TECHTRONIC INDUSTRIES CO., LTD. TITLE: Quality Cost procedure DocumentNo: __ QUAP018__Rev: (iv ARETE) fective Date: 22 OCT 206 [Page 1 (L r¥ ‘Approved by: Peter Poon ¢. fe Liofeers. ‘Change / New Issue: Second Issue . Amend 3.2 standard salary rate definition. ‘Add 4.1 standard quality cost. Amend 4.3.2 internal failure cost collection. Amend 4.3.3 external failure cost collection. ‘Amend 4.6&4.7 review & follow up action. Distribution: HKoffice Houjie Plant TI-DG [XX] Operation Director [X¢ ] Plant Manager ] Plant Manager [Jan [X ] Accounts ] Accounts [X ] Accounts [X ] Engineering (AC,DC, * Tooling) J FIG Store [X ] Cost Control 1FG Store | Facility [X ] HR&A LX ] Facility ]BR&A (X_ ] Industrial Design [X ]HR&A JIC (X] Marketing (4,B,D,£,R, 8B [X ]IQC |] Machine Shop [X ] MIS [X_]Internal Control & Costing | MIS. {X ]R&D PT) [X ] Machine Shop 10g [X_ ] Shipping [x ]MIs ) PIE [x ]ogc PMC [Xx ] PIE ] Production [x ]PMc QA [X ] Production ] Store -RM [X ] Purchasing ‘Lateral ato & Costin} [X 194 [X ] Shipping [X ] Sourcing & Procurement [1 Store -RM [X ] Feasibility Test Lab. [X_] Regulatory Lab. Form no. : QUAFOIF T¥S TPP PMC KK MMMM OMTECHTRONIC INDUSTRIES CO., LTD. TITLE: Quality Costs Procedure DocumentNo: QUAPOI8 Rev: B BATE Effective Date:2 2 OCT 20H] Page 2 of 10 1.0 PURPOSE To establish a procedure to collect the Quality Cost which: 1) evaluate the quality performance in terms of management language — monetary term; 11) identify the cost reduction opportunity which in tum, improve the quality level; Ill) assist the management’s decision-making in allocating resource for continuous improvement. 2.0 SCOPE This document is applicable to the following locations: ‘TTI-HK office, PRC Houjei plant & TTLDG 3.0 DEFINITIONS 3.1 Quality Costs: A) Prevention: costs associated with personnel engaged in designing, Implementing and maintaining the quality system. B) Appraisal: costs associated with measuring, evaluating or auditing products, components and purchased materials to assure conformance with quality standards and performance requirements, C) Internal failures: costs associated with defective products, components and materials that fail to meet quality requirements and cause manufacturing losses. D) External failures: costs generated by defective products being shipped to customers. 3.2 Standard salary rate : Fixed by A/C for ease of calculation. Indirect staff are grouped as follows: . Manager . Supervisor . Engineer . Technician . General staff Labor Standard Cost ( Collected in ERP system) 3.3 Other : AC Accounts and Finance QA — Quality Assurance 1QC Incoming Quality Control QE — Quality Engineer IPQC In-process Quality Control MKT Marketing OQC Outgoing Quality Control R&D — Research and Development PMC Production and Material Control PIE Production and Industrial Engineering ASQC American Society for Quality Control QS Quality Systems RO Rework Order MRB Material Review Board OPD Order Processing Department RGA Return Goods Authorization RMA. Retu Material Authorization Prod, Production department Fomno.: QUAFOI7BTECHTRONIC INDUSTRIES CO., LTD. TITLE: Quality Costs Procedure DocumentNo: QUAPOI8 Rev: B CRE RAI) Effective Date: 22 OCT 2004 Page 3 of 4.0 PROCEDURE 4.1 Standard quality costs are the normal expenses even when no defects or failures are found. Preventive costs and appraisal costs are the standard quality costs, normally before the production release stage. The intemal and external failure quality cost are the additional expenses due to quality failures, rework, line scrape and customer returns, and normally after the production release stage. QA and A/C are responsible to establish and maintain the quality cost activity checklist (Table 1) and related forms (Table 2). 42 Each department(Assistant manager or above) is responsible to check the quality cost involved or not whenever the forms(Table 2) in use. If yes, identify the quality cost item (Table 1- Prevention, Appraisal, Internal Failures, External Failures). 4.3 Cost items 431 For prevention and appraisal cost (type A&B), a copy of the form is issued to A/C as per flow diagram (Figure 1), A/C shall check which department expense belong to preventive & appraisal cost according to the prevention & appraisal costs departments codes list. QS provides department list (with department code), list out which departments associate with Preventive & Appraisal costs at least annually. 4.3.2 For Internal failure cost(type C): 1) PIE sets up variances tolerance rate based on past statistical data in ERP system. Production check and report those variance cases that actual manhours are greater than the standard manhours and exceed the tolerance rate, and report to A/C if they are due to internal failures. The extra labour hours and materials will be captured by the ERP system automatically. (MI forms) For F/G rework : - PMC chairs MRB meeting per MRB procedure ( QUCP008); ~- QE issues rework order(QUAF064 ); - PIE issues BOM & rework instruction; - PMC creates rework job order in ERP system to follow up the rework, issues the materials; - Production reworks finished goods and inputs manhours in ERP system; - PMC informs concerned departments to report the extra indirect manhours for the rework, concemed departments issue signed data form to PMC within one working day; - PMC consolidates the data and issues information to Accounts Department; IV) For incoming material MRB, PMC creates the job order for all incoming material rework and sorting due to supplier’s faults. Form no. : QUAFOI7BTECHTRONIC INDUSTRIES CO., LTD. TITLE: Quality Costs Procedure Document No: _QUAP018 Rev: B (Ch RAISE) Effective Date: 22 OCT 2004 Page 4 of 10 4.3.3 For Extemal failure cost(type D), Marketing is responsible to collect all the costs incurred at customer side and within the organization such as Shipping and PMC. Use the failure cost sheet to report the costs. The costs data shall be verified by QA and then submitted to A/C. 1) For rework by Customer: ~ QE issues rework order based on RGA ( refer to procedure QUAPOI4 ); ~ PIE issues BOM & work instruction; - PMC collects material cost from Purchasing and provides information to Marketing; - Marketing initiates RMA to approve the budget and enters price list in ERP system; - OPD issues sales order; - PMC issues job order to send rework material to customer per sales order, - Production packs rework material and finishes job order , - PMC sends rework material to customer. y - QA follows up with customer till rework is completed ( per procedure QUAPO14). U) Other Dispositions (Such as return to TTI) refer to RGA procedure QUAPO14. 4.4 AJC shall check costing and reasonableness of the forms received. In case of discrepancies, A/C shall contact responsible department to settle. 45 Reporting AIC reports the total quality cost on monthly basis . 4.6 Review & Follow up action The quality cost will be reviewed in quarterly review meeting( QA, QS, A/C, Prod. and PMC), also in the ISO management meeting. Management shalll assign improvement projects to tackle the serious quality problem 5 REFERENCE QUAPO14 — Returned Goods Procedure QUCPO08 — Procedure for nonconforming products Table 1 — Quality cost checklist Table 2 ~ Forms related to Quality Costs QUAF064-1/2 - Rework Order (RO) FIG 1 — Flow Diagram FIG 2— Flowchart For Rework at TT FIG 3- Flowchart for customer rejected goods Formno, : QUAFOITBCRB RE) TECHTRONIC INDUSTRIES CO., TITLE: Quality Costs Procedure LTD. Document No QUAPOI8 Rev: B Effective Date:2 2 OCT 2005] Page 5 of 10 TABLE 1 QUALITY COST CHECKLIST ‘ACTIVITY em) lA. PREVENTION COST bat 'A1.Qulity Engineering(Product levaluation, qualification, check card preparation). RELA (ERP, BEE, BIR) |A2. Quality Training. aa 'A3. Manufacturing Pilot Testing. AER BtE MISS |AS. First Piece measurement |A4. Supplier Approval. RRL |AS. Quality Management System eA |A6. Inspection Equipment setup, Calibration & Maintenance ETL, ORT |A7. Others. HE |B. APPRAISAL COST IB1. Inspection & Test of material, Inspection Equipment Setup DRA, BAIR ‘TEI |B3 Production-quality audit, inspection equipment setup(Finished product inspection, life/reliability tests.) AEShih A Bi, SEMEN BE, Rec FTSEE HL) |B4. Others HE STAFF/DEPARTMENT INVOLVEMENT SRB QE QA, R&D, PIE QA Lab.- Qualification testing& Regulatory Lab. QA Lab.-metrology QA, R&D, PUR. QS, DCC & calibration [COST SOURCE BAAR Salaries (Org. chart) TACHA) Training records. SHeRCER Salaries& wages, consumable materials. Ti, REZ Salaries & Wages, consumables Lm, WE Salaries(man-day), vendor survey result form (QUAFO13) TAALA), HERE |#28&(QUAFO13). Consultant fee, application fee, MMe, HAR Salaries & wages, consumable |materials. LA, HEM, (BU) Salaries & wages, consumable |material TH, BHZDE Salaries & wages, consumable Imaterial. TH, BRZIE Form No.:QUAFOI7BCRAP) TECHTRONIC INDUSTRIES CO., LTD. TITLE: Quality Costs Procedure Document No: QUAPO18 Rev: B Effective Date:2 2 OCT 2006) Page 6 of _10 [C. INTERNAL FAILURE (C1. Extra Labour hours & materials BO LER \C2. Rework , Re-inspection BI, Sie \C4. Fault of supplier ( Sorting, return |& rework). ERROR OR, SEAT \T) \C5 Delivery Cost (Due to failure) STR (RAD (C6. Others HE ID. EXTERNAL FAILURE 'D1. Complaints Bait [D2. Reject & Return FBR 'D3. Repair at customer side. SE [D4 Others (Warranty claim, \Compensation, free replacements parts, recall etc.) SE RIN, RMR, AE eae, RS) STAFF/DEPARTMENT INVOLVEMENT eR Rar Production, PMC, Purchasing [Production , QE, OQC, PMC QE, PIE Purchasing, QA, PMC, Production |Production, OQC, Shipping ICustomer complaint meeting ‘members (PRC) IMKT, Shipping, Customer term [COST SOURCE RAT excess labour hours & lmaterials captured in ERP system, (ERP FUSER CGPI Materials, wages, related overhead ORL, LH ABN HABA. Cost associate with shortage, air Iteight charge, delay, penalties. CE form (RWHF006) Uae, 25K, TER, MAM SUERFA, CEH(RWHF006) Air freight charge, imegular jovertime cost. 22388, JER SUIISE lag Participant's time cost. ORAS Job estimated cost, associated ltransportation cost, customs \documentation charge,(T./F(t #02 St, ABN RRARER, SNC, 77) Job estimated cost, repair |charges, credits( Lf F(i S12 37H, SR, (ASTER. Job estimated costs, ar freight cost land related invoice. C/E (i322 Bt Fa, SERA Form No:QUAFOI7BTECHTRONIC INDUSTRIES CO., LTD. TITLE: Quality Costs Procedure Document No: _ QUAP018 Rev: B CL RARER) Effective Date:2 2 OCT 2008] Page 7 of 10 TABLE 2 FORMS WITH THE CLAUSE “QUALITY COST RELATED” {Form no, Form Title |P&A F016 UBERR AE |PRAFOGS SeraIIECRR |QUAFO06 TEMPORARY DEVIATION REQUEST FORM |QUAFO12-1 VENDOR SURVEY REPORT (ft 58289825) |QUAFO43 CUSTOMER RETURNED GOODS RECORD(# Fill ${228%) |QUAF064 REWORK ORDER (35 Lil) 1182/012(97/01) PURCHASE REQUISITION (EXPENSES) i889 1182/008(97/01) PAYMENT REQUISITION 1182/009(97/01) PETTY CASH VOUCHER 1182/010(97/01) PRC TRAVELING EXPENSES STATEMENT 1182/011(97/01) OVERSEAS TRAVELING EXPENSES STATEMENT 1182/017(99/01) STANDARD QUALITY COST SHEET 1182/018(99/01) AIRFREIGHT/COURIER REQUISITION FORM 12182/004(98/11) ‘TT see |2182/002(97/09) SRSTRH ERR TORRE Form No.:QUAFO17BTECHTRONIC INDUSTRIES CO., LTD. TITLE: Quality Costs Procedure DocumentNo: QUAPO18 _Rev:_ B CERES, Effective Date:2 2 OCT 208) page 8 of 10 FLOW DIAGRAM - FIG 1 Prevention & Appraisal Internal Failure Extemal failure ‘When filling forms according to Table 2 1. production reports extra direct labour cases to AC the check 2s extra labour ours ‘MKT collects external failure costs, use failure data sheet to report the costs box, No & material captured by further action ERP (~) 3.F/G work, QE issue rework order, PMC | Verify by QA and then submit to A/C collect extra resources for the rework, and issue yes v information to A/C Tick the appropriate box & check the cost activities 4, Incoming material according to Table 1 v ‘MRB, PMC create the Consult QA job onder if problems found Discrepancies AIC check costing ‘& reasonableness OK. ‘AIC calculates the quality cost on ‘monthly basis I Reporting as prevention, appraisal and failure cost. J Improvement action assigned by management. Form No.:QUAFOI7BTECHTRONIC INDUSTRIES CO.,LTD. TITLE: Quality Costs Procedure ChB RARER) Document No: _ QUAPO18 Rev: B Effective Date;2 2 OCT Page 9 of 10 Form No.:QUAFO17BTECHTRONIC INDUSTRIES CO., LTD. TITLE: Quality Costs Procedure Effective Dateg 2 OCT 205 | Page 10 of 10 in ARIES) ( Form No.QUAFO17B