus, product quality can generate influence on organization quality.

Similar as the definition of organization quality, product quality here can also be defined in the view of society and environment in order to check whether a product fits into certain frameworks, which are often laws, principles or legislation defined by a third party. Again, they should be designed for social and environmental responsibility.

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move OPP downstream (Van Donk, 2001). Thus MTS products require better performance on speed and dependability. Moreover, products on the declining stage need to focus more on dependability and cost (Slack and Lewis, 2008), referring to product life cycle diagram (Figure 2) in previous chapter. However, PEHS states that it never wants to go to the price battle and it wants to offer unique products with premium price. One obvious example is that although LSC is approaching the end of product life cycle, PEHS is one of the few producers in the markets, who attaining around 65% of the world market share. There is no need for it to reduce price to keep the market. Thus, in such a situation, improve product quality into an environmental and social responsible way is a good alternative to strengthen product quality, add more value to the products and finally be appreciated by the society.

2.2.3 Material Quality

Material is one of the most important components of a product. Material quality and product quality are closely related. In reality, advertisements are often made to inform customers that one specific harmful material is not used in order to ensure customers the quality of certain product. One of the most significant cases is that toothpaste for children without fluoride is widely regarded as a good quality product.

In this study, material quality is selected as the focus. There are several reasons for this decision. Firstly, materials are almost near the very beginning of creating final products. Concerning PS and CSR, which are the two important concepts of environmental and social responsibility, material selected is one of the commonest topics while companies should also pay attention on their upstream suppliers’ performance, because their ways of doing things have direct effects on material quality. Then, from the discussion with managers in PEHS, materials especially packaging material do have some problems which are reflected by customers. Although the problem is only reflected by few customers, it still needs attention, because once for example bans are established for polystyrene which is one of the packaging materials used in PEHS, this could be a great risk, if no action has been taken. Finally, there is no evidence that the manufacturing process in PEHS has problems from the discussion with managers. PEHS is also in the process of applying for Occupational Health and Safety Assessment Series 18001 (OHSAS-18001) to ensure the elimination of waste and safety condition during manufacturing. Therefore, only material quality will be investigated in this study. Moreover, material quality in this research only concerns about environmental and social responsibility issues based on the assumption that quality on functional level has already been met.

2.2.4 Material Selection Process Activity and Material Selection Process Control

The aim of material selection is to identifying materials which after appropriate manufacturing operations will have the dimensions, shape and properties necessary for the product to demonstrate its required function (Sqpuan, 2001).

In order to improve the performance of material quality in PEHS, problems can be analyzed by performing either a functional analysis or a process analysis. Functional analysis is mainly about changes in company culture, structure and types of technology applied, while process analysis focuses more on operational functions of an organization and figures out necessary modifications to fill in gaps between actual and required performance (Riezbos, 2004). Here, process analysis for material selection is selected.

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2.2.5 Research Objective

From the analysis above, it is concluded that material selection, which is reduced from a large scope, is decided as the focus of this study (Figure 5). Thus, in order to combine environmental and social responsibility into daily operations in PEHS, the research objective of this study can be defined:

Explore whether materials are selected in an environmental and social responsible way and giving suggestions for reengineering material selection process in order to increase material quality.

Figure 5 Research Objective

2.3 Research Question

From the research objective, the research question of this study is that:

What are the problems of current material selection process?

In what way can material selection process be re-engineered to improve material quality?

Here, material quality only considers about environmental and social responsibility issues, based on the assumption that quality on the functional level has already been met.

2.4 Conceptual Model and Methodology

The conceptual model is established in Figure 6. The two main functions of the conceptual model are showing a clear picture of what is going to be researched and enabling readers to understand how the research questions will be answered. In this section, explanations of each variable are provided, together with how to measure it. The intra-relationships are also shown.

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2.4.1 Organization quality

As defined before, the quality of a company is proportionate to how well its processes, products and conduct fit into given frameworks, which are often laws, legislations or principles defined by a third party excluding companies themselves, business partners and customers (Schonsleben, 2007). Besides proactively participation into some frameworks, obtaining certain certificates is an even more powerful evidence to represent organization quality. Concerning certificates on the company level, once a company gets it, like ISO standards, the third party will be back for rechecking at a fixed frequency. Here, frameworks and certificates discussed are designed for environmental and social responsibility.

Thus, in this study, these two issues will be considered as a whole. Once a certificate is obtained or decision is made to adhere to a framework, organization quality can be measured as the time of keeping this certificate and adhering to the framework. The longer time a company can keep a certificate and not break a framework, the better the organization quality of this company.

For product quality, it also mainly concerns about responsibility issues, based on the assumption that function requirements have already been met. Therefore, similar as the definition of organization quality, product quality here can also be measured by checking whether certain products meet requirements of selected frameworks or certificates.

However, in the case of PEHS, it does not concern about frameworks or certificates on specific product level. Obeying frameworks or gaining certificates on organization level are regarded as proof to ensure product quality. Thus, in this study, product quality is regarded as the same as organization quality. It does not show up in the conceptual model.

2.4.2 Material Quality

Two aspects need consideration. They are the characteristic of materials themselves and their suppliers. Concerning characteristics of individual material, it can be concluded that the one, which generates less negative environmental impact and serves the same function as other materials, has a relative better quality. Considering materials as a whole, the higher percentage of materials meet certain environmental indicators, the higher the material quality.

Then, the material used by a company is also the product provided by supplier companies. Therefore, the quality of material can also be evaluated by checking the performance of suppliers. Both environmental and social responsibility issues are focused. Either frameworks & certificates on company level or product level obtained by suppliers need to be considered. Therefore, the higher the percentage of materials and suppliers fitting certain framework and obtaining certificates by suppliers indicates higher material quality as a whole.

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2.4.3 Material Selection Process Activity

A process can be defined as ‘any activity or group of activities that takes an input, adds value to it, and provides an output to an internal or external customer’ (Harrington, 1991). Thus, material selection process can be regarded as activities taken by product design, purchasing and planning departments etc. after which selected material are delivered to the company.

Combining with the process diagram drawn by PEHS, several aspects are analyzed in order to get a clear picture about the material selection process activity in PEHS. They are:

 Actor: Relevant departments are included. They are planning, purchasing, quality control and PPI department, which will be discussed individually.

 Situation of activity: Three different situations are considered for both raw materials and packaging materials. They are materials used for current products, material changes of current products and new material of product development.

 Activity: The analysis of activity is based on the different situations for different departments. In order to judge the current material selection process performance of PEHS, UNGC is selected. It was launched in July of 2000. The main contents are its ten principles which can be seen in Table 2. In UNGC, human rights and labor principles are related with social responsibility, while environment principles are mainly for environmental responsibility. In this research, Principle 10 about anti-corruption will not be considered, because it is not related with materials and material selection process activity.

Table 2 UN Global Compact

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environmental and social responsible way to reach desired materials. At the same time, problems are also figured out.

Here, it is necessary to explain more about how to use UNGC by first illustrating the relationships among material selection process activity of PEHS, materials and suppliers. It can be seen that materials and suppliers are the results of selection process activity. Although these two always come together, they can still be discussed individually. Combining with UNGC, the relationships can be seen in Figure 7.

Environment principles are applied to check whether the material selection process activity itself. If selection process activity meets environment principles, environmental-friendly materials can be obtained. Then, there is no labor or human rights problem in the selection process activity itself in PEHS, but a company is required to choose suppliers who act in a responsible way according to PS and CSR, as explained in section 2.1.1 and 2.1.2. Thus, human rights, labor and environmental principles are used to check suppliers’ performance during selection process. It can be concluded that if suppliers’ performance meet principles, the selection process activity of PEHS is also good.

Figure 7 The Use of UN Global Compact

As explained in section 2.4.2, the characteristics of materials themselves and performance of suppliers decide the quality of material. If material selection process activity meets UNGC, then PEHS can obtain materials which are environmental-friendly and also produced in a responsible manner. In other words, material quality is increased.

2.4.4 Material Selection Process Control

Control is defined as regulation or even just coordination according to Schonsleben (2007). For this study, I translate regulation as responsibility of relevant departments and the rules of material selection process activity. Responsibility is about whether a certain activity needs to be done while rules are about benchmarks of doing things. Coordination is about the communication and information sharing among departments.

It can be concluded that if regulations are set concerning environmental and social responsibility and coordination is also hold about these issues, it will all lead to expected material selection process activities. Thus, there is a positive relationship between material selection process control and process activity.

2.4.5 Sub-Conclusion

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corresponding measurements are summarized in Table 3.

Table 3 Variables and Measurements

2.5 Research Model

The research model used in this research is referred to the DOV-model designed by De Leeuw (2000). The model is made up of three steps. They are diagnosis, design and implementation (Figure 8).

Figure 8 Research Model

In the diagnosis step, there are three sub-steps included. In the first sub-step, current performance of organization and material quality will be discussed. These are also the first two variables in the conceptual model (Figure 6). Besides quality, there are four other performance objectives, which are cost, speed, dependability and flexibility (Slack and Lewis, 2008). So after analyzing the current performance of both organization and material quality, it is necessary to confirm the relative importance of quality again, because suggestions provided later should not sacrifice other performance objectives. Then in the second sub-step, material selection process activity of each relevant department will be analyzed in three situations of material flows. They are materials used for existing products, material changes for existing products and new materials for product development. Problems of current activity will be identified compared with UNGC. Finally, material selection process control will be studied in order to identify control-related causes of current selection activity in the last sub-step.

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such as cost, quality, service and speed’ according to Slack and Lewis (2008). In this research, the aim of process reengineering is to improve quality especially quality defined in environmental and social responsibility scope.

The last step is implementation, which is about how new suggestions will be used in the company. However, it will not be included in this research, because of the time limit.

2.6 Sub-Questions

After the establishment of conceptual model and research model, sub-questions can be developed to answer the main research questions. They are listed below:

 Sub-question one: What is the current performance of organization and material quality and what is the relative importance of quality compared with other performance objectives?

 Sub-question two: What is the current performance of material selection process activity in PEHS and what are the problems?

 Sub-question three: What are the control-related causes to explain the problems of current material selection process activity performance?

 Sub-question four: How can current material selection process be improved?

Sub-question one will be answered in the first sub-step of diagnosis. The analysis of sub-question two will be provided in sub-step two of diagnosis. Then the analysis of the last sub-question will be provided in the last sub-step in the diagnosis step. Finally, sub-question four will be answered in the design step of the research model.

2.7 Data Collection

In this study, qualitative data is the main data source, because responsibility issues are quite new topics for PEHS, which means there is not enough quantitative data. Thus qualitative data will be the first-hand data to study material selection process, gathering from interviews with employees in PEHS.

Four main interviews are arranged to discuss with PPI manager, purchasing manager, quality assurance leader and planner about material used in PEHS and material selection process. Here, quality control staff is on holiday, so quality assurance leader also provides information for quality control related questions. The information is still reliable, because that quality assurance leader was also quality control staff years ago and she knows clearly about their jobs. Each interview is about one hour.

2.8 Research Scope

 The time of this research is from 12th April, 2010 to 12th October, 2010.

 Due to the time limitation, the strategies suggested will not be implemented by the writer.

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3 Diagnosis

›› As explained in the research model, three sub-steps are included in the diagnosis step. Firstly, current performance of organization and material quality in PEHS will be analyzed and the relevant importance of quality will be emphasized again in order to make sure other performance objectives will not be harmed. Secondly, the material flow and material selection process activities will be defined. Problems of current material selection process activities will also be figured out. The last section is the discussion of material selection process control, in which control-related causes are put forward.

3.1 Organization and Material Quality Analysis

As explained before, current performance of organization and material quality will be discussed firstly. Afterwards, the relative importance of quality will be confirmed again to make sure that suggestions provided later will not harm other performance objectives. Cost will be put more emphasis here, which will be discussed in detail.

3.1.1 Current Performance of Organization and Material Quality

In general, the performance in both organization and material quality is unknown for PEHS. The company cannot provide relevant data, because it does not have corresponding measurements.

Concerning organization quality, the certificate PEHS holds now is ISO 9001-2008, which mainly regulates the manufacturing processes in order to ensure the functional quality of products. This certificate does nothing with environmental or social responsibility. Currently, PEHS is in the process of applying for OHSAS 18001, which is mainly about safety of working conditions, and applying for ISO 14001, ensuring products are environmental-friendly and are produced in an environmental-friendly way. Although ISO 14001 is a certificate which can represent organization quality, PEHS has not got it yet. Therefore, there is no framework or certificate to ensure organization quality of PEHS now.

For material quality, PEHS also does not have data about environmental performance of each material and indicators to check whether suppliers produce in a responsible way or not.

It can be concluded that there could be some potential problems of material selected, because PEHS has never considered about environmental and social responsible issues. This is also the reason why more detailed analysis is needed for researching material selection process in order to gain a clearer picture about how materials are reached.

3.1.2 Relative Importance of Quality

The five commonly considered performance objectives are quality, speed, dependability, flexibility and cost (Slack and Lewis, 2008). Besides quality which mainly concerns about organization and material quality in this research, the definitions of the other four performance objectives in PEHS are shown in Table 4.

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of competitiveness where the operation’s performance has to be above a particular level’. Usually, order-winning factors are considered by customers as key reasons for purchasing the product.

Table 4 Performance Objectives in PEHS

Combining with information about contents of responsibility issues from discussions with managers, quality is selected as the order-winning factor in PEHS. There are two main reasons for this selection. Firstly, in the context of discussing environmental and social responsibility issues, customers may prefer products which have less negative impacts on environment or produced in a more humanized way by companies. Such companies are regarded as having high organization quality. The other reason is that what PEHS wants to do is providing unique products with premium price to customers as discussed in previous chapter. Thus, in order to make significant achievement in such a context, PEHS chooses quality as its main focus here. Other four performance objectives are regarded as order-qualifying factors. Here cost needs some special attentions. It is easy to image that unit cost will increase if for example, companies use a more environmental-friendly material but with a higher price or choose a more social responsible supplier with higher transportation cost because of a long distance. However, this is just short-term consideration. Spending efforts on changing companies in the direction of environmental and social responsibility way is a long-term decision. Concerning the benefits of CSR and PS, more green and ethical investments and more ethically conscious customers will be attracted. Furthermore, the reputation of a company will be better and being an environmental-friendly and social responsible company will be one of the competitiveness. Thus, the short-term increased cost will be covered by long-term benefits.

From the discussion above, it is confirmed that quality is the order-winning factor while other four factors are order-qualifying factors in PEHS. Moreover, suggestions focusing on quality improvement may increase cost in short-term, but this effect will be covered in the long-run.

3.2 Material Selection Process Activity Analysis

There are three material flows in PEHS. They are material flow for current products, for material changes of current products and for new material of product development. In this research, material flow is

defined to be stopped once materials go into inventory before manufacturing, though it is longer in reality. Then this section will be divided by analyzing material selection process of relevant departments in these three material flows. Material selection process also ends once materials are delivered into inventory. Raw materials and packaging materials will be explained individually if necessary.

3.2.1 Material Selection Process Activity for Current Products

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staff once they receive order information from planning department. Then, materials will be delivered to PEHS. Only raw materials, which pass tests done by quality control staff, can be stocked in the warehouse. However, not all raw materials need to be checked by quality control staff.

Figure 9 Material Flow of Raw Materials for Current Products

Compared with raw material flow for current products, quality control department is not involved in packaging material flow. Others are the same, which can be found in Figure 10. Below, detailed material selection process activities will be analyzed for each involved department.

Figure 10 Material Flow of Packaging Materials for Current Products

 Planning Department

The main activities of planning staff are checking advice from information system and deciding whether to accept the advice or not. Every day the planner checks advice from Advanced Planning Shipping System (APSS) showing that raw materials are needed. Once he accepts a piece of advice, information is updated and transferred to purchasing people through Oracle system, which is the local information system used in PEHS. Here, the planner has the right to reject advice from APSS based on other data of the company, like sales data. It can be seen that planning staff only decide the amount and the time of raw materials needed. Concerning problems here, it is better to say that this is the problem of the information system, instead of stating that this is the problem of planning department. From observation of daily work of the planner and the information system, materials information is only about price, vendors, purchasing number and safety stocks etc. while for suppliers, only information about name, site location, supplier partner number and basic contract information is provided. No information about materials’ environmental performance like certain pollution level, and no information about suppliers’ performance level like whether they have got ISO 14001 certificate is provided.

Therefore, the imperfection of information system may break Principle 7 of UNGC, because no information can be used from information system to support a precautionary approach decision about responsibility issues to prevent environmental challenges. Principle 1 to Principle 6 may also be broken because of the same reason.

 Purchasing Department

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Suppliers are divided as strategic suppliers and non-strategic suppliers in PEHS. Strategic suppliers are regarded as those who provide important materials and cannot be easily replaced. Frequent checks are arranged for strategic suppliers. There are two ways of supplier check. The first one is supplier scoring, which is done on a monthly base. Price and functional quality are two main benchmarks. Data of this month is compared with previous ones. The other check method is on-site audit. Once purchasing is informed that functional quality of certain materials cannot meet products’ requirements by quality assurance department, which will explained later, purchasing people may arrange an on-site audit. Moreover, strategic suppliers also receive frequent on-site audit, because purchasing wants to ensure that these suppliers are still producing in the way PEHS wants.

From the discussion with purchasing manager, the most obvious problem is that they do not consider about suppliers’ responsibility issues when checking their performance. If all the other criteria like functional quality, lead time and cost etc. are all met, one of the alternative suppliers have a good achievement in responsibility issues compared with others, for example, this supplier has reduced water pollution compared with last year or take activities to achieve non-discrimination in working place, then, purchasing would choose this supplier. However, meeting responsibility issues is not a necessity.

Furthermore, purchasing staff does not ask for this information proactively.

Thus, current performance of purchasing department may bring risks that PEHS cannot meet principles of UNGC. The lack of enough information shows that there is no base for precautionary approach (Principle 7), while no initiatives are undertaken to check suppliers’ performance proactively (Principle 8). Principles about human rights and labor may also be violated because of no enough data about current suppliers.

 Quality Control Department

Quality control staff only appears to test the quality of current used materials. Quality control staff is also manufacturing staff. They take multi tasks. Moreover, not all the materials are checked before going to inventory.

There are two main activities done by quality control staff. The first one is checking incoming materials. There is a list of specifications for check. All the specifications are about characteristics and functional aspects, which are decided by PPI department. If all the specifications are met, materials are sent to inventory. However, if one material fails in the test, the second activity is that quality control staff would report the problem to quality assurance manager for further solution.

Both activities done by quality control staff has nothing to do with responsibility issues. Actually, what they need to do is already decided by PPI department. Therefore, risks already exist when materials are ordered no matter they are checked or not. This problem can be traced back to PPI department, which will be discussed in later sections.

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The problem of quality assurance is that they don’t check responsibility issues in a proactive way (Principle 8). Another problem is not closely related with responsibility issues, but it still needs to be mentioned here. That is both purchasing and quality assurance staff would arrange on-site audit for suppliers once raw materials have problems, which is repetition work.

 PPI Department

Although PPI department is not included in this situation, they still deal with some issues of raw materials, which also need to be mentioned here.

Once materials have been decided, they would not be checked if no problems are identified. Luciferase can be taken as an example. It is a current used raw material, which is obtained by killing fireflies. This is known by PPI and it is regarded as a potential problem that once society realizes that it is too cruel to the environment and ban is established to stop this behavior, then luciferase will be unavailable. Thus, PPI is in process of testing an alternative material named recombinant luciferase, obtained from bacteria.

Considering the luciferase example for potential alternative material finding activity, although this activity is driven by commercial motivation, it still has an indirect positive impact on environment because fireflies will be saved. However, other currently used materials without such a motivation are not checked.

Therefore, the environmental impact is unknown, which may harm Principle 7 and 8 of UNGC.

 Sub-Conclusion

In Table 5, a summary is made for activities taken by relevant departments and problems defined.

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3.2.2 Material Selection Process Activity for Material Changes of Current Products

Materials need to be changed when a certain kind of material is no longer available; price is increased a lot or a new ban on a specific material is released etc.

The raw material flow in the material change situation is illustrated in Figure 11. Four departments are included. They are PPI, planning, purchasing and quality control departments. Generally, when the need of change is confirmed by purchasing, they select several alternatives to let PPI staff decides. After decisions are made by PPI, selected material information will be transferred to planning. If quality control is needed for checking selected materials, the material flow and selection process is like the one shown in Figure 9.

Figure 11 Material Flow of Raw Material Change for Current Products

For packaging materials, there are two possibilities. They are for simple secondary packaging materials like labels etc. and for relative complex packaging materials. For simple secondary materials, once purchasing staff notices the unavailability, they find new alternative and transfer information of alternative material and suppliers to planning. The material flow is in Figure 12. Concerning relative complex packaging materials which need the approval from PPI department, the material flow and selection process are the same as the situation for raw material change which has already shown in Figure 11.

Figure 12 Material Flow of Simple Secondary Packaging Material Change for Current Products

Below, detailed material selection process activities will be provided for PPI and purchasing departments individually. Analysis for planning and quality control department will not be mentioned, because what they do in this situation is the same as they do for materials of current products.

Two main activities need consideration in this situation. The first one is selecting from alternative

materials chosen by purchasing department. Before making the decision of which one is going to be used, PPI staff has a look at all the alternatives and then the final decision is made. The other activity is that PPI staff may go with purchasing staff for on-site check of suppliers once technical knowledge support is needed. The aim of this check is to see whether potential suppliers can offer the materials which meet functional quality.

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alternative materials provided from purchasing department. Materials are only considered whether they are fit or purpose or not.

 Purchasing Department

As explained before, purchasing can decide on sample materials like packaging labels without PPI’s permission. For other material changes, purchasing needs to report and communicate with PPI. Thus, the main activity for purchasing staff in the second situation is selecting alternative materials and

corresponding suppliers.

Purchasing staff starts with meeting specification and function of materials. Then suppliers are chosen as potential ones based on information provided from Internet. Subsequently, price quotation is asked. Afterwards, two circumstances appear which can be seen in Figure 13. If the newly changed material is a well-known one like spray gun, purchasing staff just orders samples. However, if it is a complex material and its specifications need further considerations, purchasing would arrange on-site check. PPI may also take part in this on-site check if purchasing does not have enough professional knowledge to decide. Finally, alternative materials are presented for PPI.

Figure 13 Selection Process for Material Changes

Similar as problems defined in the situation of current used materials, purchasing department still has the problem that they do not consider responsibility issues of suppliers, while only functional aspects, cost and lead time aspects are considered. For simple packaging materials, environmental issues are also not included.

Thus, using UNGC as a benchmark, there is no activities to prevent potential environmental risk, which may break Principle 7. Moreover, not checking suppliers’ responsibility issues may also violate human rights and labor principles.

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Table 6 Problems in Material Selection Process of Material Change of Current Products

3.2.3 Material Selection Process Activity for New Material of Product Development

The new product design is regarded as version update or modification of current products based on specific customers’ requirements. Parts of materials are existing ones and some of them could be new. The material flow of this situation is shown in Figure 14.

Figure 14 Material Flow for New Materials of New Products

R&D department is not here. PPI department serves similar function and cooperates with R&D when developing new products. After R&D and PPI together decide the new material, new material information will be transferred to planning through information system. Then, purchasing will know when new materials need to be ordered. If newly used materials need quality check, quality control department will be included.

It can be seen that activities of planning, purchasing and quality control are similar as discussed in the first situation of current products. Only selection activities of PPI department are different. So, selection activities of PPI department will be discussed in detail.

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Again, the problem is that environmental issues are not considered when selecting new materials by PPI staff. Materials are only considered about whether they are fit for purpose or not. It may have the potential risk of environment principle of UNGC, especially Principle 9, because during new product development, no environmental-friendly technologies are taken into consideration.

Figure 15 New Product Development Steps

Here, one point needs some special attention. From the interviews of purchasing manager, purchasing is seldom included when new products are developed. They just receive decisions made by PPI and outside R&D department. The problem is that if purchasing staff is not included, it may lead to the result that new materials selected by PPI are produced by suppliers which produce in a non-environmental or anti-social responsible way. Thus, relevant principles of UNGC may be broken.

A summary about problems figured out in this situation is shown in Table 7.

Table 7 Problems in Material Selection Process for New Material of Product Development

3.3 Material Selection Process Control Analysis

In order to answer the last sub-question, material selection process control will be analyzed to identify control-related causes of current material selection process. Three aspects are discussed, which are responsibility of relevant departments, rules for selection process and information sharing among departments. Responsibility decides whether a certain activity needs to be done by which department. Rules are about indicators and relevant benchmarks about doing things. Information sharing deals with issues of information system and communication among departments.

3.3.1. Department Responsibility

From the interview with purchasing manager, he thinks that the responsibility of purchasing department is to obtain materials with the right functional quality, shortest lead time and lowest price. Moreover, they need to reduce all the risks from suppliers. Concerning checking the suppliers’ performance about

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Concerning PPI staff, their responsibility is to decide materials which can meet the function of final products. They have already noticed some environmental problems of current used materials, but with a commercial motivation instead of an environmental-protection driver.

For quality control department, according to their activities described before, they just check what have already decided by PPI department. Thus, their responsibility is also to ensure that materials used meet the functional requirements of final products.

Again, although quality assurance department is not included in material selection process, it still deals with materials and suppliers. Their responsibility in this aspect is ensuring materials’ functional quality and suppliers can stably provide required functional quality. One special point needs attention is that the responsibility of who should check suppliers’ performance once material problems are defined is not clear. From interviews, quality assurance and purchasing staff all state that they often have on-site audit, but cannot tell the reason why the other department is also be included.

Planning department deals mainly with delivery time and the amount of orders. From the discussion with planner, it is known that his responsibility is to ensure that customers can receive required products with the correct amount at the pre-decided time.

It can be concluded that no environmental and social responsibility issues are considered by staff at PEHS. In other words, they have not regarded these issues as their responsibility into daily job.

3.3.2. Rules for Selection

Concerning the rules of material selection process, two aspects need considerations, which are indicators and corresponding benchmarks. Benchmarks are used to judge the performance of indicators. Currently, functional quality is the main indicator. PPI, purchasing and quality control departments all aim at reaching the materials meeting the right specification and serving the right function of final products. No indicators are set to check the environmental and social responsibility performance. So there is also no benchmarks in responsibility context.

It is because that no indicators and benchmarks are set, so there are also no documentary files in PEHS designed for those issues. For example, when PPI staff selects from alternative materials when sudden change takes place, they just have a look at materials. Aspects needed for consideration when selecting are not listed. The same problem also happens when on-site audit is arranged. There is a set of ‘Yes/No’ questions for suppliers but it does nothing with responsibility issues.

It is also because that responsibility issues are not introduced in PEHS, thus no test is arranged to check raw materials performance on their impact on environment.

3.3.3. Information Sharing

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The second one is about the information system. As described in the previous sub-section, no indicators or measures are set for responsibility issues. Thus, there is also nothing shown in the information systems. Different departments cannot share information about environmental or social responsibility issues because of this imperfection.

3.3.4. Sub-Conclusion

Problems of material selection process activities are re-categorized for each department and control-related causes are also control-related to each problem. The summary can be seen in Table 8.

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4 Design

›› After diagnosing the problems and causes in PEHS, corresponding suggestions are provided in this chapter to reengineer the material selection process. Suggestions are divided into short-term and term suggestions. Short-term suggestions aim to define to what extent PEHS can be improved while long-term ones would help to regulate and reengineering material selection process in PEHS. Some examples of successful companies are also referred.

4.1 Short-term Suggestions

From the discussion above, the most obvious problem is that PEHS has never considered about environmental and social responsibility issues in a structured way, which leads to the situation that no measurement has been established to check the current performance of PEHS. Therefore, the first suggestion is establishing indicators and corresponding benchmarks to check current material quality. Material quality is determined by the environmental performance of materials themselves and the performance of suppliers as defined in the earlier chapter of this research. So, suggestions are provided separately for material and suppliers.

4.1.1 Suggestions for Material Check

Concerning materials, besides specification on functional perspectives, environmental indicators are needed. These indicators can be scarcity, substitutability, recyclability, reusability, degradation, energy consumption and production cleanness etc. (Giudice et al., 2005). Because of the lack of professional knowledge of chemicals, only general indicators can be provided here. PEHS can further identify specific and detailed indicators.

After gathering information by establishing above indicators, benchmarks are needed to judge current environmental performance of materials. These benchmarks could be frameworks, legislations or even bans in process etc. The aim of referring to those benchmarks is to define what percentage of currently used materials is environmental-friendly while what percentage of materials needs improvement.

4.1.2 Suggestions for Supplier Check

For suppliers’ performance, questionnaires are a good way of collecting information. Generally, questions should be asked about whether supplier companies obey to certain frameworks or have certificates. For example, if a supplier has signed UNGC or has ISO 14001, it can be concluded that this supplier does well in responsibility issues in a regulated and structured manner compared with others. However, those suppliers who do not have certificates or obey frameworks cannot be concluded that they have done nothing on responsibility issues. Therefore, further information is needed. Questions should be designed to check whether environmental and social responsibility issues are included in suppliers’ policies. Example question areas can be seen in Table 9. Specific indicators can be derived from these question areas.

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Table 9 Example Questionnaire Topics

4.2 Long-term Suggestions

Long-term suggestions are provided based on three aspects of causes defined in section 3.3. They are responsibility, selection rules and information sharing. No matter the result of the detailed performance check done according to short-term suggestions is good or not, it is still meaningful to implement the following long-term suggestions, because that these suggestions can help PEHS to behave in a more logical and regulated way in order to eliminate potential risks of harming environmental and social responsibility.

4.2.1 Department Responsibility

For department responsibility, it concerns about whether a certain activity needs to be done by corresponding department or not. In general, department responsibility-related problems mainly occur in purchasing and PPI department as discussed in previous chapter. Thus, there are several suggestions related.

 Suggestions on Company Level

Firstly, department responsibility about taking environmental and social responsibility issues into consideration in material selection should be included in company policy. Referring to PerkinElmer’s first CSR report, responsibility issues have already been involved in the overall policy of the headquarter company. PEHS is also required to follow this pace. Thus, written policy about responsibility for the whole company is the first suggestion.

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Afterwards, in order to check the training results, assessment surveys can be held. Responsibility related questions can be included to see whether employees have required knowledge. Meetings can also be a good opportunity of communication. From the feedback of the surveys or meetings, management team can adjust company strategy. In General Electric (GE), an opinion bi-annual is held, allowing the impact of changes made by the business to be more accurately measured and experienced by employees. In order to speed up and gain more frequent opinions from employees, a monthly engagement survey is provided (GE Citizenship Report, 2007).

 Suggestions on Department Level

After providing suggestions on department responsibility in general, some additional advises are proposed for purchasing and PPI department individually.

Firstly, purchasing department should take part in product design with PPI department. It is because that purchasing department has more information of the outside aspect of PEHS. They can help to avoid potential risks of responsibility issues on materials by selecting materials together with PPI staff.

Then, PPI department should arrange regular check on currently-used materials proactively. Besides indicators set in section 4.1.1, aspects about the sources of materials and whether a certain material may be banned by new laws in process etc. need to be checked. Once risky materials are defined, PPI department should come up with alternative materials.

The other suggestion for PPI department is that it is better for PPI staff to arrange life cycle assessment (LCA) of alternative materials during new product development. LCA is probably the most widespread technique for evaluating environmental impacts associating with materials (Ljungberg, 2007). The environmental effect generating by materials selected can be measured during different life cycle stages. These stages are material extraction, manufacturing, packaging, transportation, product use and disposal (Figure 16).

Figure 16 Product Life Cycle in Engineering Aspect

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In reality, Hewlett-Packard (HP) chooses to use LCA to help the company understand the complexities of environmental impacts from different materials (HP Global Citizenship Report, 2009). Again in the example of HP, LCA helped HP to decide the launch of a new Scitex FB7500 printer. The result of LCA demonstrates that digital printing on the new printer has a lower potential environmental footprint in terms of human health, eco-system quality, climate change and resource impact compared with a conventional screen printer.

4.2.2 Selection Rules

The main cause of most problems is the lack of selection rules. PEHS has not considered about responsibility issues when selecting both materials and suppliers. Here, there are several suggestions. Firstly, indicators about environmental and social responsibility issues are established in the short-term. These indicators are suggested being included also in material selection process. PEHS can also design an aggregate index which includes all the indicators.

Then, documentations including those indicators or the aggregate index are strongly recommended. For purchasing department, a list of indicators about price and lead time etc. has already been required when choosing from alternative materials while another list of indicators about responsibility performance of suppliers is also needed when selecting suppliers and doing on-site audit. Considering PPI department, they just select from alternative materials by having a simple look currently. So a detailed list about indicators of responsibility issues should also be provided. This documentation serves as the basis why a certain material is selected. Concerning quality control department, there is already a list of functional indicators needing check. Here, only environmental indicators are required to be added, because quality control department cannot reach suppliers. Additionally, both environmental and social responsibility indicators need to be added to the list for quality assurance staff for on-site audit when quality problems are reported. After documentations are used, indicators should be compared with benchmarks, which are also decided in the short-term suggestions, in order to check material and supplier performance.

Afterwards, all the information on the checklists from different departments needs to be transferred into company database for future analyses. Concerning these analyses, purchasing department does supplier scoring regularly. In the future, scoring about responsibility issues should also be included by using the data collected from checklists.

4.2.3 Information Sharing

There are two suggestions for information sharing. The first one has already been mentioned a little bit in the previous section. That is including indicators of responsibility issues into the information system of PEHS. Once information is updated by one department, others can also see from the system.

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4.2.4 Sub-Conclusion

Table 10 summarizes all the short-term and long-term suggestions mentioned above.

Material Quality Improvement and Material Selection Process Reengineering