Pressure from Directors - confused!

[SDCL-Pete]

Hi all, I'm new to this forum and to Quality Managements Systems or ISO standards in general so go easy on me.

I'm in a bit of an awkward situation so please read the post fully to understand my issues, sorry for the essay.

I work for a sheet metal fabrication firm and have been the H&S manager for the last 5 years or so. The 2 active Directors purchased a CNC laser sheet cutter and established a separate company so as to exclude a third director from sharing the profits of their labour (long story). As such they began running fabrication jobs from new customers through the new company whilst using the old company to actually do the work and moving the finances where they were needed for wages etc. Does that make sense so far?

Due to my attention to detail, experience with written procedures/ safe systems of work etc. I have been given the task of pushing the lasercutting company through ISO 9001:2008 and trained as an internal auditor. And so my headaches began...

My first problem is we do not have just lasercutting customers; fabrication jobs are common and involve sub-contracting the fabrication firm to do the folding, welding, polishing etc. These processes are critical to meeting the customers requirements (no way they can't be!) and I'm being pressured to establish a system where by all fabrication works are sub-con'ed to the old firm and the lasercutting firm simply conducts an inspection upon receiving the products back. I'm more experienced persons eyes; does this sound adequate? Would we need to ensure a higher level of control? Also; the fabrication firm is now a supplier (although owned by the same Directors) and would need to be assessed as such? It does not hold (nor intends to hold) any ISO 9001 certification.

My second problem is that currently; all materials are purchased by the fabrication company. I would have thought that for materials (a very critical item for meeting customer requirements) would need to be purchased by the company processing them (except in the event of customer free issue materials). If the invoice are made out to a different company; this is problematic? I can't see how I can justify/write procedures for purchasing when its done by another company (albeit the same staff, but under a separate company registration, tax number etc.). Surely this has massive traceability issues? I'm pushing to open accounts and start the laser company purchasing its own materials under its own accounts but have been met with a backlash from the Directors telling it'll be fine purchased by "fabrication company" with materials listed as C/O "laser company". I don't agree with this but again, some more experienced advice would be greatly appreciated.

My third main issue is I am the only person trained for conducting internal audits. I brought up the issue that I cannot audit my own areas of work and as such; will need to train another individual to be able to conduct internal audits. The Directors didn't like this and told me to hire in a third party. Surely this constitutes as an external auditor? Can you justify using an externally sourced auditor for internal audits? It seems crazy to me to go down this route as you will have a bit more control and discretion over NC's if done internally!

Anyway; if you've read this far I thank you for your patience and hope some of you more experienced guys/gals can help me out here. My personal thoughts are that they just want a badge and don't actually want to know what's involved in the requirements, which is all well and good, but somewhat unrealistic in my eyes. Any help on these points would be greatly appreciated and please feel free to ask any further questions to help me clarify the muddy waters

 

[RoxaneB]

Wecome to the Cove and congrats on making your first post!

It does sound as if you're in a awkward position that goes above and beyond the worlds of quality and safety. Business-wise, I'd be questioning the ethics of running the company in the direction it appears to be. For the time being, though, you may experience sensations similiar to being a puppet, with your strings being tugged in opposite directions. My own conscience would probably have me updating my resume and considering the state of the job market.

But let's look at your mentioned issues one at a time...

I work for a sheet metal fabrication firm and have been the H&S manager for the last 5 years or so. The 2 active Directors purchased a CNC laser sheet cutter and established a separate company so as to exclude a third director from sharing the profits of their labour (long story). As such they began running fabrication jobs from new customers through the new company whilst using the old company to actually do the work and moving the finances where they were needed for wages etc. Does that make sense so far?

Makes sense with the words, but I do question the ethics and financial set-up.

My first problem is we do not have just lasercutting customers; fabrication jobs are common and involve sub-contracting the fabrication firm to do the folding, welding, polishing etc. These processes are critical to meeting the customers requirements (no way they can't be!) and I'm being pressured to establish a system where by all fabrication works are sub-con'ed to the old firm and the lasercutting firm simply conducts an inspection upon receiving the products back. I'm more experienced persons eyes; does this sound adequate? Would we need to ensure a higher level of control? Also; the fabrication firm is now a supplier (although owned by the same Directors) and would need to be assessed as such? It does not hold (nor intends to hold) any ISO 9001 certification.

In my own experience, when one company supplied another company with a critical part/component/service, they were put on the Approved Vendor List. It didn't matter if the supplying company was a sister location or not.

If there is no ISO certification, that's okay as long as the company purchasing the product has taken suitable/adequate measures within their system to ensure they are receiving the right product (i.e., suitable/adequate measures to assess that the supplier can consistently provide the correct product).

My second problem is that currently; all materials are purchased by the fabrication company. I would have thought that for materials (a very critical item for meeting customer requirements) would need to be purchased by the company processing them (except in the event of customer free issue materials). If the invoice are made out to a different company; this is problematic? I can't see how I can justify/write procedures for purchasing when its done by another company (albeit the same staff, but under a separate company registration, tax number etc.). Surely this has massive traceability issues? I'm pushing to open accounts and start the laser company purchasing its own materials under its own accounts but have been met with a backlash from the Directors telling it'll be fine purchased by "fabrication company" with materials listed as C/O "laser company". I don't agree with this but again, some more experienced advice would be greatly appreciated.

There should probably be a way that the company buying the materials is aware of what is needed for the company using the materials. But it sounds like the fabrication company is buying the materials needed for the laser company to make the producted ultimately used by the fabrication company. The laser company should then have a process for ensuring proper handling of customer-supplied material.

The invoice and financial stuff is beyond my scope, but is there a company accountant you can work with?

My third main issue is I am the only person trained for conducting internal audits. I brought up the issue that I cannot audit my own areas of work and as such; will need to train another individual to be able to conduct internal audits. The Directors didn't like this and told me to hire in a third party. Surely this constitutes as an external auditor? Can you justify using an externally sourced auditor for internal audits? It seems crazy to me to go down this route as you will have a bit more control and discretion over NC's if done internally!

Many smaller organizations use external or third parties to conduct internal audits. An external audit is typically the kind that refers to your registration/certification audit. This pathway is okay as long as the third party meets your organization's qualfications for competency. This individual will use your paperwork for capturing any issues and opportunities.

 

[SDCL-Pete]

Hi Roxane and thanks for the reply. That's cleared a couple of things up for me.

I think I may need to go a bit further into detail about this one...

There should probably be a way that the company buying the materials is aware of what is needed for the company using the materials. But it sounds like the fabrication company is buying the materials needed for the laser company to make the producted ultimately used by the fabrication company. The laser company should then have a process for ensuring proper handling of customer-supplied material.

The invoice and financial stuff is beyond my scope, but is there a company accountant you can work with?

At present; the companies share staff (approx. 15 persons total). The "laser company" does not actually have any employees; all staff are employed by the "fabrication company" hence all materials purchased are done by the sales staff who are aware of the purchasing requirements to meet the customer needs. So, the staff who carry out the quoting and production planning are also responsible for the purchasing of materials but this is, technically and legally, done by members of staff from a separate company.

The materials purchased are sometimes for jobs which move over to the "fabrication company" and sometimes just for laser cut and deliver jobs. This is where it gets confusing for me. These fabrication jobs are for "laser company"'s customers so; technically "fab company" isn't free issuing materials as a customer. It falls more into a role similar to a broker, as far as I can tell. Materials brokering is not one of "fab company"s core activities so I find it very hard to write a procedure that conforms to legal (and sensible) requirements whilst maintaining control over such a key activity for meeting customer requirements.

I genuinely feel a bit baffled about how to approach this. Do you think it would be acceptable to simply write a procedure stating something along the lines of:

* all purchasing info is passed over to "fab company" for materials brokerage service.

* "fab Compnay" is continually assessed for performance in accordance with procedures for assessing supplier competency.

There is an accountant who I will have a chat with when he is next in to ask about the financial/legal issues in my head.

My own conscience would probably have me updating my resume and considering the state of the job market.

Tempting as it has been at times to walk away; I have been with and seen these guys grow their companies from 3 directors and myself to over 4 times the floor space, 15 staff and a huge increase in capacity for design and manufacture. I don't think they are doing anything untoward; just not prepared for the success they had so are constantly trying to sink or swim with no time to stop and think. They have been very good to me with training, personal development and help when I have had personal issues so I'd rather stick with them and get things running properly; I'm just finding it hard trying to justify things in an area I have little practical experience.

Anyway, thank you again for the reply and I apologise for the information dump here. It's just not a common situation for most I would assume...

 

[normzone]

Actually your situation is not all that uncommon - small businesses are often built in such manner, and internal politics between owners is par for the course. Stay out of that to the best of your ability and focus on doing the job well.

The persons above who answered your questions gave you good advice. I think the whole " running fabrication jobs from new customers through the new company whilst using the old company to actually do the work and moving the finances where they were needed for wages etc. " is sketchy but not surprising and is no issue to your real concerns about quality and traceability.

I think that what you're being asked to do is okay - " establish a system where by all fabrication works are sub-con'ed to the old firm and the lasercutting firm simply conducts an inspection upon receiving the products back. ... the fabrication firm is now a supplier (although owned by the same Directors) and would need to be assessed as such" - Yes, treat it as a supplier and verify that it gives good service in an reliable manner.

I don't feel that the fab company is a broker - again, they are a supplier in this relationship - treat them as such.

 

[somashekar]

Think business, think with your directors, map the processes, define scope set up the QMS. Do not get into the muddle of finances and stuff as you do not need them within the QMS scope. There is outsourcing and controls necessary for same in your QMS and make good and full use of the same. Keep your head count minimum and this will get you well in the assessment process. Outsource audit if you are permitted, but ensure that you have sensible people audit the QMS who can bring out gaps well, so that you cover them adequately.

 

[Wes Bucey]

The deal of funneling jobs through one company then subcontracting to another WITHOUT explaining the process to customers is "technically" fraudulent misrepresentation. Do the new company's customers understand there are no employees because all the work is outsourced to the original company? If yes, the only one getting the short end of the stick may be the left-out director, but we don't know what financial arrangement the other two may have made with him.

In some cases, beginning back in the 90s, OEMs were trying to reduce their supply chain numbers and willingly became party to a few suppliers becoming "general contractors" who regularly outsourced work to other suppliers, billing the OEM and paying the subcontractors with checks from the "general."

In all cases, the OEM was aware of the outsourcing and condoned it. The way SDCL-Pete describes it, the end customers may not be aware of the outsourcing.

I would love for the left-out director to hire me as his consultant. I think he has a good case to negotiate a favorable contract to keep from being the "red-headed stepchild" in this situation.

I do suggest SDCL-Pete read through this thread (Ethics - Moral law vs. Criminal law) to get a feel of his own personal situation.

 

[RoxaneB]

Hi Roxane and thanks for the reply. That's cleared a couple of things up for me.

That's great!

At present; the companies share staff (approx. 15 persons total). The "laser company" does not actually have any employees; all staff are employed by the "fabrication company" hence all materials purchased are done by the sales staff who are aware of the purchasing requirements to meet the customer needs. So, the staff who carry out the quoting and production planning are also responsible for the purchasing of materials but this is, technically and legally, done by members of staff from a separate company.

The dubious part of this situation is that it sounds like there are - at least in spirity and on paper - two separate companies, but one company is footing the bill. Without clear documentation indicating consent to this behaviour, it strikes me as akin to fraud and theft. The laser company is essentially stealing resources from the fabrication company. Two directors are benefiting from this near-parasitic relationship, while the third is losing.

The financial papertrail will be an interesting exercise for your accountant.

It reminds me of the referendum we had in Canada in the late 1990's. The province of Quebec wanted to separate from our country. They wanted to run their own federal government with the rights to do what they wanted with tax dollars from the Quebec citizens. HOWEVER, they wanted to retain all existing Canadian trade agreements, Canadian passports and Canadian currency, if memory serves. Now why on Earth would the rest of Canada agree to this arrangement?!?!

The materials purchased are sometimes for jobs which move over to the "fabrication company" and sometimes just for laser cut and deliver jobs. This is where it gets confusing for me. These fabrication jobs are for "laser company"'s customers so; technically "fab company" isn't free issuing materials as a customer. It falls more into a role similar to a broker, as far as I can tell. Materials brokering is not one of "fab company"s core activities so I find it very hard to write a procedure that conforms to legal (and sensible) requirements whilst maintaining control over such a key activity for meeting customer requirements.

I genuinely feel a bit baffled about how to approach this. Do you think it would be acceptable to simply write a procedure stating something along the lines of:

* all purchasing info is passed over to "fab company" for materials brokerage service.

* "fab Compnay" is continually assessed for performance in accordance with procedures for assessing supplier competency.

You may find it easier if you walk the process flow. Pretend you are a part going down the line and from one company to another. Document the flow and papertrail. Don't identify the issues during this process - just map out the current state.

There is an accountant who I will have a chat with when he is next in to ask about the financial/legal issues in my head.

I think the two of you will have much to talk about. If your current state map is done, gaining some feedback from him on the legality of it all could prove to be helpful.

Tempting as it has been at times to walk away; I have been with and seen these guys grow their companies from 3 directors and myself to over 4 times the floor space, 15 staff and a huge increase in capacity for design and manufacture. I don't think they are doing anything untoward; just not prepared for the success they had so are constantly trying to sink or swim with no time to stop and think. They have been very good to me with training, personal development and help when I have had personal issues so I'd rather stick with them and get things running properly; I'm just finding it hard trying to justify things in an area I have little practical experience.

I can appreciate the loyalty to a company that you have grown with over the years. Still, if the accountant points out some legal/financial issues and the leadership does nothing to resolve it, you may be partly liable in some sense by simply being aware of the issue. Just make sure you cover your behind in this matter.

Part of me is really hoping that this is really all one big company - at least on paper - but 2 of the directors are responsible for heading up this new "division". That could really save you some of these headaches.