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Controlled Shipping, also known as Restricted Shipping, is a process applied when a supplier has shipped nonconforming products to their customer.

What is Controlled Shipping or Restricted Shipping?

Controlled Shipping, also known as Restricted Shipping, is a process applied when a supplier has shipped nonconforming products to their customer. The standard for nonconforming parts is generally no more than 50 PPM (parts per million) that are nonconforming or deemed to have one or more defects. Some customers require no more than 15 PPM and some suppliers achieve 0 PPM on a regular basis.

When a customer detects non-conforming product or material shipped to their plant from a supplier, the customer will notify the supplier via a phone conversation that he is now in Controlled Shipping. A letter will follow documenting the specifics of this conversation.

Controlled Shipping or Restricted Shipping requires that the supplier immediately put in place a redundant inspection process to sort for nonconforming product/material, while implementing a root-cause problem solving process. The redundant inspection is in addition to normal controls.

What is the Controlled Shipping Process?

All Controlled Shipping procedures include these three steps:

  1. ISOLATE: A containment of the nonconforming products to isolate them from the normal production process. The supplier is required to establish a separate containment area outside of the production area, so as to totally isolate the nonconforming products from the normal production. Parts already shipped to the customer can either be put in a containment area at the customer's site, shipped back to the supplier at the supplier's expense, or shipped to an outside warehouse for containment and sorting.
  2. INSULATE: An inspection of all possible nonconforming products to sort for defects. This step includes all parts at the customer's site, in shipment and at the supplier's site.
  3. ELIMINATE: The supplier performs a root cause analysis and implements irreversible Corrective Actions on the production process to fully eliminate nonconforming products.

What are CS1 and CS2?

There are two main levels of controlled shipping and some customers even require a third level. These are:

Controlled Shipping Level 1 (CS1): CS1 requires the supplier to contain the suspect product and perform a redundant 100% inspection process. This process may be done by the supplier's employees, though some suppliers routinely employee an outside third-party inspection company to perform this service. Cost or availability of personnel is usually the driver for the decision whether to outsource this function or leave it in house.

The second step of CS1 is to identify the root cause of the defect and incorporate irreversible corrective actions. The third step of CS1 is to verify by the above inspection process that the corrective actions are effective.

Controlled Shipping Level 2 (CS2): The customer will require CS2 when the supplier has failed to correct the problem in CS1 or has had major quality problems. Each customer has their own criteria for placing a supplier in CS2, but normally it is used when the CS1 procedure has not corrected the problem.

In CS2 the supplier is required to continue their in-house inspections as in CS1 and add an additional redundant inspection process performed by a third party inspection and sorting company. This third party is often selected by the supplier, but usually has to be approved by the customer. The supplier always pays the third party inspection and sorting company. Some customers will pay the third party and deduct that amount from the payment to the supplier for the product. Either way, this cost of third party redundant inspection comes out of the supplier's pocket and can get to be very expensive.

The root cause analysis and irrevocable corrective actions begun in CS1 must be continued or redone until they are effective as verified by the data reported from the redundant inspection processes.

Enhanced Controlled Shipping Level 2 (ECS2): Some customers have a third level of Controlled Shipping called ECS2. Other customers include parts of this level in their standard CS2 Process. ECS2 includes elements from both CS1 and CS2, but the supplier is required to select a third party Quality Inspection and Engineering Company to manage the inspection and sorting as well as to manage the detection process from Verification of Root Cause through Irreversible Corrective Action. ECS2 suppliers not only prevent further defective parts from being shipped to the customer, but they also manage the corrective action process and provide evidence that documents systematic issues associated with the con-conforming parts have been resolved.

What are the specific steps of CS1?

Step One: Determining the need for CS1

  1. The customer detects nonconforming parts/material from the supplier. The customer management team has a consensus that the current controls by the supplier are not sufficient to insulate the customer from the receipt of nonconforming parts/material.
  2. The customer determines which level of controlled shipping is required and how it is to be implemented. One or several of the following issues may be considered as drivers for a CS1 or CS2 assignment:
    • Repeat PRR's including Pass-through
    • Evidence of Incapable Processes
    • Quality problems in the field
    • Inadequate containment and/or resolution of nonconformance via the PRR process
    • Major production disruptions
    • Impact to the assembly or machining lines (downtime, line stoppages)
    • Quality Spills (Assembly tear-downs, customer recalls, interruptions, yard hold, etc. )
    • High number of Corrective Action Reports (CARs) - over 4 in the last 6 months from the same shipping locations
    • High PPM's – over 50 PPM in the last 6 months
    • Warranty conditions traced to Supplier's components/parts
    • Repeat problem (breaking clean points, loss of containment)
    • Restricted/Controlled Shipping Level 1 failure
    • Duration, quantity and/or severity of the quality problem

Step Two: Notification

  1. The customer communicates verbally to the supplier regarding the action (CS1 or CS2) to be taken. This communication must be live and not by voice mail or other forms of communication.
  2. The verbal communication will be issued in written form which confirms the conversation and formally outlines the controlled shipping/containment process.

This communication will include:

    • A full explanation of the Controlled Shipping/Containment process
    • A definition of the containment area
    • Deliverables
    • Responsibilities of the involved parties
    • Exit criteria

Step Three: Containment

The supplier must immediately contain all suspect product/material at the supplier, customer, in-transit or at the OEM (customer's customer).

Step Four: Meeting/Conference

A meeting or phone conference is held to:

  • Review the non-conformance that resulted in the CS1 entry
  • Establish boundary samples and/or specifications for acceptance/rejection of parts
  • Review and approve the supplier's containment process, which includes
    • Escalation/reaction plan
    • Control of nonconforming parts
    • Data Collection using an I-Chart and other statistics and graphs as requested such as Paretto Charts
    • Frequency and format of communication from supplier to customer
  • Establish Exit Criteria for Level 1 Containment. Normal criteria are:
    • 20 – 30 working days of data from the containment activity which verifies that the normal production controls are effective for controlling the discrepancies identified in the Controlled/Restricted Shipping activity.
    • Documentation showing the root cause was identified and verified
    • Documentation indicating that corrective action was implemented and verified as effective
    • Copies of all documentation reviews as required (operator instructions, flow diagram, control plan, etc. )
    • Documentation indicating that every effort was taken to implement error proofing.

Step Five: Supplier Activities

The Supplier is responsible for the following:

  • Ensure understanding of the nonconformance
  • Return confirmation letter
  • Develop an escalation/action plan
  • Immediately establish a separate containment activity area at their location that is acceptable to their customer
  • Notify additional customer plants that use the same part, informing them of the nonconformance and providing containment activities as necessary
  • Track breakpoints of nonconforming material (Purge pipeline of suspect material at customer's facility, in transit and at all storage location)
  • Mark individual parts, material and containers as agreed upon by the customer to identify parts certified for production.
  • Provide proper layout and instruction documents, space, lighting and gauges to perform Level I Controlled Shipping
  • Commence the sort activities by performing a redundant 100% inspection of all suspect nonconforming products per the agreed upon process
  • Ensure only defect free parts/material are delivered to the customer
  • Process in a timely manner the corrective actions requested by the customer
  • Display the results in a public and visible location
  • Update all applicable documentation (operator instructions, flow diagram, control plan, etc. )
  • Document containment data in an I-chart formation and in any other format as requested by the customer

Step Six: Exiting CS1

  1. Once the supplier has met the exit criteria he requests authorization to exit from Controlled/Restricted Shipping Level I and provides all supporting documentation and assessments on performance and corrective actions to the customer.
  2. The customer will verify that the exit criteria have been met. If the customer is satisfied that the root cause has been established and irreversible corrective actions have been taken and validated as effective, the customer will release the supplier from Controlled Shipping. Normally the customer will notify the supplier verbally that they have met the exit criteria followed by a written Controlled or Restricted Shipping Exit Letter.

What are the specifics of CS2?

Controlled Shipping Level 2 is required by a customer when the customer determines that Level 1 is not sufficient to isolate the customer from nonconforming parts. Normally this determination is made based on:

  • Repeat CAR's
  • Duration, quantity, and/or severity of the quality problem
  • Controlled Shipping Level 1 failures
  • Major Disruptions (line stoppage)
  • Major Quality problem (customer complaints, warranty defects, etc)

Controlled Shipping Level 2 requires the supplier to do all of the actions of Level 1 and to put in place a third party redundant inspection process to sort for a specific nonconformance. The supplier is expected to implement a root cause problem solving process or to continue the root cause problem solving process started earlier. If the supplier is unable to identify and correct the root cause, the customer may require the supplier to employ a third party Quality Engineering firm to manage this process.

Step One: Determining the need for CS2

The process starts when the customer determines the need for CS2 and informs the supplier verbally, followed up by a formal written communication (as in CS1), which is sent to the supplier's Top Management.

Step Two: Immediate actions

The supplier must immediately do the following:

  • Initiate containment to insulate customer from suspect parts
  • Contact and issue a Purchase Order to the Controlled Shipping Third Party Firm for Controlled Shipping Level 2 activities. The supplier is responsible for all costs of the CS third party for the activity. The supplier must approve the Third Party provider. This PO must be issued within 24 hours.
  • Return the Level 2 confirmation letter

Step Three: Kick-off meeting

A meeting/conference call is held with the customer, supplier and 3rd party provider of containment services (Third Party Sorting and Inspection Firm) to

  • Review the non-conformance that resulted in the Level 2 Restricted Shipping
  • Review and approve the supplier's containment process which includes:
    • Data collection utilizing an I-chart
    • Communication back to the customer (including format and frequency)
    • Control of non-conforming product
  • Review of Third Party Containment Services Provider's actions/ assessments as required
  • Review and approve the supplier's escalation/reaction plan for the containment activity
  • Establish boundary samples and/or specifications for acceptance/rejection of the parts
  • Establish exit criteria for Level 2

Step Four: Supplier Actions

The supplier must

  • Continue CS1 Activities
  • Provide proper space and tooling to perform inspection activities
  • Drive permanent corrective actions
  • Communicate results of sort activities to the customer in the required format and frequency (I-Chart data)
  • Communicate the action plan, inspection status and results of problem resolution activities to the customer in a format and frequency agreed to by the customer.
  • The 3rd Party Provider performs an additional redundant inspection of all suspect non-conforming products per the agreed upon processes to ensure defect free parts are delivered to the customer.
  • Deliver only material/parts to the customer that have been certified by the Third Party Controlled Shipping Company.
  • Determine and demonstrate the root cause to the customer
  • Develop, implement and validate the permanent irreversible corrective actions along with improved process controls (i.e. error proofing, layered audits, setup checklists, etc. )
  • Implement lessons learned
  • Update all applicable documentation
  • Communicate the action plan, inspection status and results of problem resolution activities to the customer in a format and with a frequency agreed to by the customer
  • Submit irreversible corrective action plans to their certification registrar for review and/or assessment

Step Five: Exiting CS2

Once the supplier has met the defined exit criteria, the supplier requests exit from Controlled Shipping – Level 2. The supplier must provide supporting documentation and assessments on performance and corrective actions to the customer.