ISO QUALITY SYSTEM-1 E&P COMPANIES, SUPPLIERS MOVE TO INTERNATIONAL STANDARDS

Gene Schindler, James Lamprecht
Wright Killen & Co.
Houston

There has been, over the past few months, a growing interest in the International Standards Organization (ISO) 9000 series of quality systems.

Unfortunately, misinformation on the subject is also growing.

It is therefore timely to:

Review the factors that have influenced the drive toward ISO certification in drilling and production-related businesses.
Highlight the benefits of certification incurred by both customers and suppliers.
Present examples of ISO 9000 implementation in the upstream sector of the oil industry.
Suggest an implementation schedule and estimated costs.
Discuss some myths regarding ISO 9000.

A following article on the certification of the maintenance operation at a Texas petrochemical-related plant will give more insight into the certification process in a downstream operation.

Generally perceived as a European standard, ISO 9000 is a set of guidelines written by members of an international delegation.

The standards are a list of minimum requirements for a quality assurance system.

Prepared in 1987 by the technical committee ISO/TC 176 on quality assurance, the five ISO standards (9000-9004)-commonly known as ISO 9000-were conceived to help harmonize the large number of national and international quality standards (Table 1).

FORCES FOR ISO 9000

The push toward ISO 9000 implementation and certification in the upstream petroleum business has been driven by a combination of five factors: oil companies, competition, the "Lord Cullen Report," a world focus on quality, and the European Economic Community, or EEC (Fig. 1).

OIL COMPANIES

Several years before the American Petroleum Institute published its 1988 Q1 specification, multinational energy companies, such as British Petroleum Co., Shell Oil Co., and Conoco Inc., had encouraged their North Sea suppliers to develop quality systems.

This initial focus in the North Sea is now spreading to other producing areas of the world like the Middle East, the Far East, and Australia. The appeal of ISO 9000 is that it not only establishes a minimum quality standard for all suppliers, but also allows for a uniform evaluation.

COMPETITION

Suppliers to exploration and production companies have taken both offensive and defensive positions regarding ISO 9000. Some equipment manufacturers have opted for an early certification to be able to meet customer specifications when they occur, or to increase their market share.

Others have decided to take a more cautious approach and wait until their competition seeks certification. Still others have opted for a reactive approach and simply wait to be mandated by a customer to acquire certification.

LORD CULLEN REPORT

In November 1990, Scottish Judge Lord Cullen issued the "Inquiry into the Piper Alpha Disaster." The report analyzed the causes of the July 1988 fires aboard the Piper Alpha platform in the North Sea that claimed 167 lives.

It also listed some 106 recommendations on offshore operations. Concerning safety management systems, Lord Cullen suggested that offshore operators "...should draw on quality assurance principles similar to those in BS 5750 and ISO 9000."1 (BS 5750 is the United Kingdom equivalent of ISO 9000.)

The United Kingdom plans to carry out his findings. It is expected that energy companies with offshore operations outside the U.K. will also follow his recommendations.

WORLDWIDE FOCUS

The 1990s will certainly be the decade when most businesses realize that quality is no longer a fad but a prerequisite for global competition. Having recognized the importance of quality and customer satisfaction in their everyday business activities, companies can achieve their goal by implementing an ISO quality system.

EEC

Unquestionably, one of the major forces driving ISO 9000 certification in the U.S., as well as other countries, is the EEC directives. These directives specify that the manufacturers of many products must be ISO certified.

Of particular relevance to the drilling and production business are the following products: simple pressure vessels, lifting and loading equipment, chemicals, solvents, construction products, and personal protection equipment.

Because an EEC directive is based on whether a product affects health, safety, and the environment, the list is likely to be expanded to include many more oil field products.

E&P COMPANIES, SUPPLIERS

ISO 9000 implementation provides many benefits for exploration and production companies, manufacturers, and service companies.

FOR THE CUSTOMERS

Currently, many oil companies are requiring compliance with ISO 9000 and advocating ISO 9000 certification through contracts or purchase orders. From the customer point of view, there are several advantages to requiring ISO 9000 certification from their suppliers.

One of the main advantages is that it facilitates the formulation of an approved list of suppliers. A second benefit is that ISO 9000 requires functions like training and design reviews that should improve the safety of a product or service.

Another appeal is that it not only reduces the number of audits, but also shifts the responsibility of auditing onto the supplier and third party registrars. Finally, ISO 9000 allows for a more objective comparison of suppliers.

FOR THE SUPPLIER

Oil field suppliers also benefit from ISO 9000 certification. The granting of an international certification recognized in over 26 countries can only enhance a company's image. In addition, besides gaining market stature, a certified manufacturing or service company will acquire a quality management system that can be continuously improved.

APPLICATIONS

Businesses seeking ISO certification must first decide which ISO quality system to choose (9001, 9002, 9003). For instance, a drill bit manufacturer responsible for the design of its products would have to apply for ISO 9001. However, a drilling contractor that is not likely to engage in design activities would apply for ISO 9002 certification.

There seems to be some confusion among experts as to whether the drilling contractor would have to satisfy every paragraph listed in ISO 9002 or only the relevant portions, like contract review and assessment of subcontractors. One must emphasize, however, that the drilling contractor or any other business is not at liberty to arbitrarily dismiss, or otherwise consider as irrelevant to his particular industry, any of the ISO requirements without first clarifying the issue with his registrar.

Within the drilling and production industry, the consensus is that ISO 9001 and 9002 will eventually apply to all businesses supplying goods and services to oil companies that are European-based or have European operations. As far as we know, there are no drilling and production-related businesses seeking ISO 9003.

This is, in part, caused by the fact that ISO 9003 has little perceived value and is very limited in scope. Eventually, ISO 9000 certification will probably become a common contractual obligation for vendors in other producing regions of the world.

Presently, many direct suppliers to energy companies are encouraging, but not requiring, their vendors to adopt ISO 9000, API Q1, or similar standards. It remains to be seen if the industry will witness a "quality ripple effect" similar to the one experienced by the U.S. automotive industry.

EXAMPLES

Smith International Inc., a supplier of drill bits and downhole tools, possesses a company-wide quality manual that is in full compliance with both ISO 9001 and API Q1. Although its plants produce products of equal quality, certification will only be initiated as it becomes a business requirement in the geographic areas that the plants service.

Smith International is currently having its Aberdeen facility ISO 9002-certified for onshore equipment.

Plans include ISO 9001 certification for its Houston facility.

All facilities of another major oil field supplier, Baker Hughes Inc., involved in international sales, marketing, and manufacturing have obtained ISO 9000 certification, or are in the process of seeking it, the company reports.

Foxboro Co. also reports that it has met all of the requirements of the international quality standard ISO 9001, and has been certified by Det norske Veritas accordingly.

This certification applies to Foxboro's entire U.S.-based operations including manufacturing, design/development, production, installation, and service.

Brown & Root Vickers in the U.K. was one of the first North Sea construction management contractors to be registered under Britain's equivalent to ISO 9001, BS 5750, Part 1. Increasingly, Brown & Root Braun in the U.S. is learning that contracts for oil and gas facilities in the Middle East and Far East require contractors and suppliers to comply with ISO 9001 or 9002.

Motivated partly by customer requirements and partly by the positive response demonstrated by its project managers, Brown & Root Braun has embarked on a corporate awareness campaign designed to inform its engineers, managers, and suppliers about ISO 9000.

Even though the current quality and safety management systems at Global Marine Drilling Co. have served them well in the past, this international offshore drilling contractor is presently modifying its quality systems. To better meet the needs of its customers, Global Marine is planning to obtain ISO 9002 certification on its North Sea rigs within the next few months.

BUSINESS ISSUES

Drilling and production-related businesses contemplating certification view ISO 9000 implementation expenses as necessary to satisfy their customers. Upstream suppliers must undergo varying degrees of preparation to become certified. Although many already have quality systems in place, their major task will be to write a quality manual and document their procedures in an acceptable ISO 9000 format.

An example of an implementation schedule for an exploration and production company supplier with 500 employees is shown in Fig. 2. Registration time might take as much as 9 months or as little as 2, depending on the company's quality status and degree of labor allocated for the certification process.

Cost estimates for achieving.certification, broken down by certification and implementation costs, are presented in Tables 2 and 3. Preregistration audit, certification audit, and registration certification costs are required to cover fees and expenses incurred by an independent government-accredited registrar.

The biannual maintenance audit fee ensures that once registered, a company does not revert to its preregistration habits. These expenditures should help decrease waste and errors, improve worker productivity, and maintain market share, in addition to allowing the company to obtain ISO certification.

MYTHS REGARDING ISO 9000

There have been some misconceptions regarding what ISO 9000 can or cannot do for an organization. To avoid further confusion, perhaps the best way to understand the nature of ISO 9000 is to explain what it is not:

Myth No. 1: There is an ISO 9000 requirement.

There are, in fact, no ISO 9000 requirements. The ISO 9000 document is nothing more than a set of guidelines for selection and use of the appropriate quality system (9001, 9002, and 9003). A quality system is defined as:

The organizational structure, responsibilities, procedures, processes, and resources used for implementing quality management.

The selection of the quality system depends on the type of activities performed by a firm. For example, a gate valve manufacturer involved with design and development must refer to the ISO 9001 quality system. Although there are no ISO 9000 requirements, people have fallen into the habit of referring to the three ISO quality systems as the ISO 9000 requirements.

Myth No. 2: One must be a specialist in a particular industry to implement ISO 9000.

When ISO 9000 is explained or written about, people often ask that the explanation be less generic and more industry specific. The fact is that the ISO quality systems are generic. They were not written for any particular industry, but for all industries, including service industries.

The misconception about the need for an industry specialist in the implementation of an ISO quality system seems most prevalent in the oil industry. Why the confusion?

There are two reasons: the confusion between second and third-party audits, and the perception that ISO 9000 is a technical document.

Unlike traditional (second party) audits that are imposed and conducted by customers, ISO 9001, 9002, or 9003 audits are third-party audits. The most fundamental difference between these two types of audits is that an ISO audit is not imposed by a customer, but rather requested by a firm interested in achieving ISO certification.

Of particular relevance to oil companies operating in British waters is the Quality Appraisal Service Co. (Quasco), which has undertaken supplier appraisal and ISO-type audits over the past several years.

Whether the audit is conducted by an independent team of third-party auditors or by an organization sponsored by a consortium of customers (i.e., Quasco), the purpose is to verify the validity of the firm's quality system.

The auditing of an ISO quality system consists of three major steps:

Review in terms of pertinent ISO standards the quality manual (first tier documentation).
Verify the validity of written departmental procedures with actual practices (second tier documentation).
Audit the work or operating instructions (third tier documentation-basically an extension of Step 2).

If an auditor uncovers objective evidence of nonconformance, a "noncompliance" report will be written, and corrective actions will have to be proposed by the auditee. Most nonconformances refer to the relevant ISO paragraph. However, some nonconformances could cite discrepancies between written procedures (second or third tier) and actual procedures.

This leads us to the second misconception, namely that ISO 9000 is a technical set of procedures. As explained in Myth No. 1, each ISO document refers to a quality system and not to a set of technical specifications. Although there are countless ISO technical specifications, ISO 9001, 9002, and 9003 are unique in that they do not refer to any industry-related specification.

Myth No. 3: ISO 9000 does not apply to me because I do not export to Europe.

Drilling and production-related businesses need not be directly involved in the export of goods or services to consider ISO 9000 certification. Indeed, if your customers are required to be certified or otherwise feel justified in achieving ISO 9000 certification, they might in the future request that all their suppliers obtain certification.

Also, one should not assume that only European countries require ISO certification. Some non-European countries have also recognized ISO 9000.

Myth No. 4: 1 must document everything.

A common fear among firms that have opted for ISO certification is that they must document hundreds of procedures. One only needs to document procedures relating to the paragraphs of ISO 9001, 9002, or 9003.

A common belief among quality assurance managers responsible for the implementation of an ISO quality system is that every standard or nonstandard operating procedure must be documented. Such draconian steps are certainly imposed by ISO. Documenting what is required is demanding enough.

The best principle to adopt is to document what you actually do and not what you think you do, or worse yet, what you once did. Indeed, a mistake often witnessed during preassessment visits is to submit to an auditor documentation of outdated procedures (or procedures from another plant), rewritten into an acceptable ISO format.

This is a sure way to be issued a nonconformance notice. If, however, your procedures do reflect your daily activities, you should have no problem being recommended for certification.

Myth No. 5: It is difficult (and costly) to obtain ISO certification.

Experience shows that, depending on the size of the organization, the degree of commitment, and the status of the current quality system, most small firms can be ISO-ready in 3-6 months.

Myth No. 6: 1 am a nonmanufacturing organization, therefore ISO 9000 does not apply to me.

Based on what is currently happening in the U.K., all types of manufacturing and nonmanufacturing industries are obtaining ISO 9000 certification. Hotels, bakeries, foundries, steel plants, aircraft suppliers, consulting firms, and small businesses are all acquiring ISO 9000 certification.

Myth No. 7: I can only be registered by a particular registrar.

There seems to be much confusion as to which organizations are official registrars. To make matters worse, there is a growing belief that some registrars can not only certify a firm, but also consult on how to achieve certification.

To our knowledge, there are, at present, a dozen independent registrars that can perform ISO (third party) audits. Although all registrars can issue certificates of compliance, not all certificates are recognized by an official accreditation body.

In the U.S., the debate over who will become the official accreditation body is still unsettled (see box). In the U.K., the National Accreditation Council of Certification Bodies recognizes a handful of registrars who are currently active in the United States.

There is a clear difference in ISO 9000 awareness between oil field equipment manufacturers and service companies, such as drilling contractors. Equipment manufacturers are further along in the implementation process. Many have certified facilities in Europe and already have quality systems in place. The service industry is just beginning to learn about ISO 9000.

Although many equipment manufacturers have certified European facilities, few have had their U.S. plants certified. This will change. In the last few months, Hughes Tool Co. and a few others have become certified. No doubt, as more industries find out that their competitors are becoming certified, the drive toward accreditation will intensify.

The overwhelming majority of people have expressed very favorable opinions with regard to ISO 9000 certification.

Most recognize that ISO 9000 certification is a good starting point.

Although certification does not guarantee overseas contracts, it will enhance one's business image.

In addition, certification does demonstrate a company's basic commitment to quality, which is all ISO 9000 was intended to do in the first place.

ACKNOWLEDGMENTS

The authors express appreciation to the management at Wright Killen & Co. for its contributions and permission to publish this article. We also thank Yehuda Dror of Det Norske Veritas Industries Inc. in Houston, David Hadlet of Lloyd's Register Quality Assurance in New York, Robert Sutton of ABS Quality Evaluations Inc. in Houston, and the quality engineers in the industry for their comments and ideas.