March 28, 2018
Company

Mitsubishi Materials
Corporation
Representative Akira Takeuchi, President(Securities Code: 5711 on the First Section of theTokyo Stock Exchange)
Nobuyuki Suzuki, General
Manager, Corporate
Inquiries to:
Communications Dept.,
General Affairs Dept.
(TEL: 03-5252-5206)

To: AllSpecial Investigation Committee Final Report Relating to Non-Conforming Products at MMC Subsidiaries
Mitsubishi Materials Corporation (“MMC”) sincerely apologizes for the difficulties that we have caused to
all concerned parties, including our customers and shareholders, in connection with Mitsubishi Cable
Industries, Ltd.’s, Mitsubishi Shindoh Co., Ltd.’s, Mitsubishi Aluminum Co., Ltd.’s (“MAC”), Tachibana
Metal Mfg Co., Ltd.’s, and Diamet Corporation’s (“DM”) delivery of products that deviated from customer orinternal specifications (“Non-Conforming Products”) due to misconduct, including the rewriting of data.
Mitsubishi Cable Industries, Ltd., Mitsubishi Shindoh Co., Ltd., MAC, Tachibana Metal Mfg Co., Ltd., andDM are consolidated subsidiaries of MMC.
We would like to report that MMC’s Board of Directors received the final report from Special Investigation
Committee today (Attachment). Please see “Formulation of MMC Group Governance Framework
Enhancement Measures, etc.” announced today for details of the MMC Group’s governance enhancement
measures, etc.
END
Direct any questions to:
Corporate Communications Department, General Affairs Department, Mitsubishi Materials Corporation
TEL: 03-5252-5206
General Affairs Department, Mitsubishi Aluminum Co., Ltd. (including any questions relating toTachibana Metal Mfg. Co., Ltd.)TEL: 03-3769-0111
General Affairs Department, Administrative Division, Diamet Corporation
TEL: 025-275-0111

Attachment
March 28, 2018
Special Investigation Committee
Mariko Tokuno, Chairperson
Final Report
1.

Background
Mitsubishi Materials Corporation (“MMC”) discovered that certain products
produced and sold in the past by Mitsubishi Shindoh Co., Ltd. (“MSC”) and Mitsubishi
Cable Industries, Ltd. (“MCI”) were shipped that deviated from customer or internal
specifications (“Non-Conforming Products”) due to the rewriting of inspection
records data and other misconduct (“Misconduct”) (this “Matter”). Given suchcircumstances, based on a resolution by its Board of Directors on December 1, 2017,
MMC commissioned a special investigation committee (“Committee”), the majorityof which consists of outside directors and outside experts, to conduct the investigationof this Matter and other related tasks.
The Committee received an investigation report dated December 27, 2017 from theMSC Investigation Committee, an interim investigation report dated December 27,
2017 from the MCI Investigation Committee, and a report titled “Restructuring
Measures of the Governance Framework for Quality Control in the MMC Group” from
MMC on December 27, 2017, and submitted to MMC’s Board of Directors an interim
report, dated December 28, 2017 (“Interim Report”). In addition, on February 19,
2018 the Committee also received an investigation report dated February 19, 2018 from
the MCI Investigation Committee, and submitted to MMC’s Board of Directors asecond interim report, dated February 20, 2018 (“Interim Report (2)”) setting forth
the opinion of the Committee.
Meanwhile, the ISO9001 certification of Mitsubishi Aluminum Co., Ltd. (“MAC”),
a subsidiary of MMC, was temporarily suspended by the Japanese Standards
Association on December 25, 2017 for reasons including that they could not confirm
the effectiveness of the remedial measures. Further, MAC’s JIS certifications wererevoked by the Japan Quality Assurance Organization on January 12, 2018 for thereason that testing of certain products was not conducted in accordance with theprocedures set by the JIS.
Given such circumstances, MMC conducted a special audit by the Internal Audit
Department and others, and it was discovered that MAC had delivered NonConforming Products, and that Tachibana Metal Mfg Co., Ltd. (“TKC”), MAC’s
subsidiary, had also delivered Non-Conforming Products.
It was also discovered through a report to an external hotline for employees, that
Diamet Corporation (“DMC”), also a subsidiary of MMC, had delivered NonConforming Products.
These circumstances led the Committee to determine that investigation wasnecessary with regard to the MAC matter (including the issues related to the incidents
that occurred at its subsidiary TKC) and the DMC matter mentioned above in light ofthe purposes of the Committee, and decided to additionally commission Nishimura &Asahi to investigate the facts, determine the root causes, and formulate preventive
measures.
The Committee has just received from Nishimura & Asahi the “Investigation Report(Concerning the misconduct at Mitsubishi Aluminum Co., Ltd. and subsidiarymanagement issues)” as of March 27, 2018 (as attached hereto as Annex 1; hereinafterreferred to as “MAC Investigation Report”) and the “Investigation Report (Concerning
the actual state of the framework for quality control of sintered products at the Niigata
Plant of Diamet Corporation)” as of March 27, 2018 (as attached hereto as Annex 2;
hereinafter referred to as “DMC Investigation Report”) respectively. The Committee
has also received from MMC a report on the details and progress of the extraordinary
quality audit conducted in the MMC Group and an explanation on the proposed
measures to enhance its group governance framework. Therefore, the Committee
hereby provides MMC’s Board of Directors with this report in which our opinion withrespect to the above-mentioned reports, etc. is set forth.
2.

Status of Activities
1) Status of Committee activities since submission of the Interim Report (2)February 28 (Tuesday)
9:25 AM to 12:25 PM
9th Committee meeting
March 9 (Friday)
March 14 (Wednesday)
March 19 (Monday)
March 23 (Friday)

4:00 PM to 5:50 PM
12:59 PM to 2:30 PM
2:57 PM to 4:35 PM
9:53 AM to 11:00 AM

10th Committee meeting
11th Committee meeting
12th Committee meeting
13th Committee meeting(Note) Aside from the activities listed above, the following on-site visits wereconducted.
Diamet Corporation (February 21: Watanabe and Ono (Committee members);
March 1: Tokuno (Chairperson) and Ono (Committee member); March 7:
Takenaka (Committee member)
3.

Opinions of the Committee (summary)1) The Committee’s opinion on the MAC investigation report
The MAC investigation report cites the following root causes of the Misconduct:(1) Low awareness of compliance with specifications;(2) Attitude excessively prioritizing “receipt of orders” and “delivery dates”;(3) Pressure on personnel in charge of product;(4) Harmful effects of the vertically-segmented organizations;(5) Failure to thoroughly familiarize employees with necessary knowledge; and(6) Dependence on existing practices without careful consideration.

In addition to these six points, the report also cites as issues the fact that, in
association with the matter arising at TKC, there were issues with the management ofsubsidiaries and MAC should have more sufficiently reviewed the issues at its
subsidiary as a red flag, but failed to use them as an opportunity to review itself. These
opinions are shared by the Committee.
In particular, at MAC and TKC, multiple departments carried out the similar typesof Misconduct in parallel, and when it was discovered in 2016 that test result data forsheet and plate products were being rewritten at MAC pursuant to internal standards,
recurrence prevention measures were formulated and implemented. These prevention
measures, however, predominantly only addressed preventing the Misconduct inconnection with the aforementioned standards, and did not serve as a catalyst fordiscovery and eradication of other types of misconduct at MAC and TKC. As pointed
out by most employees in the course of the investigation, such circumstances were
believed to be rooted in MAC’s corporate culture, including the strong consciousnessof its vertical organization, etc. Therefore, the Committee is of the opinion that
fundamental reform of the corporate culture is also indispensable when executing more
effective recurrence prevention measures.
Going forward, MAC and TKC need to take the results described in the MAC
investigation report seriously, and move urgently to implement recurrence prevention
measures to ensure that similar issues do not reoccur. As the parent company, MMC
must also put in place necessary internal control measures for the group, and ensurethat MAC and TKC swiftly and properly implement recurrence prevention measures.
2)

The Committee’s opinion on the DMC investigation report

The earlier Misconduct matter at DMC (“Earlier Matter”) was recognized internallyat DMC around in the summer of 2016, triggered by a report from a whistleblower. An
investigation was conducted with the help of MMC, and from March 2017 recurrence
prevention measures were drafted, formulated and implemented based on the results of
the investigation.
During that period, additional whistleblower report was received in January 2018, andwhen MMC investigated the matter, it discovered that misconduct was still being
continued (“Later Discovered Matter”).
Due to this background, the Committee regards the Misconduct issues described in the
DMC investigation report as being a serious problem.
The DMC investigation report indicated the following six points as the root causes ofthe Misconduct at DMC, and this opinion is shared by the Committee.
(1) Order intake and mass production of specifications that exceeded its processcapability;(2) Process capability to manufacture products that satisfied customer
specifications deteriorated;(3) Quality assurance framework was deficient;

(4)
(5)

Insufficiency of manpower and equipment for inspection;
Pressure of delivery date and pressure on the inspection departments from otherdepartments; and(6) Reduction in the consciousness for quality.
According to the DMC investigation report, DMC restricted investment in facilities
and human resources in order to ensure profits while also undertaking initiatives toincrease the number of orders received. This led to a vicious cycle where accepting
product orders exceeding production capacity increased the number of NonConforming Products produced, which in turn increased the costs incurred due toaddressing Non-Conforming Products, and ultimately resulted in a decline of operating
results.
In addition, all of DMC’s departments were occupied with the day-to-day demand
for supply of products, and were unable to carry out substantial reforms such as
ensuring that production capacity was commensurate to orders received, and it was
found that there was a lack of appropriate communication between sales and production
departments as well.
It is believed that as this situation continued, each department’s attention to quality
was reduced, which resulted in the Misconduct being continued for a long time.
The Committee believes that when executing recurrence prevention measures, DMC
must ensure that its production capacity duly commensurates with orders received, andmust undertake initiatives to further thoroughly make progress in the reform for quality
consciousness at all levels, from management through to employees.
Furthermore, the Committee has to describe DMC’s former president and full time
directors allowing the shipping of Non-Conforming Products even after they becameaware of the Later Discovered Matter as lacking the sense of risk awareness regarding
quality that is essential for managers in a manufacturing business. The Committee is of
the opinion that they should be subject to appropriate disciplinary action.
Going forward, DMC needs to take the results described in the DMC investigation
report seriously, and move urgently to implement recurrence prevention measures toensure that similar issues do not reoccur. As the parent company, MMC must also takeseriously the fact that the Misconduct continued despite recurrence prevention
measures were implemented by DMC after March 2017. MMC must put in placenecessary internal control measures for the group, and ensure that DMC swiftly andproperly implements recurrence prevention measures.
3)

Extraordinary quality audit
In November 2017, MMC conducted a quality audit through documentary review
regarding all of its plants and subsidiaries (with the exception of MSC, MCI, MAC,
and TKC). Subsequently, however, in response to the discovery of Non-Conforming
Product issues caused by Misconduct at MAC and DMC, MMC decided to conduct an
extraordinary quality audit through on-site visits of 119 facilities of MMC and its group

companies, starting in February 2018.
As part of this extraordinary quality audit, MMC’s Internal Audit Department andoutside experts visited each facility, and conducted an investigation using methods suchas checking all reports on occurrence of irregularities and comparing customer
specifications with the actual inspection results reports. The Committee is of theopinion that this audit is an effective method of identifying Misconduct like that
discovered at MMC’s subsidiaries so far.
As of March 23, MMC and outside experts reported to the Committee that theextraordinary quality audit had been completed for 91 of the 119 facilities subject tothe audit, and although some subsidiaries had quality control methods that needed someitems to be revised, these items had already been remediated, and the issues were being
dealt with, such as by notification of customers and other relevant parties. Furthermore,at present, the Committee has received no report of any circumstances requiring largescale cooperation with customers to confirm safety, such as has taken place in thisMatter discovered at subsidiaries so far.
Going forward, the Committee plans to confirm the final results and handling of theextraordinary quality audit.
4)

Enhancement measures for group governance framework
The Committee also studied the group governance framework enhancement
measures proposed by MMC in response to this Matter (including the Mitsubishi
Materials Group Basic CSR Regulations as of April 1, 2018 and Operational Rules for
Consolidated Management scheduled to be disclosed at the meeting of the Board of
Directors to be held on March 28, 2018).
These governance framework enhancement measures have been formulated basedon reflection regarding the recent series of events in this Matter, seek to strengthen theframework so that three points – communication, compliance framework andawareness, and allocation of resources relating to governance – recognized as issues
for the MMC group, are performed more appropriately, and the Committee regards
them as appropriate as a recurrence prevention framework to prevent governanceissues, as well as quality issues, from occurring.
The Committee would like to reemphasize the importance of MMC not just putting
in place frameworks, but also operating them closely in line with the original objectives
and continuing to revise them on an ongoing basis in future.
Furthermore, the Committee is of the opinion that in order to reform a corporate
culture that allowed Misconduct to continue at multiple offices, etc., albeit withdiffering backgrounds, in this Matter, MMC must ensure through education measuresthat all employees throughout the group are of the enhanced belief that succeeding toand continuing the misconduct of one’s predecessor or breaching compliance is
unacceptable, no matter the circumstances, and that it is misconduct of the same
seriousness as starting the practice oneself.

5) Conclusive remarks
MMC had been carrying out various measures, based on the understanding thatreforming the corporate culture of all group companies and strengthening governanceis essential, but in terms of results, given the fact that MMC failed to discover andremediate the Misconduct earlier, it has to be stated that timeliness of required reactions
was insufficient in some ways. The Committee believes that MMC’s management
needs to acknowledge the nature of these facts in a serious manner, and endeavor toprevent future recurrence with a further stronger risk awareness.
In other words, the Committee strongly urges MMC’s management to continue to
strive to recover the confidence of customers and other stakeholders by working withfurther enhanced risk awareness and in a more timely manner the fact finding throughthe thorough investigation conducted by outside experts and group governanceenhancement, etc. measures, including quality management, based on such fact finding
which MMC has been carrying out since discovery of the Misconduct.
END

Annex 1

To:

Special Investigation Committee of Mitsubishi Materials Corporation
March 27, 2018

Investigation Report(Concerning the misconduct at Mitsubishi Aluminum Co., Ltd. andsubsidiary management issues)
Nishimura & Asahi
Attorney

Takashi Shibuya

Attorney

Ryutaro Nakayama

Attorney

Hidetoshi Matsumura

Attorney

Takako Misaki

Attorney

Jisuke Tomiya

Attorney

Yuto Takabayashi

Attorney

Eisuke Kunimoto

Attorney

Yuko Nakazawa

Attorney

Asaki Nishida

Attorney

Takahiro Miyazaki

This is a report on the investigations (“Investigation”) Nishimura & Asahi iscurrently conducting that was commissioned by the Special Investigation Committee(“MMC Special Investigation Committee”) established by Mitsubishi Materials
Corporation (“MMC”).
This report summarizes the results of the investigation, analysis, etc. that wereconducted as much as possible and believed to be appropriate within the given time andconditions, and there is a possibility that the conclusions or other aspects will change if
new facts or other details are discovered. Please also be aware that this report does notguarantee any judgment of the courts or decisions of other relevant regulators.

Table of Contents
Page
Chapter 1 Overview of the Investigation ·································································· 6
Section 1 Circumstances leading to the Investigation and the Purpose of the Investigation ··· 6
1

Circumstances leading to Discovery of Misconduct at MAC, and Circumstancesleading to and the Purpose of the Investigation ................................................................ 6

2

Circumstances leading to the Discovery of Misconduct at TKC, and Additional Targets
and Objectives of the Investigation .................................................................................... 7

Section 2 Progress on the Investigation ··································································· 7
1Overview of the Investigation and Investigation Framework ......................................... 7

2

Detailed Review of Relevant Materials ............................................................................. 8

3

The Status of Conducting Digital Forensic Investigation, etc. ........................................ 8

4

Status of Conducting Interviews, etc. ................................................................................ 8

5

Reference Date for the Investigation ................................................................................. 8

Chapter 2 Presumptions in the Investigation ····························································· 9Section 1 Overview of the Fuji Plant ······································································ 91

Details of Business at and Products Handled by the Fuji Plant ...................................... 92Main Departments and Allocation of Duties at the Fuji Plant ...................................... 10(1)

Technical Section for Sheet and Foil Products, Sheet and Foil Plant, Sheet and Foil
Division ........................................................................................................................... 10(2)Technical Section for Extrusions, Extrusion Plant, Extrusion Division ................... 11(3)

Quality Assurance Department, Manufacturing Engineering Division .................... 11(4)

Quality Supervisory Department ................................................................................. 113

Operational Flow from Receipt of Order to Shipment of Products.............................. 11(1)

Receipt of Order ............................................................................................................ 11(2)

Flow from the Start of Manufacture to Shipment ...................................................... 12

4

Product Inspection Flow ................................................................................................... 13(1)

Overview of Product Inspection ................................................................................... 13(2)

Product Inspection Flow ............................................................................................... 14

A.

Appearance and Dimension Inspection .................................................................. 14

-2-

B.

Mechanical Testing .................................................................................................. 14

C.

Issuance of Mill Test Certification .......................................................................... 14

5

Regular Operational Flow When Non-Conforming Products are Produced ............... 15

Section 2 Overview of TKC ················································································ 16
1

Overview of Company and Organization ....................................................................... 16

2

Main Departments and Allocation of Duties at the Yoro Plant .................................... 16

3

Operational Flow from Receipt of Orders to Shipment ................................................ 16

4

Product Inspection ............................................................................................................ 17(1)

Overview of Product Inspection and Personnel Framework ..................................... 17(2)

Product Inspection Flow ............................................................................................... 17

A.

Appearance and Dimension Inspection .................................................................. 17

B.

Mechanical Testing .................................................................................................. 18

C.

Issuance of Mill Test Certification .......................................................................... 18(3)

Regulator Operational Flow When Non-Conforming Products are Produced ........ 18

Chapter 3 Series of Facts Relating to the Misconduct ················································· 19
Section 1 Earlier Case and MAC’s Handling Thereof ················································ 19
Rewriting Test Data Pursuant to “Concession Measure Implementation Rules” ....... 19

1(1)

Description ..................................................................................................................... 19(2)

Circumstances,etc.

LeadingtoCreationofthe“Concession

MeasureImplementation Rules” ................................................................................................. 20
MAC’s Response, etc. to Discovery of the Earlier Case................................................. 21

2(1)

Status of Earlier Case Investigation ............................................................................. 21(2)

Investigation of Other Products and Subsidiaries ...................................................... 21(3)

Response Furtherance Committee’s Customer-Facing and Consideration of
Recurrence Prevention Measures ................................................................................ 22(4)

Implementation of Recurrence Prevention Measures, etc. ........................................ 22

A.

President’s Messages ................................................................................................ 22

B.

Compliance Education Implementation ................................................................. 22

Section 2 Details of, and Background to, the Misconduct Discovered in the Investigation ···· 23
1

Overview of the Misconduct ............................................................................................. 23

2

Background to the Misconduct ........................................................................................ 31

-3-

(1)

Sheet and Plate Product Misconduct ........................................................................... 31(2)

Foil Product Misconduct ............................................................................................... 32(3)

Extruded Product Misconduct ..................................................................................... 33

A.

Rewriting of Test Data by Quality Committee ...................................................... 33

B.

Rewriting of Test Data at the Personnel Level for Issuance of Mill Test
Certification .............................................................................................................. 34

C.
3

Failure to Perform Tensile Testing ......................................................................... 34

The Root Causes and Background Circumstances of the Misconduct by TKC .......... 35(1)

Misconduct ..................................................................................................................... 35(2)

TKC’s Response to the Above Misconduct ................................................................. 41(3)

Background to how the Above Misconduct Started at TKC ..................................... 42

Chapter 4 The Root Causes and Background Circumstances of the Misconduct ··············· 44
Section 1 Background to the Misconduct Having Continued Even After the Discovery of the
Earlier Case ······················································································· 44
1

Scope of the subject of the Earlier Case Investigation was limited ............................... 442

Despite the actual opportunities to realize the Misconduct, they could not be
exploited ............................................................................................................................. 44

Section 2 The Root Causes and Background Circumstances Intrinsic to MAC ················· 45
1

Low Awareness of Compliance with Specifications ....................................................... 45

2

Attitude excessively prioritizing “receipt of orders” and “delivery dates” .................. 45

3

Pressure on personnel in charge of products .................................................................. 46

4

Harmful effects of the vertically-segmented organizations ........................................... 46(1)

Vertically-segmented organizations for each product ................................................ 46(2)

Vertically-segmented organizations of the Manufacturing Division and the Other
Divisions ......................................................................................................................... 47

5

Failure to thoroughly familiarize employees with necessary knowledge...................... 48

6

Dependence on existing practices without careful consideration .................................. 48

Section 3 Issues with Control of Subsidiaries··························································· 48
1Relationship between MAC and TKC ............................................................................. 48

2

Lax control over TKC ....................................................................................................... 49

3

Insufficient reflection on MAC’s own issues responding to the issues at TKC ............ 49-4-

Chapter 5 Recurrence Preventive Measures ····························································· 49
Section 1 Recurrence Preventive Measures Formulated in Response to the Earlier Case ···· 49
Section 2 Proposal of the Preventive Measures in Response to the Discovery of the Misconduct······································································································· 53
1Introduction ....................................................................................................................... 53

2

Reaffirming the importance of quality assurance and reestablishing the company-wide
quality assurance framework ........................................................................................... 54

3

Fostering Risk Awareness Regarding “Contractual Breaches” .................................... 55

4

Fostering an Understanding of the Fact that “Improving Corporate Value Generates
Profits” ............................................................................................................................... 55

5

Fostering a Corporate Culture where Each Employee Thinks of MAC’s Mission as a
Company and the Significance of Their Own Work ...................................................... 56

6

Necessity of Having an Awareness of MAC as Company and a Corporate Group ..... 57-5-

Chapter 1

Overview of the Investigation

Section 1

Circumstances leading to the Investigation and the Purpose of theInvestigation

1

Circumstances leading to Discovery of Misconduct at MAC, andCircumstances leading to and the Purpose of the Investigation

With respect to Mitsubishi Aluminum Co., Ltd.’s (“MAC”) quality assurance
framework, an internal audit conducted by MAC, which was driven by a quality audit
performed by MMC led to the discovery in November 2016 that some products shippedfrom MAC’s Fuji Plant (“Fuji Plant”) that deviated from standards agreed withcustomers (“Non-Conforming Products”) had involved rewriting of test data pursuant
to informal internal rules (referred to as Concession Measure Implementation Rules) andsuch Non-Conforming Products were then shipped to the customer as if those products
duly conformed to the customer specifications (“Earlier Case”). After this discovery,
MAC reported the Earlier Case to MMC, and began to explain the facts in sequence toeach of the customers to whom the relevant products were sold and conduct safety
confirmation work with those customers, conducted an investigation into the facts androot causes, and formulated and implemented recurrence prevention measures based on
the investigation.
On November 23, 2017, MMC made a public announcement regarding MAC’s
shipping of the Non-Conforming Products, which resulted in the Japanese Standards
Association (JAS) conducting an extraordinary review of MAC regarding ISO 9001
certification on December 9, 2017. As a result of that review, MAC had its ISO 9001
certification temporarily suspended as of December 25, 2017 on the grounds such as thatthey were unable to confirm the effectiveness of remedial measures regarding the Earlier
Case yet. In addition, MAC was subject to an extraordinary review by the Japan Quality
Assurance Organization (JQA) on December 18 and 19, 2017, which resulted in MAC’s
JIS H 4000 and JIS H 4100 certifications being revoked as of January 12, 2018. In lightof these circumstances, MMC conducted a special audit of the Fuji Plant from December
25, 2017 to January 28, 2018. This special audit led to the discovery of facts such as that
MAC had been rewriting test data pertaining to Non-Conforming Products in different
manners from those demonstrated in the Earlier Case, and that MAC had been performing
inspections that did not conform to Japanese Industrial Standards (JIS) or customer
specifications, etc. (the series of acts, such as rewriting of test data for Non-Conforming
Products in a form that differs from the Earlier Case, including the facts discovered after
the commencement of the Investigation, are hereinafter referred to as “Misconduct”).
Based on the process discussed above and taking into account the gravity of theseries of circumstances, the MMC Special Investigation Committee determined that it
would be necessary to perform a thorough investigation from an objective and neutral
perspective, so it requested Nishimura & Asahi to conduct an investigation and review
with the following objectives:(i)

Investigate the quality management framework at MAC;

-6-

(ii)
(iii)

2

Analyze the root causes and background circumstances based on the fact
finding as a result of (i) above; andPropose measures to prevent recurrences based on the analysis of (ii)above.

Circumstances leading to the Discovery of Misconduct at TKC, andAdditional Targets and Objectives of the Investigation

In parallel with the circumstances described above, MAC began conducting an
extraordinary quality audit of its subsidiaries from February 2017, as part of MMC’s
quality audit. This extraordinary quality audit led to the discovery on February 20, 2017of the fact that Non-Conforming Products were also shipped from Tachibana Metal Mfg
Co., Ltd.’s (“TKC”) Yoro Plant (“Yoro Plant”) after having their test data rewritten(“Earlier Case (TKC)”). After making this discovery, MAC reported the Earlier Case
(TKC) to MMC, and directed TKC to stop shipment of Non-Conforming Products. Upon
the issuance of this direction, TKC ceased shipment of Non-Conforming Products,
established a response furtherance team, and began investigating the root causes andaddressing the issue involving customers. MAC also directed TKC to check whether there
were facts in the Earlier Case (TKC) that would constitute a violation of JIS requirements,
following which TKC conducted an investigation and discovered the existence of such
violations. Therefore, on July 24, 2017, TKC reported the Earlier Case (TKC) to the Japan
Testing Center for Construction Materials (“JTCCM”) as a violation of JIS.1
Based on the fact that MMC discovered Misconduct in its special audit of MAC,
as discussed above, MMC also conducted a special audit of TKC from January 15, 2018
to January 22, 2018. This special audit lead to the discovery of facts such as that test data
for Non-Conforming Products had been rewritten and inspections that did not conform to
the JIS requirements or customer specifications had been performed as well at the Yoro
Plant, in different manners from those demonstrated in the Earlier Case (TKC)(“Misconduct (TKC)”). Therefore, at the request of the MMC Special Investigation
Committee, Nishimura & Asahi also conducted an investigation and review of TKC’s
quality control framework and the actual state of the Misconduct as part of ourinvestigation of (i) above. Based on our findings, we also examined issues and remedial
measures regarding MAC’s subsidiary management framework in our analysis of the root
causes and background circumstances of (ii) above and proposal of measures to prevent
recurrences of (iii) above.
Section 2
1

Progress on the Investigation

Overview of the Investigation and Investigation Framework
Based on the circumstances described in Section 1 above, Nishimura & Asahi

1

As a result, on August 21, 2017, TKC received a report from JTCCM for a temporary suspension of TKC’s rightto display the JIS certification and had right actually temporarily suspended by JTCCM on the same day on the
grounds of the Earlier Case of TKC. The temporary suspension was subsequently withdrawn as of October 16,
2017 after JTCCM re-inspected the plant on September 29, 2017.

-7-performed the investigations described in (i) through (iii) below.
(i)
(ii)
(iii)

A detailed review and examination of relevant materials;
A digital forensic investigation of email data, etc. possessed by relevant
parties; andInterviews of relevant parties.

The Investigation was led by Takashi Shibuya and nine others of Nishimura &Asahi, who have no interests in MMC, MAC, or TKC. Additionally, an expert forensic
vendor was engaged to assist with the Investigation under the direction and supervisionof Nishimura & Asahi.
2

Detailed Review of Relevant Materials

Nishimura & Asahi collected the materials that currently exist at MAC and TKC
that could relate to the state of the frameworks for quality control at MAC and TKC and
MAC’s subsidiary management framework (policies and procedures relating to quality
control, inspection records, and materials from quality-related committees, etc.) andperformed a detailed review and verification of their content.
3

The Status of Conducting Digital Forensic Investigation, etc.

Nishimura & Asahi preserved, to the extent necessary and possible, email data ofthirty four (34) executives and employees of MAC relevant to, or who may have been
relevant to, quality control frameworks at MAC and TKC and MAC’s subsidiarymanagement framework, saved on MMC’s emails servers.
Due to the time constraints on the Investigation, it was necessary to apply
reasonable limits to the email data that was preserved, so Nishimura & Asahi extracted
the email data using keyword searches. With respect to the data extracted using the above
method, the forensic vendor mentioned in Section 1 above conducted the first-level data
review, and Nishimura & Asahi conducted the second-level data review. This report isbased on these materials.
4

Status of Conducting Interviews, etc.

In order to make clear the facts of the framework for quality control at MAC and
TKC and MAC’s subsidiary management framework, Nishimura & Asahi conductedinterviews with a total of fifty one (51) executives and employees of MAC and twenty
two (22) executives and employees of TKC up until the Reference Date stated in 5 below.
We note that some interviewees were interviewed multiple times.
5

Reference Date for the Investigation

The Investigation began on January 10, 2018. The reference date for this reportis March 26, 2018 (“Reference Date”), and the description below in this reportsummarizes the facts, results of verification, etc. that became known as of the Reference-8-Date.
Chapter 2

Presumptions in the Investigation

Section 1

Overview of the Fuji Plant

1

Details of Business at and Products Handled by the Fuji Plant

The Fuji Plant currently produces sheet and plate products,2 foil products,3 andextruded products. 4 The Fuji Plant began construction in 1963, and operation andproduction of extruded products, foil products, and sheet and plate products began in thatorder, between 1963 and 1964.
There are three factories at the Fuji Plant: the Sheet and Foil Plant which produces
sheet and plate products and foil products,5 the Extrusion Plant which produces extruded
products, and the Remelting and Casting Plant which performs such operations as castingof alloys.
MAC currently utilizes a business unit structure with each product business field
split into one business unit, and it is structured so that each business unit has a sales
department and factory for each product. Therefore, the Sheet and Foil Plant is positioned
under the management of the Sheet and Foil Division,6 the Extrusion Plant is positioned
under the management of the Extrusion Division,7 and the Remelting and Casting Plant
is positioned under the management of the Raw Material Division,8 and each business
unit is responsible for managing revenue. Additionally, the Manufacturing Engineering
Division is responsible for administration and management of production technology, etc.
for all products, and carries out management across all product business units in relation

2

The main sheet and plate products are beer and beverage can materials, automotive heat exchanger components,
lithographic printing sheets, etc.

3

The main foil products are aluminum electrolytic capacitor foils, packaging materials, aluminum foils, etc.

4

The main extruded products are automotive heat exchanger components, machinery components, electronicequipment components, etc.

5

The Sheet and Foil Plant was formerly divided into a sheet and plate plant and foil plant, but they were integrated
into a single sheet and foil plant as of July 1, 2013.

6

Comprising departments responsible for (i) formulation of business strategies and budgets for sheet and plateproducts and foil products, (ii) overall business management including business revenue management andimprovement for sheet and plate products and foil products, and (iii) management and support of subsidiaries
and affiliates under their responsibility.

7

Comprising departments responsible for (i) formulation of business strategies and budgets for extruded products,(ii) overall business management including business revenue management and improvement for extruded
products, and (iii) management and support of subsidiaries and affiliates under their responsibility.

8

Comprising departments responsible for (i) formulation of business strategies and budgets for the purchase of
raw materials, (ii) overall operations including cost management and improvement, and (iii) administration andmanagement of raw materials purchasing throughout the group.

-9-to technical matters.9
The following is a summary of MAC’s current organizational structure.
【Chart: organizational summary】

三菱アルミ
MAC

Quality

Manufacturing

品質統括部
Management

生産技術本部Engineering

Department

Division

Quality
Assurance
品質保証部
Department

Sheet and Foil

Extrusion

Raw Material
原料本部
Division

Extrusion

Remelting andCasting
Plant
鋳造工場

圧延事業本部Division

押出技術本部Division

Sheet and Foil
Plant
圧延工場

押出工場
Plant

Product
Engineering
Office

製品技術室

Testing
検定課&
Analysis Section

Extrusion
Engineering
Office押出技術室

Fuji Plant
富士製作所

2

Main Departments and Allocation of Duties at the Fuji Plant(1)

Technical Section for Sheet and Foil Products, Sheet and Foil Plant, Sheetand Foil Division

The Technical Section for Sheet and Foil Products, Sheet and Foil Plant, Sheetand Foil Division (the “Technical Section for Sheet and Foil Products”) is responsible
for matters concerning quality control for sheet and plate products, and foil products, andis responsible for the study of process capacities and process design, etc. for both classes
of products. In addition, with respect to certain products, the Technical Section for
Sheet and and Foil Products also handles correspondence with customers.
The Technical Section for Sheet and Foil Products also contains the Can and Foil
Materials Group, Heat Exchange Materials Group, PS10 and General Materials Group,
Design and Operations Improvement Group, the Inspection Group, and the Foil Product9Comprising departments responsible for (i) formulating and implementing cross-sectional improvement
measures relating to production technology, etc., (ii) administration and management relating to production
technology etc. and support for group companies.

10

Referring to lithographic printing sheets.

- 10 -

Group, corresponding to the relevant products or business.
(2)

Technical Section for Extrusions, Extrusion Plant, Extrusion Division

The Technical Section for Extrusions, Extrusion Plant, Extrusion Division (the“Technical Section for Extrusions”) is responsible for matters relating to extruded
product production technology, quality control, and facility improvement.
The Technical Section for Extrusions also contains the Reception Group,
Inspection Group, General Material group, Automobile Material Group, Heat Exchange
Material Group, Production Technology Group, and the Processed Product Group,
corresponding to the relevant products or business.
(3)

Quality Assurance Department, Manufacturing Engineering Division

The Quality Assurance Department, Manufacturing Engineering Division (“QA
Department”) is responsible for matters relating to quality management system
implementation, maintenance, and improvement (including internal ISO audits), quality
assurance for sheet and plate products, extruded products, foil products, and heatexchange processed products, and matters concerning JIS, as well as product liability
matters.
The QA Department contains the Testing & Analysis Section (the “Testing &Analysis Section”). The Testing & Analysis Section is independent from the duties of
the QA Department, and is responsible for mechanical property testing such as inspectionof products before shipping and requested testing.
(4)

Quality Supervisory Department

The Quality Supervisory Department is responsible for planning and formulating
quality audits and quality assurance framework improvement measures, etc., and mattersrelating to quality throughout the group.
The Quality Supervisory Department is an organization newly established as ofJuly 1, 2017, directly under the President, as part of the recurrence prevention measures
for the Earlier Case, as detailed in Section 1, Chapter 5 below.
3

Operational Flow from Receipt of Order to Shipment of Products(1)

Receipt of OrderAt MAC, sales representatives from the Sales Department conduct sales
negotiations with customers. When a sales representative receives an inquiry or request
for quotation from a customer, they submit a proposal using a Request Review Formregarding the possibility of production and request the Technical Section for Sheet andFoil Products to review whether MAC can manufacture the product to the customer’s
specifications in the case of sheet, plate, and foil products, and request the Technical
Section for Extrusions in the case of extruded products.

- 11 -

The personnel responsible in the Technical Section for Sheet and Foil Products or
the Technical Section for Extrusions conduct the first stage review of whether
manufacture is possible, based on internal standards set forth at the Fuji Plant, and request
reviews of such possibility by each manufacturing section, and the Remelting and Casting
Plant, etc., as necessary. After going through that procedure, they then obtain the approvalof the managers of the QA Department, and the sales representative is provided with theresults of the review regarding the possibility of manufacture.
If the Technical Section for Sheet and Foil Products or the Technical Section for
Extrusions determines that production is possible, the sales representative proceeds withcustomer negotiations, and an agreement is reached with the customer on delivery
specifications in a document (however, in the case of extruded products, there are also
cases where there is no agreed specification document and there is just agreement on
product design drawings (called “Approved Drawings”)).
If the Technical Section for Sheet and Foil Products, the Technical Section for
Extrusions or the QA Department determines that production is not possible, one of thefollowing methods are applied:① For the product for which mass production is difficult using the existing
technologies, design and development is requested to the Products Research andDevelopment Department by treating such product as development products.
② Regarding the possibility of manufacturing, if the manufacturing of a product isonce determined to be “impossible” but is to be treated as “possible” throughdiscussions among related parties 11 in light of a business strategy or business
policy, approval is obtained from the QA department.
③ The product is not be commercialized.
(2)

Flow from the Start of Manufacture to Shipment

Once a decision has been made to accept an order, the Sales Department submits
a manufacturing request to the Technical Section for Sheet and Foil Products in the caseof sheet, plate, or foil products or to the Technical Section for Extrusions in the case of
extruded products. The Technical Section for Sheet and Foil Products or Technical
Section for Extrusions prepares a quality plan setting out the results of their review of the
manufacturing process design, etc., and it is referred to the Production Control Sections.12
The relevant Production Control Section issues manufacturing instructions to the
manufacturing section based on the quality plan, and the product is manufactured under11

The related parties include the responsible personnel from the Technical Section for Sheet and Foil Products or
the Technical Section for Extrusions, as well as from the QA Department, Sales Department, Products Researchand Development Department and Production Technical Department, and depending on the importance of thebusiness, members of management, such as the General Managers of divisions, also participate in the discussions.

12

The department responsible for managing the manufacturing process. There are separate Production Control
Sections in charge for each product, as follows.
Sheet and plate products: Production Control Section for Sheet, Sheet and Foil Plant, Sheet and Foil Division.
Foil products: Production Control Section for Foil, Sheet and Foil Plant.
Extruded products: Production Control Section for Extrusions, Extrusion Plant, Extrusion Division.

- 12 -

the management of the Production Control Section.
The manufacturing process for sheet and plate products, and foil products all
begin with melting and casting of the raw material. The material then undergoes roughhot rolling, finishing hot rolling, and then cold rolling. For sheet and plate, following coldrolling, materials are corrected to meet customer specifications, cut, and then annealed.
For foil products, following cold rolling, materials undergo intermediary annealing, arerolled into foil, cut, and then undergo final annealing.
The manufacturing process for extruded products begins with the melting andcasting of the raw material, which is then used to manufacture a billet (an ingot adjusted
for extrusion). This is then cut, heated, undergoes extrusion molding, and heat treatment.
Each manufacturing process has its own inspection standards, separate from theproduct inspection for finished products, and the responsible personnel in the
manufacturing section conduct inspections to confirm that the product under production
meets the required standards (“In-Process Inspection”). Products that do not satisfy therequired standards in In-Process Inspection cannot proceed to post-processing, and areprocessed in accordance with the operation flow for Non-Conforming Products described
below in 5.
After the manufacturing process has been completed, products undergo the
product inspections described below in 4, and are then packaged or packed, and shipped,in accordance with instructions from the Sales Department.
4

Product Inspection Flow

(1)

Overview of Product Inspection

Sheet and plate products, foil products, and extruded products all undergo thefollowing product inspections, divided into two general types: (i) visual inspection of theappearance of the surface, etc. of products and inspections of dimensions and shape (these
two inspections are hereinafter referred to collectively as “Appearance and Dimension
Inspection”), and (ii) testing of the products mechanical qualities (“Mechanical
Testing”). What inspection and inspection items are performed in product inspection foreach product varies depending on the standards agreed with the customer.
Appearance and Dimension Inspection is conducted by the Inspection Group of
the Technical Section for Sheet and Foil Products for sheet and plate products, by the Foil
Inspection Team, Foil Product Group, Technical Section for Sheet and Foil Products forfoil products, and by the personnel responsible for inspection in the Inspection Group of
the Technical Section for Extrusions in the case of extruded products. In addition to these,
Mechanical Testing is mainly conducted by the personnel in the Testing & Analysis
Section.

- 13 -

(2)Product Inspection FlowA.

Appearance and Dimension Inspection

In Appearance and Dimension Inspections, the inspector is provided with asample for Appearance and Dimension Inspections, and the sample is used to conduct theinspections set forth in the “Product Standards” or “Work Instruction Document,” etc. In
the case of sheet and plate products, the results are logged in the system, but for extruded
products and foil products, the inspection results are entered in the prescribed section of
the “Work Instruction Document” by hand. The results of inspections are reported to thepersonnel responsible for mill test certification issuance described below in C.
B.

Mechanical Testing

The Testing & Analysis Section’s inspector receives a Mechanical Testing sample
from the Technical Section for Sheet and Foil Products or Technical Section for
Extrusions, prepares the necessary test specimens, and performs Mechanical Testing
using measuring equipment such as tensile testers.
The flow for recording Mechanical Testing results varies slightly for each type of
products.
For sheet and plate products, the Testing & Analysis Section logs into the test
results entry screen linked to the Technical Section for Sheet and Foil Products’ system,
and reports the test results to the Technical Section for Sheet and Foil Products byrecording them directly into the system. At the same time, however, a hard copy of“Mechanical Testing results report” is also prepared and sent to the Technical Section for
Sheet and Foil Products (depending on the tensile testing equipment, in some cases thetest results are automatically printed in a “Mechanical Testing results report”).
For foil products, the Technical Section for Sheet and Foil Products provides the
Testing & Analysis Section with both a sample and a form for the “Mechanical Testing
results report”. The Testing & Analysis Section’s inspector enters the test results into the
Mechanical Testing results report by hand, and the results are reported to the Technical
Section for Sheet and Foil Products by circulating the Mechanical Testing results reportto them.
For extruded products, like for foil products, the test results are handwritten into
the “Mechanical Testing results report” form and reported to the Technical Section for
Extrusions. In the case of extruded products, there is also a computerized system forentering the test results, and test results are both circulated to the Technical Section for
Extrusions using a paper “Mechanical Testing results report” and entered into this system.
C.

Issuance of Mill Test Certification

The personnel responsible for issuance of mill test certifications – who also servein the QA Department and Technical Section for Sheet and Foil Products (or Technical
Section for Extrusions) – issue the following mill test certifications for sheet and plate- 14 -

products, foil products, and extruded products, respectively.
(a)

Sheet and Plate Products

The personnel responsible for issuance of mill test certification for sheet and plateproducts enters the product manufacturing number relating to the shipping directions inthe system based on shipping directions issued by the personnel responsible in the Sales
Department to the personnel responsible in the Manufacturing Process Section. This
allows the mill test certification system to automatically extract information, albeit
partially, such as the test results, necessary to prepare the mill test certification. The
personnel responsible for mill test certification confirm whether there are special items13
that need to be included in the mill test certification as agreed with the customer for suchproduct, and if any such special items need to be included, they revise the testing items
and values in the mill test certification system, check whether the system has omitted
anything, and then issue the mill test certification.
(b)

Foil Products and Extruded Products

The personnel in charge of issuance of mill test certification for foil products andextruded products confirms the Appearance and Dimension Inspection results andMechanical Testing results report for the product for which a shipping direction has been
issued, based on shipping directions from the personnel responsible in the Sales
Department to the personnel responsible in the Manufacturing Process Section, enter thenecessary items in the mill test certification system, and issue the mill test certification.
5

Regular Operational Flow When Non-Conforming Products are Produced

If failure to conform to standards is confirmed in inspection items for In-Process
Inspection or product inspection, the employee responsible for such manufacturing
process or the inspector enter the details of the inspection results, in a “Non-Conformance
Report” in the case of sheet and plate products or foil products, and in a “Withheld
Product and Processing Report” in the case of extruded products. Products subject to a
“Non-Conformance Report” or “Withheld Product and Processing Report” are marked as
Non-Conforming Products, and withheld from proceeding to the next process.
“Non-Conformance Reports” and “Withheld Product and Processing Reports” areprovided to quality committee meetings (“Quality Committee”)14 held at a set time eachday, and the Quality Committee determines how these products will be handled.
Non-Conforming Products can undergo re-inspection, be put to use as products
for other customers, transferred to shipping procedures with the approval of the customer
13

For example, there are cases where the customer requests values for tensile testing be reported using thecustomer’s unique calculation method or that special inspection items designated by the customer be reported.
In such cases, the reported values are not automatically extracted by the mill test certification issuance system,so the personnel in charge has to enter them by hand.

14

There are separate Quality Committees that meet for each product (sheet and plate products, foil products, andextruded products). Quality Committees are made up of personnel from the Product Engineering Office,Extrusion Engineering Office, manufacturing departments, and inspection departments.

- 15 -

(“Customer Concessions”), or repaired so as to become conforming products, etc., andthe handling is determined based on the specifics of the non-conformity.
Section 2
1

Overview of TKC

Overview of Company and Organization

TKC’s predecessor, Kinoshita Tekkojo began operations in 1926, and Tachibana
Metal Mfg Co., Ltd. was established in 1949. TKC became a subsidiary of MAC in 2000,
and in 2004 it merged with Ryowa Kinzoku Kogyo Kabushiki Kaisha.
TKC’s business comprises the manufacture of light alloy extruded, drawn
products, and processed products, all of which are manufactured at the Yoro Plant.15
2

Main Departments and Allocation of Duties at the Yoro Plant

The Manufacturing Department is in charge of product manufacturing and productdevelopment, etc. The Manufacturing Department contains the Production Management
Section that carries out production plan formulation and manufacturing process
management, etc. and the Extrusion Manufacturing Section and Drawn Pipe
Manufacturing Section16 that are directly in charge of product manufacture.
The Quality Engineering Department is in charge of product inspection andmatters relating to quality control, etc. The Quality Engineering Department also contains
the Die Engineering Section responsible for die design and the Quality Engineering
Section that carries out product inspection.
3

Operational Flow from Receipt of Orders to Shipment

The flow from the receipt of orders through the shipment of products at TKC is
as follows.
The Sales Department first receives an inquiry from a customer and contacts the
Die Engineering Section, which reviews the feasibility of development and mass
production of the product. If the review finds that there is a prospect of feasibility fordevelopment and mass production, the Die Engineering Section prepares drawings
describing the specifications, and contacts the Sales Department. The Sales Department
then proceeds with negotiations with the customer, and if agreement is reached, a formal
order is placed.
Once the order is received, the Die Engineering Section designs and orders thedies, and when the dies are delivered, the Extrusion Manufacturing Section or the Drawn
Pipe Manufacturing Section begins manufacturing the product. Once this has been done,
15

The Yoro Plant was constructed in 1969.

16

The Extrusion Manufacturing Section manufactures extruded products and the Drawn Pipe Manufacturing
Section manufactures drawn products.

- 16 -

the product inspections described below in 4 are carried out, the Production Management
Section packs the product, and the product is shipped.17
4

Product Inspection(1)

Overview of Product Inspection and Personnel Framework

Like at MAC, product Inspection is divided into two general categories: (i)Appearance and Dimension Inspection and (ii) Mechanical Testing.
All product inspections are the responsibility of the Quality Engineering Section’s
inspectors.18 The inspectors conduct Appearance and Dimension Inspections at the press
plant where manufacturing takes place, and perform Mechanical Testing in the testing
office, which is equipped with specialized measuring equipment, etc.
(2)

Product Inspection FlowA.

Appearance and Dimension Inspection

The personnel in charge of manufacturing take samples from the products once
manufacturing has been completed, and circulate the sample and a “Work Instruction
Sheet” 19 to the inspector responsible for Appearance and Dimension Inspection. The
inspector responsible for Appearance and Dimension Inspection performs Appearance
and Dimension Inspection in accordance with the Work Instruction Sheet, and handwrites
the inspection results on an “Inspection Card”. Once a product passes this Appearance
and Dimension Inspection, the sample and “Inspection Card” are forwarded to the testing
office.
At TKC, it is possible to enter an inspection passing report in the system once a
product passes Appearance and Dimension Inspection, even if it has not completed
Mechanical Testing. Therefore, until January 2018 when MMC’s special audit discovered
the Misconduct (TKC), TKC was proceeding with packing and shipping procedures assoon as Appearance and Dimension Inspection was completed, without waiting for the
results of Mechanical Testing.

17

However, as described in 4(2)A below, it is possible to enter an inspection passing report in the system even if
just the Appearance and Dimension Inspection was performed, so in some cases products were packed andshipped without the Mechanical Testing being performed.

18

At the time that this Investigation was conducted, the number of inspectors totaled six, consisting of threeinspectors responsible for Appearance and Dimension Inspection and another three inspectors responsible for
Mechanical Testing. Team leaders and personnel from other departments assisted with product inspection, as
necessary.

19

A work instruction sheet listing the inspection items and standards, etc. for Appearance and Dimension
Inspection.

- 17 -

B.

Mechanical Testing

The inspector in charge of Mechanical Testing uses the samples, etc. forwarded
by the Appearance and Dimension Inspection inspector to perform Mechanical Testingsuch as hardness testing and tensile testing. At TKC there are separate inspectors
responsible for hardness testing and tensile testing.
The Mechanical Testing inspectors handwrite the results of Mechanical Testingin a “Daily Material Quality Non-Conformance Report”.20
C.

Issuance of Mill Test Certification

Other than packing and shipping procedures, once product inspections werecompleted, the employee in the Quality Engineering Section responsible for entering themill test certification would enter the figures from test results listed in the “Daily Material
Quality Non-Conformance Report” in the mill test certification issuance system and issue
a mill test certificate.21
Mill test certification were sent to the employees in charge of shipping (or theSales Department) after the Senior Engineer of the Quality Engineering Section
confirmed the contents.
(3)

Regulator Operational Flow When Non-Conforming Products are Produced

If it is determined that a product does not conform to the standards as a result of
product inspection, the inspector issues a “Withheld Product Report”. If a “Withheld
Product Report” is issued, the withholding of a product22 is reported at the daily quality
assessment committee meeting, and the quality assessment committee decides whatshould be done with the withheld product. Specifically, if the results of review by thequality assessment committee differ from the judgment of the initial inspector and they
determine that the product satisfies the standards, it is sent on to the next process. On theother hand, if the committee determines that the product does not satisfy the standards,
after being ruled to be non-conforming, it either undergoes re-inspection or is subject toproduct screening and repair, etc. In addition, in cases where it is determined that there is
no problem in terms of the use of the product or when the delivery deadline cannot be
met if it is not passed, a “Request Form for Customer Concession” is issued, it is referredto the sales representative, and can be shipped despite being determined not to pass, if thecustomer’s approval can be obtained.
The quality assessment committee is attended by the Quality Engineering Section
Leader, inspectors, and staff from the Extrusion Manufacturing Section or the Drawn Pipe
20

This is prepared each day, and is a daily report collating in a list the test results from Mechanical Testing ofproducts performed that day.

21

However, mill test certification was not issued unless the customer requested one.

22

Meaning the product described in a withheld product report that is subject to a decision of the quality assessment
committee on what to do with it.

- 18 -

Manufacturing Section,23 and the Quality Engineering Section Leader makes the final
decision.
Most withheld products reported to the quality assessment committee were
products withheld in relation to Appearance and Dimension Inspection.
Chapter 3

Series of Facts Relating to the Misconduct

The timing of the discovery of the main misconduct and the related circumstancesarranged in chronological order in connection with this Investigation, including the
Earlier Case, are as described in the exhibit.
The following discusses the details.
Section 1

Earlier Case and MAC’s Handling Thereof

1

Rewriting Test Data Pursuant to “Concession Measure Implementation
Rules”(1)

Description

As described in Chapter 2, Section 1, 5 above, if the results of product inspection
deviated from the standards agreed with customers, a “Non-Conformance Report” shouldhave been issued and the product made into a conforming product by the addition offurther processing, etc. or if it could not be made to meet the standards, then a customer
concession should have been obtained or the product should have been scrapped.
At MAC, however, there were unofficial internal rules, called “Concession
Measure Implementation Rules”, that existed as an exception to the foregoing, and sheet
and plate products for some customers were processed in accordance with these internal
rules. Specifically, under the “Concession Measure Implementation Rules”, the test datafor certain sheet and plate products were rewritten as within the tolerances set by thestandards even if they did not meet the standards for some test items to a certain defined
degree.24 The rules provided that this was permitted as a specially approved procedure,
and the rewriting of test data pursuant to these rules was, in fact, carried out.
When rewriting test data pursuant to the “Concession Measure Implementation
Rules”, first the personnel responsible in the Technical Section for Sheet and Foil
Products would confirm whether the Non-Conforming Product was subject to the“Concession Measure Implementation Rules”, and if it was, then, in accordance with the“Concession Measure Implementation Rules”, issue a “Inspection Results Report
23

In the past, handling was determined at the sole discretion of the Quality Engineering Department, but
subsequently, manufacturing departments also began to participate because it was regarded as preferable to havethe opinion of manufacturing departments as well when determining what to do.

24

The “Concession Measure Implementation Rules” set forth the scope that could be specially approved, etc. foreach type of product and customer.

- 19 -

Revision Request” that sets out what the rewritten figures should be. Following that, the“Inspection Results Report Revision Request” would be approved by the Manager of theSheet and Plate Product Engineering Section, be sent to the mill test certification issuance
personnel, who would enter into the system the test data set out in the “Inspection Results
Report Revision Request” and issue a mill test certificate. The issued mill test certificate
would then be approved by management level personnel25 in the QA Department.
Circumstances, etc. Leading to Creation of the “Concession Measure
Implementation Rules”(2)

The “Concession Measure Implementation Rules” were created in November
2002.
Prior to that, the personnel responsible in the then Production Quality Control
Section for Sheet and Plate, Sheet and Plate Production Department rewrote data at theirown discretion when a Non-Conforming Product was produced if they determined that it
would not cause any problems when used by the customer, taking into account past trackrecord, etc.26 At the time, in 2002, thinking that the impact would be large even though
the QA Department had requested for the shipment of Non-Conforming Products to be
stopped, relevant parties, mainly from the Production Quality Control Section for Sheetand Plate, Sheet and Plate Production Department, thought that it needed to be stopped,because the practice was harmful due to the inconsistency in the decisions of thepersonnel in charge arising from the fact that the criteria for such practices were unclear,etc. By putting in place the “Concession Measure Implementation Rules” they sought tolimit the scope of test data rewriting and prevent other test data from being rewritten.
However, the relevant parties at that time, mainly from the Production Quality
Control Section for Sheet and Plate, Sheet and Plate Production Department, were of theawareness that rewriting test data without the approval of customers was wrong, evenwhen performed according to “Concession Measure Implementation Rules”, and inparallel with the operation of the “Concession Measure Implementation Rules” they
improved production capabilities such as by working to revise the production process,lowered the percentage of Non-Conforming Products produced, and gradually reduced
the number of customers covered by the “Concession Measure Implementation Rules”.27
Consequently, as of November 2016 the number of customers subject to the “Concession
Measure Implementation Rules” was reduced to just two, compared to dozens when therules were first put in place.

25

The Deputy General Manager for Sheet and Plate Products in the QA Department.

26

Prior to the creation of the “Concession Measure Implementation Rules”, there was little awareness of thenecessity of verifying production capability in advance before receiving an order and MAC would use thestandards for other company’s materials in their own delivery specifications, as is, at the request of customers,
etc., which resulted in some cases where standards were discovered not be have been met after delivery had
started.

27

The terms of the “Concession Measure Implementation Rules” were repeatedly revised in connection with the
reduction of the target customers.

- 20 -

2

MAC’s Response, etc. to Discovery of the Earlier Case

(1)

Status of Earlier Case Investigation

At the direction of its President, MAC conducted an internal investigation to get
an understanding of the overall nature and root causes of the Earlier Case (“Earlier Case
Investigation”).
The Earlier Case Investigation first conducted a detailed review of “Inspection
Results Report Revision Requests” for sheet and plate products for the past three years28
and investigated whether data had been rewritten pursuant to the “Concession Measure
Implementation Rules” for any companies other than the two companies mentioned
above. This review discovered that data were rewritten pursuant to the “Concession
Measure Implementation Rules” for an additional 14 companies.
In addition, facts relating to the rewriting of data pursuant to the “Concession
Measure Implementation Rules” were gathered and organized. This work was
predominantly performed by parties who served as the General Manager, Internal Audit
Department, 29 and General Manager, QA Department at the time. Specifically, theGeneral Manager, Internal Audit Department, and General Manager, QA Department at
the time, and others, collated facts based on their recollections from the time in question,and interviewed persons with knowledge of the situation at the time as necessary.
(2)

Investigation of Other Products and Subsidiaries

As part of the Earlier Case Investigation, from November 2016, immediately
following the detection of the Earlier Case to January 2017, MAC’s General Manager,
Internal Audit Department confirmed with the former managers and the employees in the
managerial positions for quality assurance for foil products and extruded products,
respectively, whether test data were rewritten, but nobody reported that there was (hadbeen) misconduct, and it was concluded that there had been no misconduct for products
other than sheet and plate products.
MAC also confirmed whether similar circumstances existed at two of its
subsidiaries, TKC and MA Packaging Co., Ltd. Of these, with respect to TKC, MAC’s
General Manager, Internal Audit Department, and others, visited TKC on February 20,
2017 and reviewed Withheld Product Reports, which described the details of the handlingof Non-Conforming Products. This review discovered references to “internal
concessions,” which led to them learning about the Earlier Case (TKC) (the details of thecircumstances are as described in Section 2 3(1)A.).

28

Under MAC’s internal rules, documents must be retained for three years.

29

The General Manager, Business Auditing Department also previously served as the General Manager, QA
Department, so had an understanding of the circumstances described above.

- 21 -

(3)Response Furtherance Committee’s Customer-Facing and Consideration of
Recurrence Prevention Measures

In February 2017, MAC established the Response Furtherance Committee withthe goal of discussing how to handle the issue with the customers that were found to havebeen shipped Non-Conforming Products in the Earlier Case and to formulate recurrence
prevention measures. The committee members comprised the President as the head of thecommittee, and relevant parties from the General Administration Department(secretariat), Corporate Planning and Affiliate Department, Internal Audit Department,
Accounting and Finance Department, Products Research and Development Department,
Manufacturing Engineering Division, and Sheet and Foil Division.
The Response Furtherance Committee included a Customer-Facing Team andRecurrence Prevention Team, which respectively dealing with customers, collating facts
confirmed through investigation and studied recurrence prevention measures. The Earlier
Case (TKC) was also reported to the Response Furtherance Committee, and thecommittee also discussed how to respond to that case.
(4)

Implementation of Recurrence Prevention Measures, etc.

Chapter 1, Section 1 below provides an overview of the recurrence prevention
measures in response to the Earlier Case.
In addition to revision of its organizational structure, MAC took the following
measures.
A.

President’s Messages

Messages from the President were issued to employees of General Manager rank
and higher, and other ordinary employees, respectively, with the aim of raising employee
awareness of quality matters.
From the perspective of information control, however, the message merely said
“There was continuous shipping of non-conforming products for some of the Company’s
products despite the fact that they did not satisfy standards,” etc., and did not inform
employees about the details of the Earlier Case.
B.

Compliance Education Implementation

MAC already conducted periodic compliance education for employees, but it
carried out additional compliance education relating to quality problems around thesummer of 2017, in response to the Earlier Case, with the aim of further improving
compliance awareness. Specifically, lecturers were invited from MMC, etc. and training
was conducted using measures that had not been used before, such as group discussions.
However, like in A. above, it did not touch on the specifics of the Earlier Case.

- 22 -

Section 2

1

Details of, and Background to, the Misconduct Discovered in theInvestigation

Overview of the Misconduct

The description, starting date, and root causes, etc. of the Misconduct are as
described in the table below.
[Table: Overview of the Misconduct]
The
Misconduct

Rewriting oftest data by
the Quality
Committee

Product
Group

Details of Conduct

Starting Date and Causes

If the elongation value
diverged from standards intensile testing, the Quality
Committee that received areportofthe
NonConforming Product would
decide to ship the product if
the elongation value for oneof the two samples, or the
average value for the two

Around 2006, at the latest.
Because the elongation value
test results were not stable in thefirst place, and there were manycases that irregular values wereobtained in, if one of thesample’s test results was within
the tolerances set by thestandards, it was determined that
there were no issues with thesamples, were within thetolerances set by thestandards. The Technical
Extruded
Section for Extrusions
products
wouldrewritetheelongationvalue
inaccordance
with
that
decision.
The Quality Committee alsodecided to ship products insome cases even if the

product’s performance if thetensile strength or the yieldstrength satisfied the standards
in the same tensile testing.

tensile strength or yieldstrength deviated from thestandards.
Moreover, there were alsorare cases where test data
was rewritten even if the- 23 -

The
Misconduct

Product
Group

Details of Conduct

Starting Date and Causes

elongation value of the two
samples deviated from thespecifications.
The personnel responsible
in the Technical Section for
Sheet and Foil Products
would rewrite the yield

Carried out from 2007.
It is believed that data were
rewritten because the personnel
responsible determined thatstrength value in the rewriting was the only way to“Mechanical
Testing meet the delivery deadline.
Results Report” at their own

Rewriting oftest data byinspector

Sheetdiscretion if the yieldand plate strength did not meet the
products standards in tensile testing.
There were also cases
where, even when it
satisfied the standards, thetest data were rewritten to
make it look better if theyield strength value was theequal to the tensile strength.

Foil
products

The personnel in charge ofissuance of mill test
certification would rewrite
test data if the elongation
value deviated from thestandards.

- 24 -

Second half of 1990, at thelatest.
In general, foil products
frequently have fairly broad
standards, but some products
had relatively strict standards
set, and it may not have beenpossible to satisfy the standards.

The
Misconduct

Product
Group

Details of Conduct

Starting Date and Causes

Althoughtheinternal
standards required samples
to be taken from two places
and measured, if the yieldstrength value could not be
obtained because one of thesample specimens fractured
in the middle of the tensile

Carried out around 2000, at thelatest.
It was determined that there
were no issues with the
product’s performance because
the tensile strength was within
the standards in the tensile
testing for the same sample.

test,
the
personnel
responsible in the Technical
Section for Sheet and Foil
Products would enter avalue that differed from theactual measurements.

- 25 -

The
Misconduct

Product
Group

Details of Conduct

Starting Date and Causes

The mill test certification
issuance personnel would
rewrite maximum values intheAppearance
andDimension Inspection if the
thickness exceeded the
maximum value in thestandards.

It is unknown when this started,but it was carried out for quite along time.
This followed practices carriedout from a long time ago, andalthough the circumstancesleading to rewriting is unknown,
it was difficult to achieve results
within the tolerances set by thestandards, but because the focus
for foil products is usually on
the barrier properties of the
product, when a customer
requested the foil product to bethinner for cost reasons, MAC
did not regard deviation fromthe maximum thickness value
set by the standards as causing
any problems for the customer
because it did not increase thecost for the customer and was
not detrimental to the barrier
properties of the product.30

30

The customer had given verbal approval for rewriting the data to be within the standards when the thickness
exceeded maximum under the standards, but there was no formal written document giving approval.

- 26 -

The
Misconduct

Product
Group

Details of Conduct

Starting Date and Causes

For loading, samples weremeant to be taken from twoplaces and it would be
acceptable if either of themsatisfied the standards, but
the personnel responsible
for the Technical Section
for Sheet and Foil Products

It is unknown when this started,but it was carried out for quite along time.
It is believed that the personnel
responsible rewrote data
because they determined thatrewriting the data was the only
way to meet the delivery

would rewrite the data to be deadline. Incidentally, an error
within the standards if both in the internal management
samples did not meet thestandards is thought to haverequirements.
However, there was an error
in the standards managed
in-house resulting in them
being stricter than thecustomer’s standards, so
ultimately the productsatisfied the customer’s

been entered by mistake whenentering the delivery
specifications into the productinspection process.

standards.
When converting tensile
testingvalues(tensilestrength, yield strength,
elongation) from hardness,
if the converted elongation
Extrudedvalue did not satisfy the
products
standards, the mill test
certification
issuance
personnel
rewrotetheconverted results so thatthey satisfied the standards.

- 27 -

Carried out from around 2005,
at the latest.
This followed practices carriedout from a long time ago, and thecircumstancesleadingtorewriting is unknown.

The
Misconduct

Product
Group

Details of Conduct

Starting Date and Causes

For
products
where Same as above
manufacturingwasoutsourced to TKC, thestandards required that two
samples be taken and two
inspections conducted, but
in
cases
where
manufacturingwasoutsourced to TKC pursuant
to terms requiring only one
sample and one inspection,
the mill test certification
issuance personnel would
enter the results of that one
inspection as the results of
two inspections.
Even when the standards Carried out from around 2005.
were satisfied by the results The customer requested aofBrinellhardness stricter range of test results than
measurements, the mill test
certification
issuance
personnel,
who
had
received
directionsinadvancefromtheresponsible employee fromthe Technical Section for
Extrusions, would rewrite
the Brinell hardness values
so that they all were withina certain range.

- 28 -

the standards, and theyattempted to comply with thecustomer’s request without
studying whether it wasnecessary for the product’s use.

The
Misconduct

Uniform
rewriting oftest data

Product
Group

Details of Conduct

The Technical Section for
Sheet and Foil Products,that was responsible for
Appearance and Dimension
Sheet
Inspections,would
and plate uniformly change the actual
products measurement results bymultiplying them by 1.4,

Starting Date and Causes
New measurement equipment
was introduced in 2000, andbecause the measurements
differed from the old equipment
even with the same test
conditions (due to a systematic
error), a multiple was calculated
and uniformly applied to correctwith respect to surface for this difference.
roughness for products forsome customers.

Foil
products

Althoughsurfacecontamination inspection
was required by thestandards, this inspection
was not carried out (and it
was not entered in theinspection results either).

It is unknown when this started,but inspections were not carriedout for quite a long time.
There was an administrative
error when transferring thedelivery specifications to thework process.

Inspections

Although tensile testing was Carried out around 2005 at thenotperformed

not carried out, the tensile latest. It is thought that there is astrength was calculated certain correlation between
from the hardness.
hardness and tensile strength, so
Extruded
they thought that there would
product
not be a significant difference
betweentensilestrength
calculated from actual tensile
testing and that calculated using
the hardness.

- 29 -

The
Misconduct

Product
Group

Details of Conduct

Starting Date and Causes

Sheet
Tensile testing conducted It is unknown when this started,and plate with greater speed than the but some people stated that it
products JIS requirements.
had been going on for 26 or 27
years.
Foil
This is due to insufficient
products
understanding of the JIS
requirements (and in an attempt
Extruded
to improve the efficiency of
products

Sheet
and plate
Defective
products
inspection
due toExtrudedinsufficientunderstanding productsof the JIS
requirements,
etc.

testing work).
Products that did not pass It is unknown when this started,
inspection must be re- but it was carried out for quite ainspected using double thenumber of samples of theinitial inspection, but reinspection was conductedusing the same number ofsamples as the initialinspection.

long time.
This is due to insufficientunderstanding of the JIS
requirements.

With respect to cladding It is unknown when this started,material thickness, theSheetnumber of samples andand platemeasurement
multiples
products
differedfromJIS
requirements.

but it was carried out for quite along time.
This is due to insufficientunderstanding of the JIS
requirements.

Although standards require
hardness measurements tobe conducted using a
Extruded
Vickers hardness number
products(“Hv”), the simpler Webster

It is unknown when this started,but it was carried out for quite along time.
This is due to insufficientunderstanding of the JIS

hardness number (“Hw”) requirements.
was used.

- 30 -

The
Misconduct

Defective
inspection
due to otherreasons

Product
Group

Details of Conduct

Although the specifications
did not set a number ofsamples, for products whereinternal standards required
two samples to be extracted
Sheet
and inspected, products
and plate were passed even if one
products sample did not satisfy theStarting Date and Causes
When finishing hot rolling
equipment was first introduced
in 2009, the front and rear
extremities of products had
inconsistentmechanicalproperties, and this practice wascarried out to avoid frequent
Non-Conforming Products.

standards, if the averagevalue of the two tests waswithin the standards, and theaverage value was enteredas the test results.

2

Background to the Misconduct

With the exception of insufficient understanding of JIS requirements, etc., thebackground to the all of misconduct described above in 1 carried out for sheet and plateproducts, foil products, and extruded products differed, as described below.
Furthermore, among the defective inspection due to an insufficient understandingof JIS requirements, etc., in the case of the violation of the standard for pulling speed intensile testing, most people in the Testing & Analysis Section who conducted tensile
testing stated that they did not know the correct speed set required by JIS and admitted tohaving an insufficient understanding of JIS requirements, but there was also a statementthat conducting the tensile testing at the speed set forth by the JIS at times took up a lotof time because a lot of tensile testing samples were brought in every day, so they
conducted the tensile testing at higher speeds in order to improve testing efficiency,
despite knowing its violation of the JIS requirements.
(1)

Sheet and Plate Product Misconduct

Sheet and plate products that had their yield strength values rewritten were notsubject to the “Concession Measure Implementation Rules”. The “Concession Measure
Implementation Rules” were put in place in November 2002, following which employees
were prohibited from adding any further products to be covered by the rules. However,
the orders for the aforementioned products that had their test data rewritten were received
by MAC from 2007 onwards, and therefore are believed to have had their results rewritten
outside the framework of the “Concession Measure Implementation Rules”.
As described in Section 1 1(1) above, the “Concession Measure Implementation- 31 -

Rules” were put in place in 2002 to stop the rewriting of test data by each individual
personnel responsible, but the initial intent with which they were first implemented may
have been relaxed with the passage of time. However, this Investigation only discovereda few cases of rewriting, and we believe that rewriting only took place in extremely rarecases where the figures did not fall within the required standards.
On the other hand, the uniform rewriting of actual measurements by a multiple of
1.4 with respect to surface roughness of sheet and plate products for some customers wasa measure carried out to correct a systematic error, and according to the inspector fromthe Production Quality Control Section for Sheet and Plate, Sheet and Plate Production
Department at the time when the measure was started, it is possible that they determinedthat rewriting would not cause any problems, because they verified the new and oldmeasurement equipment and confirmed that they would both have the same level. Thismeasure had already commenced around 2000, but the awareness of the Production
Quality Control Section for Sheet and Plate, Sheet and Plate Production Department wasthat the measure was to correct a systematic error rather than actually substantiallyaltering the inspection results, so it was never submitted as a practice subject to theConcession Measure Implementation Rules, which is believed to be the reason why it was
not discovered in the investigation in the Earlier Case.
In addition, in the case where internal standards required two samples to be
extracted and inspected, but MAC would allow the product to pass if the average for thetwo samples was within the standards, even if one sample did not pass, and the averagevalue was entered as the inspection result, after MAC introduced finishing hot rolling
equipment, when the inspection of two samples including those taken from the front andend extremities, under internal standards the product was only passed when both samples
were within the standards, but the mill test certification stated that the average of the two
samples must be entered. Therefore, although re-inspection would have to be conducted
if one of the samples did not satisfy the standards, the value entered in the mill test
certification would still be within the permitted tolerances, which meant that if anothertest had to be conducted it would create a lot of work for the personnel responsible, andwe believe that the desire to avoid that was what lead to this situation.
(2)

Foil Product Misconduct

The time when rewriting of elongation results for foil products was started varied
depending on the inspection item, but it came to be carried out by the second half of 1990
at the latest.
Although not 100% certain, the reason for rewriting may have been due to the fact
that, in general, foil products frequently have fairly broad standards and it was normallyrare to be outside the acceptable tolerances, but some products had relatively strict
standards set, and it may not have been possible to satisfy the standards. Although in somecases the mill test certification issuance personnel performed the rewriting, when that
employee took over the role from their predecessor they were not informed of the reason
and it was not necessary for the employee to rewrite the results at their own judgment, so
it believed to have been carried out at the discretion of the personnel responsible in theTechnical Section for Sheet and Foil Products at the time.

- 32 -

It seems that the rewriting of yield strength results, however, was carried out
because the personnel responsible in the Technical Section for Sheet and Foil Products
determined that there were no issues with product performance because the tensile
strength result was within tolerances set forth in the standards when calculated in the same
tensile testing.
Similarly, in the case of rewriting of thickness results, the focus for foil products
is usually on barrier properties, and the products subject to rewriting had standards forthinner foil only to reduce costs, so it appears that the inspector from the Technical
Section for Sheet and Foil Products determined that there would be no particular problems
if the products were thicker than the maximum set by the standards.
The rewriting described above was not carried out pursuant to set rules like in the
Earlier Case and was conducted in response to individual circumstances, and partly
because of that it is believed it was not discovered in the investigation of the Earlier Case.
(3)

Extruded Product MisconductA.

Rewriting of Test Data by Quality Committee

As described in 5 above in Chapter 2, Section 1, when a product was confirmed
to not satisfy the standards at MAC, a “Withheld Product and Processing Report” wassubmitted to a Quality Committee, and the Quality Committee would decide how tohandle the product, but as described in 1 above, the Quality Committee decided to rewrite
the test data when the elongation value was outside the acceptable tolerances, and ship
the product.
Tensile testing – one of the forms of Mechanical Testing – is conducted tomeasure tensile strength, yield strength, and elongation. Tensile strength and yieldstrength are measured automatically, and the results are fairly consistent, but elongation
is calculated based on the actual elongation length in each test, so there was an awarenessthat test results would vary quite a lot depending on where the specimen prepared usinga sample fractured, etc. Therefore, it appears that the Quality Committee determined that
there was no problem with product performance if the results of tensile testing for the two
samples were both within the tolerances of the standards for tensile strength and yieldstrength, even if the elongation value for one sample exceeded the tolerances set by thestandards. The decision of the Quality Committee was entered in the “Withheld Productand Processing Reports”, the personnel in charge of the product in question from theTechnical Section for Extrusions, etc. would rewrite the “Mechanical Testing results
report” based on the decision of the Quality Committee entered in the “Withheld Productand Processing Reports”, and circulate it to the mill test certification issuance personnel.
The rewriting of elongation results in this way by the Quality Committee wascarried out around 2006 at the latest, and it appears that it was decided by Section
Managers from the Technical Section for Extrusions, etc. who attended the Quality
Committee meetings. Subsequently, the rewriting of test data by Quality Committee was
not necessarily limited to just elongation results, and rewriting of tensile strength andyield strength results was confirmed in 2015 as well. However, most of the employees- 33 -

attending Quality Committee meetings stated that rewriting was restricted to elongation
results, and only a few cases of rewriting tensile strength and yield strength results wereactually confirmed, so we believe that this rewriting was very limited.
Such rewriting of test data by the Quality Committee ended around June 2017.
The end of this practice was brought about because they realized it was just a matter oftime until the rewriting was discovered due to the inspection of the “Withheld Productand Processing Reports” by the audit conducted by MAC around that time, so the General
Manager of the Technical Section for Extrusions instructed the members of the Quality
Committee not to rewrite test data in future.
B.

Rewriting of Test Data at the Personnel Level for Issuance of Mill Test
Certification

In the case of extruded products, test data was rewritten at the personnel level for
issuance of mill test certification as described in 1 above, in addition to the rewriting ofdata by Quality Committee.
Among these cases, the rewriting of Brinell hardness results was carried out under
the direction of the personnel in charge at the Technical Section for Extrusions at the time.
In other cases of rewriting, although the rewriting was performed by the personnel incharge of issuance of mill test certification, when that employee took over the role fromtheir predecessor they were not informed of the reason and it was not necessary for theemployee to rewrite the results at their own judgment, so it believed to have been carriedout at the discretion of the personnel in charge, etc. from the Technical Section for
Extrusions at the time.
The Section Manager in charge of testing at the Technical Section for Extrusions
became aware of Brinell hardness data rewriting around July 2017, when it was reported
by an employee in charge of issuance of mill test certification. Subsequently, the products
subject to the practice of rewriting were gradually reduced, and the practice wasultimately stopped around October 2017.
C.

Failure to Perform Tensile Testing

In the case of extruded products, the tensile testing results (tensile strength, yieldstrength, and elongation) were calculated from the hardness data, without tensile testing
being performed. Specifically, the mill test certification system includes a program tocalculate tensile testing values from the hardness data, and if the hardness data is input,
the system automatically calculates the tensile testing values (tensile strength, yieldstrength, and elongation).
Calculating the tensile testing values from the hardness data in this way appears
to have taken place because tensile testing requires a lot of work-hours compared to othertests because it requires procedures such as preparation of test specimens, but because
there is regarded to be a certain correlation between hardness and tensile testing values,
they believed that there would not be a significant difference between actually conducting
the test and just calculating it from the hardness data. This conversion calculation program- 34 -

was introduced around 2005 at the latest, but it is unclear what review took place before
introducing it.
The Technical Section for Extrusions’ Section Manager in charge of inspections
became aware of the calculation program when they received a report from mill test
certification issuance personnel around July 2017 together with the report on the Brinell
hardness data rewriting. Although the Technical Section for Extrusions confirmed the
products requiring tensile testing pursuant to the standards and had gradually reformed
inspection methods so that tensile testing would be performed, the mill test certification
issuance system containing the calculation program was under the jurisdiction of the QA
Department, so it did not result in remediation of that system.
3

The Root Causes and Background Circumstances of the Misconduct by TKC(1)MisconductA.

Earlier Case (TKC)

The description, time of commencement and root cause of the Earlier Case (TKC)
are as set out in the table below.
[Table: Earlier Case (TKC)]
No.
①

Misconduct

Description of conduct

Shipment of Non-

If

the

internal

Conforming
Products based oninternal
concessions31

assessment
committee
judgedthatnonconformances of NonConforming Products did
not affect the performanceor safety of the products,32
it was determined for eachof such Non-Conforming
Products that it would betreatedasinternal

Time of commencement /Root cause

quality Carried out since at least
1998.
Those who participated in thequality assessment committee
were of the awareness thatmarginal
deviationsofappearance and dimensions
would not cause any problems
in light of the use of the
product.
With respect to the extruded

31

TKC called shipment of Non-Conforming Products without obtaining approval from the customer and only basedon internal judgement as “internal concession”, as differentiated from “concession”, which refers to shipment tocustomers after notifying the customers of the Non-Conforming Products and obtaining their approval.

32

The quality assessment committee did not have a uniform judgement criteria, but made judgement by taking into
consideration factors such as the degree of deviation from the specifications, the use of the product, and whether
the relevant customer has approved concessions in a similar incident in the past.

- 35 -

No.

Misconduct

Description of conduct

Time of commencement /Root cause

concessions.33
In accordance with thedecision by the quality
assessment committee, theinspectors in charge of the
Appearance
andDimension Inspection or
Mechanical
Testing

products, as a generaltendency of the industry, it
was often the case that theperiod until the delivery
deadline was set short, andshipment often had to bemade hastily. In addition, it
was considered to be(collectively,
extremely rare that subtle“Inspectors”) conducted deviations
fromtheprocedures to treat such specifications significantly②

Non-Conforming Products
as passing products byrewriting or otherwise
altering the dimension
values set out in thedrawings attached to Work
Instructions or the values
from the test data set out in

affected the performance andsafety of the products. It wasalso rare that a complaint wasreceived from a customer
with respect to deviations
fromphysicalproperty
specifications.
Since the Yoro Plant had

the “Daily Material Quality
Non-Conformance Reportfor Extruded Products” orother documents.

limited storage space for the
products (work in process)underpost-manufacturing
inspection, it had to quickly
finish inspections of the
products and ship them.34

Judgment by Sales If
Sales
Department
employees
employee to ship forwarded
Non-Conforming

Department The time of commencement isreviewed a unknown.
“withheld The root cause is basicallysimilar to ① above, but it is33

Around 1998, “internal concessions” determined by the quality assessment committee solely concerned the NonConforming Products from the Appearance and Dimension Inspections. “Internal concessions” of NonConforming Products from the Mechanical Testing started around 2011, but the occurrence of such internal
concessions was extremely rare.

34

According to interviewees, if all manufacturing lines are operated, the storage space is fully occupied in a day.

- 36 -

No.

Misconduct
Products

Description of conduct
product report” 35 andjudged that the nonconformances would notaffect the performance orsafety of the product basedon the past shipment details
and other similar records,
they determined for each ofTime of commencement /Root cause
likely that more weight wasplaced on the relationshipwith customers such asdelivery deadlines.

such
Non-Conforming
Products that the relevant
products may be shipped.
There were also cases
where
even
if
an
applicationfor36
concessions
wasprepared at the discretionof the quality assessment
committee,
the
Sales
Department
employees
reviewed the details of the
non-conformancesanddetermined the shipment oftherelevant
products
without notifying thecustomer.
Similar to ① above, therelevant products weretreated as passing throughrewriting or otherwise
altering of the test data by
Inspectors.
35

If the judgement by the quality assessment committee is that an inquiry should be made to the Sales Department,
the Sales Department will be forwarded a “Withheld Product Report.”

36

If the quality assessment committee judges that the Non-Conforming Products are to be subject to “concessions”,
an “application for concessions” is prepared and forwarded to relevant Sales Department employees.

- 37 -

B.

Misconduct (TKC)

The description, time of commencement, and root cause of the Misconduct (TKC)
are as set out in the table below.
[Table: Misconduct (TKC)]
No.37

③

Misconduct
Omission
conduct

to With respecttensile products
thattesting by replacing
it
with
the
calculation of thetensile testing value

37

Description of conduct

Time of commencement /Root cause

to the Carried out since at least
require 2008.

tensile testing under the
specifications, the memberof the Quality Engineering
Section in charge of
Mechanical
Testing
converted tensile testingvalues from the hardness
measured using Hw via
QualityEngineering
Section’s own formula.

It was recognized that boththe hardness and tensile
testing values indicate theproduct strength, and arecorrelated with each other tosome extent. Accordingly, it
is possible that there was abelief that the calculation
result would not make asignificant difference fromEven though they did notmeasurehardnessorconduct tensile testing at
the stage of the productinspection, they recorded
theconverted
tensiletesting value in therecording sheets such as
Daily Material Quality
Non-Conformance Reportthe values obtained from theactual tensile testing.
In addition to the above, fortensile testing, it is necessary
to prepare test specimens, andthis requires more man-hours.
It is therefore considered thatthe awareness grew that “itwould be better to prioritize
shipment,
ratherthanfor Extruded Products.
There were also cases
where a person in charge of
Mechanical
Testingmeasured hardness using

increasing man-hours byconducting tensile testing,”
and the practice described atleft became common.

The numbering of the Misconduct is continued from the [Table: Earlier Case (TKC)] set forth in A. above.

- 38 -

No.37

Misconduct

Description of conduct

Time of commencement /Root cause

Hw at the productinspection
stage
and
converted it into a tensile
testing value.
④

Violation of the JIS
requirements
pertaining to the
Mechanical Testing
method

Under
the
JIS
requirements,
Material
6063-T5 38 must undergo
tensile testing or hardness

Carried out from around2008, at the latest.
The following are considered
to be the root causes.
measurement,
andif ・ Insufficient understanding
hardness measurement is of the JIS
conducted, it must be based ・Instilled practices of ③ aton Hv. However, the the Yoro Plant
hardness measurement was ・ Since Hv requires more
conducted using Hw.
man-hours for testing thanHw, an easier method waschosen as a result ofprioritizing
scheduledshipment⑤

Creation of mill test Withcertifications using
anautomatic
creation system andshipment

respect

tothe Carried out since at least

products with multiple
characteristics 39 , including
Material 6063-T5, mill test
certifications setting out
fictitious tensile testingvalues were created, usinga system that automaticallycalculates certain values as
tensile testing values oncethe “weight” of the product

October 2002.
It is possible that the system
mentioned at left wasestablished because it wasconsidered to be extremelyrare that deviations from
specifications requested by
the customer significantly
affected the performance andsafety of the product, and it

and the “date” is input, was also rare that a complaint
regardless of whether was received from a customer
38

Material 6063-T5 is the name of an extruded product, which is one of the main products of TKC.

39

It is a process of changing the characteristics of a certain material by processing it, and through this process, a
product with multiple characteristics is produced from one material.

- 39 -

No.37

Misconduct

Description of conduct

Time of commencement /Root cause

tensile testing had been with respect to deviations
conducted or not.40
fromphysicalproperty
specifications.
⑥

Rewriting of tensile With respect to thetesting values
products
otherthanMaterial 6063-T5, if tensile
testing values did not meetthe standards, Mechanical

The time of commencement
and the root causes are thesame as ①.
TKC has the work flow inwhich the products that have

Testing examiners rewrote passed
Appearance
andtensile testing data by hand Dimension Inspection are
in the “original table”41 in transferred to the packaging
which testing data is to berecorded and the “Daily
Material Quality NonConformance Report for
Extruded Products”
sothat the values fell within
the specifications.

and shipment processes even
if Mechanical Testing has notbeen completed. As a result,
there were a number of
instances where the productsthat failed tensile testing had
already been shipped, and thisindicates that there was atremendous
shipment.

⑦

Inspection methods The tensile testing was
failing to comply conducted at a speed fasterwith the JIS
than the JIS. 42 Moreover,
the tests 43 using thepressurefor

The time of commencement is
unknown.
The following are considered
to be root causes.

40

Even for the products for which tensile testing showed values within the specifications or the products for which
tensile testing values have been calculated through the conversion from the Webster hardness (see ④ above),the personnel in charge of issuing mill test certifications in the Quality Engineering Section did not use suchactual measurement values or converted values as tensile testing values and entered fictitious tensile testingvalues showed in the automatic mill test certification creation system in mill test certifications.

41

The “original table” refers to an A4-size table used by Mechanical Testing inspectors as a note to take down thetensile testing results. The Mechanical Testing inspectors take down testing results of several types of productsin the original table and then copied such results to the “Daily Material Non-Conformance Report for Extruded
Products.”

42This means JIS Z2241.

43

This means tensile testing, hardness measurement, bending testing and conductivity testing.

- 40 -

No.37

Misconduct

Time of commencement /Root cause
requirednumberof ・ Insufficient understanding
samples for each lot as of the JISinspecified by the JIS ・ Lagging behind
Description of conduct

requirements 44 were not upgrading the tensile testing
conducted.
instruments(2)

TKC’s Response to the Above Misconduct

The shipment of Non-Conforming Products based on internal concessions or otherarrangements described in (1)① and ② above was discovered in an extraordinary
quality audit by MAC conducted on February 20, 2017. Based on the points raised by the
extraordinary quality audit, on February 21, the following day, at the quality assessment
committee attended by the then General Manager and Chief Engineer of the Quality
Engineering Department and the Senior Engineer of the Quality Engineering Section, theinternal concession system was abolished by the declaration by the Senior Engineer ofthe Quality Engineering Section.45
The hardness measurement using Hw and the conversion into tensile testingvalues described in (1)③ and ④ above was abolished around August 2017. TKC madea self-report of its violation of the JIS requirements due to the misconduct described in(1)① and ② above in July 2017, and was subject to an extraordinary review andsuspension of the JIS certification by the JIS certification body in August 2017. In themeantime, the Plant General Manager and the then Chief Engineer of the Quality
Engineering Department decided to remedy the hardness measurement method andstarted to replace it with the hardness measurement method using Hv so as not to be
pointed out further inspection method irregularities or other issues in any subsequent
extraordinary certification maintenance review or other investigations. However, since
the Plant General Manager and other managerial staff did not receive any comment fromthe JIS certification body at that time, they believed it would be sufficient to make
improvements within the plant one by one, and did not report to the TKC Head Office or
MAC.
The automatic mill test certification creation system described in (1)⑤ above wassuspended on September 22, 2017 at the direction by the Senior Engineer of the Quality

44

This means JIS H4100 and JIS H4080.

45

The abolition of the internal concession system was notified to the employees of the Quality Engineering Section,
Extrusion Manufacturing Section, and Drawn Pipe Manufacturing Section and the Sales Department at their own
day assemblies or other meetings during the period between February 22, the following day, and March 8.

- 41 -

Engineering Section, who became aware of the existence of such system.46 However, theSenior Engineer of the Quality Engineering Section did not immediately report to the
TKC Head Office or the Plant General Manager because he was busy responding to thesuspension of the JIS certification and other related matters. Later, in the beginning ofNovember 2017, the Senior Engineer of the Quality Engineering Section reported theexistence of the system described above to the Plant General Manager. The President of
TKC also became aware of it when he received a report from the Senior Engineer of the
Quality Engineering Section or the Plant General Manager. The President of TKC andthe Plant General Manager did not report the existence of the system to MAC because
they wanted to avoid discovery of another issue right after the suspension of the JIS
certification lifted on October 16, 2017 and also the automatic mill test certification
creation system had already been suspended and thus the issue had been resolved.
For the rewriting of tensile testing data described in (1)⑥, the withheld productreports were not created. Accordingly, it was not reported to the quality assessment
committee or discovered by the extraordinary quality audit conducted by MAC in
February 2017, and was discovered in the special audit conducted by MMC in January
2018. Of the violations described in (1)⑦, the violation of the JIS requirements relating
to the tension speed was also discovered in this special audit. After the discovery of thetwo instances, TKC immediately discontinued rewriting of test data and corrected thetension speed to match the JIS.
Of the violations described in (1)⑦, the violation of the JIS relating to the numberof test samples in Mechanical Testing was discovered in the course of the Investigation.
This incident has already been remedied based on the points raised in the Investigation.
(3)

Background to how the Above Misconduct Started at TKC

The following points can be recognized as the background on how the Earlier
Case (TKC) and the Misconduct (TKC) started.
First, it is found that there was a lack of sufficient awareness of complying withspecifications agreed with customers. As described in (1)① through ③ and in ⑥
above, at TKC, Non-Conforming Products were shipped after rewriting test data if it was
judged that there would be no problems caused to performance in light of the use of the
products. Moreover, as described in ③ through ⑤ above, TKC did not conduct tensile
testing that was required under the specifications agreed with the customers (including
the specifications “compliant with the JIS”) and in addition reported groundless andfictitious values to the customers.
Next, it is recognized that employees were not thoroughly familiarized with46

It was decided that Hv would be used for measuring hardness of Material 6063-T5 and as a result mill test
certifications only stating Vickers hardness started to be issued. The personnel in charge of issuing mill test
certifications in the Quality Engineering Section then believed it might no longer be necessary to issue mill test
certifications created using the automatic mill test certification creation system and proposed suspension of such
system to the Senior Engineer of the Quality Engineering Section, and this is how the Senior Engineer becameaware of the system.

- 42 -

necessary knowledge. As described in (1)④ and ⑦, TKC did not conduct inspections
and testing in accordance with the JIS, and this was due to the fact that Inspectors were
not sufficiently familiarized with the details of the JIS that they should comply with.47
It is also possible that the quality assurance system related to inspections andtesting as well as human and physical resources for the quality control system to reduce
the occurrence of Non-Conforming Products were insufficient. TKC was lagging behindin upgrading testing instruments and other quality assurance-related equipment, andaccordingly there were circumstances where it was, in the first place, difficult to fulfill
the JIS in terms of equipment. With respect to the organization, in addition to a shortageof inspectors, since the Quality Engineering Department was established through the
integration of the former Engineering Department (or the Quality Engineering Group of
the Manufacturing Department) and the Former QA Department, there have been no
department specialized in production technologies, including quality stabilization
technologies. Consequently, coupled with the fact that employees were not familiarizedwith necessary knowledge, when it came to knowledge on production technologies,
people only turned to the specific few employees who had experience in the Engineering
Department, and in fact there was an interviewee who stated that not much progress had
been made with respect to the efforts to improve manufacturing conditions to reduce theoccurrence of Non-Conforming Products.
Additional affecting factors would be insufficient consideration of processcapability at the time of receiving orders and pressures for shipment. It was mentionedthat at TKC there are a number of products for which customer order was acceptedwithout sufficiently going through the necessity48 of required specifications and processcapability with the customers. Moreover, as described in Chapter 2, Section 2 4(2)A.
above, TKC had the work flow in which the products that passed Appearance andDimension Inspections were transferred to the packaging and shipment processes even if
Mechanical Testing had not been completed. As a result, as described in (1)⑥ above,
there were a number of instances where the products that were found to deviate from thespecifications had already been shipped, and under such circumstances, it is recognizedthat there was a tremendous pressure on Mechanical Testing inspectors in treatingproducts as non-conforming products.
Lastly, the issue of awareness that was prevalent in the course of long-continued
misconduct can be pointed out. Many TKC employees mentioned with respect to the
misconduct described in (1) above that they carried out the tasks that they had taken overfrom their predecessors in a detached manner and never thought about adequacy of theirtasks, and it is recognized that, in a way, employees simply depended on past practices.
It is believed that this awareness was partly due to the background circumstances
described above. In other words, it is possible that TKC employees were not provided
with sufficient information that should have given them a chance to think about adequacy,47

At TKC, employees were informed as to whether the JIS standards have been revised or not, but not the specificdetails of the revision or an impact on the business. Moreover, there was no briefing session or other event
relating to the JIS standards.

48

Some interviewees mentioned that, looking at the products for which order TKC accepted in the past, many ofthem included specifications that were considered to be unnecessary in light of the use by the customer.

- 43 -

etc. of their work procedures because they were not sufficiently familiarized withnecessary knowledge for their work. Moreover, it cannot be denied that employees may
have been swamped with work and had no time to think about the meaning of their workor the conducts befitting a person in the manufacturing business due to the tight situationof the quality control and quality assurance systems and the tight work situation based on
the shipment-oriented mindset.
Chapter 4

The Root Causes and Background Circumstances of the
Misconduct

Section 1

Background to the Misconduct Having Continued Even After the
Discovery of the Earlier Case

1

Scope of the subject of the Earlier Case Investigation was limited

As described in Chapter 3, Section 1 2(1) above, the Earlier Case Investigation
was commenced to identify whether rewriting of test data was conducted with respect tothe customers other than the two companies specified in the “Concession Measure
Implementation Rules”, with the focus on rewriting of test data based on the “Concession
Measure Implementation Rules”, and therefore whether there was a misconductpertaining to the sheet and plate products in a manner other than specified in the“Concession Measure Implementation Rules”. As a result, it did not result in discovery
or remediation of the Misconduct pertaining to sheet and plate products described in
Chapter 3, Section 1 2(1) above.
In the course of the Earlier Case Investigation, the former managers and theemployees in the managerial positions for quality assurance for foil products and extruded
products, respectively, were interviewed during the period from November 2016 toJanuary 2017, but those interviews were conducted as part of the Earlier Case
Investigation. Accordingly, the Earlier Case Investigation was not thoroughly conductedwithout interviews with other related parties or review of related documents and materials
such as “Mechanical Testing Results Report”.
In this way, the Earlier Case Investigation in fact focused on the “Concession
Measure Implementation Rules” in the vertically-segmented organizations, and it ispossible that this led to the Misconduct having continued.
2

Despite the actual opportunities to realize the Misconduct, they could not be
exploited

As described in Chapter 3, Section 1 2(2) above, from November 2016 to January
2017, when the Earlier Case Investigation was taking place, the managers and those who
previously in the managerial positions for quality assurance for foil products and extruded
products, respectively, were interviewed, but at that time they were aware that rewritingof test data was being conducted (at least in the past) with respect to extruded products
and foil products for certain customers. However, it appears that they thought reporting
was unnecessary because it had already been resolved and answered at their own- 44 -

discretion that there was no misconduct pertaining to extruded products and foil products
without further verifying the facts in particular. It is believed that this is not irrelevant totheir mindset that the issue is unrelated to or has a different nature from extruded products
and foil products that they cover, or in other words, the issue was “someone else’s
business,” because the issue at that time related to sheet and plate products and more
specifically concerned rewriting of test data based on the “Concession Measure
Implementation Rules”.
In fact, MAC issued a message from the President and provided complianceeducation to the entire company as part of the measures to prevent recurrence of the
Earlier Case from May 2017 through around summer. However, partly because suchinitiatives did not touch on the details of the Earlier Case, the employees involved in foil
products and extruded products said, among other things, they felt that “it was merely an
issue of sheet and plate products” or that “in the first place they did not understand the
problem and did not know what to do even though compliance was advocated”, etc. Thus
it appears they merely considered the Earlier Case to be “someone else’s business.”
In addition, with respect to extruded products, the Earlier Case (TKC) was
discovered at TKC, a subsidiary of MAC, in February 2017, and this was reported to the
Response Furtherance Committee. However, MAC only recognized it as an issue of TKC,
and there is no record of MAC having tried to investigate into whether there were othersimilar incidents at MAC. It is believed that this represents the fact that the Response
Furtherance Committee also considered that the Earlier Case (TKC) was an issue of TKC,
rather than an issue of MAC.
In this way, MAC had a number of opportunities to identify and remedy the
Misconduct described in Chapter 3, Section 2 1 above, but failed to exploit them.
Section 2
1

The Root Causes and Background Circumstances Intrinsic to MAC

Low Awareness of Compliance with Specifications

As described in Chapter 3, Section 2 1 above, MAC shipped Non-Conforming
Products that deviated from the specifications agreed with customers after rewriting test
data for all of sheet and plate products, foil products, and extruded products over a long
period of time.
It appears that the responsible personnel at the Technical Section for Sheet andFoil Products and the Technical Section for Extrusions tried to ensure a certain level ofquality required for the product itself by, for instance, treating the products as passing
only if the other inspection items of the same product are within the specifications oreither of the two samples are within the specifications. However, they were not consciousof complying with the standards agreed with the customers, and it has to be said that theawareness of compliance with standards itself was reduced.
2

Attitude excessively prioritizing “receipt of orders” and “delivery dates”
The Fuji Plant started operation of extruded products, foil products and sheet and- 45 -

plate products businesses in that order during the period between 1963 and 1964, and in
the course of expanding these businesses, there were already competitors that were goingahead. Under such circumstances, in order to do business with new customers, it wasnecessary for MAC to have the customers who had already placed an order with acompetitor switch to MAC, so there were cases where if a customer requested MAC for
the specifications similar to the specifications for the order placed with a competitor,
MAC prioritized winning the order and accepted the order based on the specifications
requested by the customer without considering its own process capacities.
If MAC accepts an order beyond its process capacities, there are some cases where
the manufactured products do not satisfy the specifications agreed with the customer, but
in that case, if the products undergo re-inspection or re-manufacturing, it is likely to failto make the delivery date. In such a situation, MAC sometimes obtained Customer
Concessions, but for fear of damaging reputation from the relevant customer by repeating
Customer Concessions, given the reasons such as that Customer Concessions had beenobtained in the past and there were no major problems in product performance, meeting
the initial delivery date for the time being was prioritized over negotiating the delivery
date and the specifications with the customer.
3

Pressure on personnel in charge of products

With respect to the Misconduct, rewriting of test data was conducted in many
instances at the judgement of responsible personnel in the Technical Section for Sheetand Foil Products and the Technical Section for Extrusions. On this point, it is likely thatthe mindset of prioritizing delivery dates at MAC as described in 2 above led to thepressure on the Technical Section for Sheet and Foil Products and the Technical Section
for Extrusions, which actually conduct product inspections and are responsible for the
judgment on how to treat Non-Conforming Products.
In particular, the Technical Section for Sheet and Foil Products and the Technical
Section for Extrusions are the departments belonging to the Manufacturing Division,
including the Sheet and Foil Plant and the Extrusion Plant, so in the Manufacturing
Division that pursues the improvement of productivity to ship the products in compliancewith a delivery date, it may have been placed in a difficult position to stick to theimportance of “quality assurance”, which could delay shipment.
4

Harmful effects of the vertically-segmented organizations(1)

Vertically-segmented organizations for each product

MAC is divided into the Sheet and Foil Plant that manufactures sheet and plateproducts and foil products, and the Extrusion Plant that manufactures extruded products.
The Sheet and Foil Plant had been divided into a sheet and plate mill and a foil mill until
2013. Under such manufacturing structure, as sheet and plate products, foil products, andextruded products undergo design, manufacturing and product inspection processes at therespective plants, the details of operations of the plants are completely divided from eachother, and the personnel transfers between the plants were limited. After the Sheet andFoil Division was established, certain personnel exchanges started to some degree by, for- 46 -

instance, having people from the sheet and plate product business take the role ofmanaging the foil product division, but there were still few personnel exchanges between
the Sheet and Foil Division and the Extrusion Division.
Under such circumstances, as described in Section 1 above, when the Earlier Case
Investigation was conducted in November 2016, partly because it focused on rewriting oftest data of sheet and plate products based on the “Concession Measure Implementation
Rules”, it cannot be said that sufficient investigation was conducted with respect to foil
products, and extruded products, which are also products of MAC. The related parties tofoil products and extruded products who were interviewed in the course of the Earlier
Case Investigation answered that there were no misconduct for foil products, and extruded
products without careful consideration, these products not being sheet and plate products.
It is believed that the reason behind this is that both the investigating side and theinvestigated side took the Earlier Case in a “vertically segmented” framework in themanner that it is an issue of sheet and plate products and a “different kettle of fish(someone else’s business)” from the perspective of foil products, and extruded products.49(2)

Vertically-segmented organizations of the Manufacturing Division and the
Other Divisions

The “vertically segmented organizations” as described above are not limited to
the “vertical segmentation” by product such as sheet and plate products, foil products,
and extruded products.
Given the Earlier Case, MAC also attempted to ensure independence of the QA
Department and implement cross-business quality assurance (research for quality
stabilization and customer response) by the Quality Supervisory Department, but since
the “vertically segmented organizations” that had been continued over years were
ingrained, those two departments had little communication or other exchanges with theother departments, and both departments were understaffed, such that in reality it wasdifficult to say that the quality assurance functions expected of these departments were
sufficiently fulfilled.
Moreover, as described in Chapter 3, Section 2 1 above, with respect to theinspection irregularities commonly observed for sheet and plate products, foil products,
and extruded products, it was the Testing & Analysis Section of the QA Department that
conducted tensile testing itself, but the Technical Section for Sheet and Foil Products andthe Technical Section for Extrusions that requested tensile testing did not know whether
the method of conducting tensile testing was in compliance with the specifications on the49

Conversely, there were also instances where it is recognized that personnel transfers contributed to the mindset
of not considering irregularities to be “someone else’s business” and resulted in the discovery of misconduct. Of
the Misconduct, the instances of rewriting of Brinell hardness and the omission of tensile testing in relation to
extruded products were discovered and remediated after the Section Manager in charge of inspections in the
Tchnical Section for Extrusions received a report from the personnel in charge of issuing mill test certifications.
The Section Manager received the report while he himself inquired and verified whether there were any
misconduct pertaining to extruded products because he was aware of the fact that the Earlier Case Investigation
was being conducted based on his experience in working in the Sheet and Foil Plant.

- 47 -

ground that tensile testing was the business of the Testing & Analysis Section.
In addition, as described in Chapter 3, Section 2 2(3) above, the Technical Section
for Extrusions, which recognized around July 2017 that tensile testing values wereconverted from hardness even though tensile testing was not conducted and there was aprogram for such conversion, revised the procedure to ensure that testing required under
the specifications are conducted. However, because the mill test certification issue systemwith the conversion program was under the jurisdiction of the QA Department, the system
was not revised.
5

Failure to thoroughly familiarize employees with necessary knowledge

As described in Chapter 3, Section 2 1 above, MAC identified multiple inspection
irregularity instances, including a violation of the tension speed requirement in tensile
testing. The personnel responsible in the QA Department confirms revisions and otherupdates of the JIS that stipulates testing methods as necessary, and notified thedepartments relating to quality assurance such as the Technical Section for Sheet and Foil
Products and the Technical Section for Extrusions whenever necessary, but did not check
whether the content of notification was understood by the relevant responsible personnel
or the content was appropriately reflected in the standards and the inspection methods.
Therefore, it is recognized that as a consequence the relevant responsible personnel were
not familiarized with necessary knowledge.
6

Dependence on existing practices without careful consideration

The Investigation found that the Misconduct continued over a long period of time.
As the background to this, it is recognized that many employees of MAC did not question
rewriting of test data at all which was taken over from their predecessors or instructed byrelevant departments, and this attitude led to misconduct having continued as a kind ofroutine.
It has to be said that this indicates the fact that MAC’s employees lightly depended
on existing practices without accurately understanding quality assurance and fully
verifying whether their conduct fulfilled the objective, namely quality assurance.
Section 3
1

Issues with Control of Subsidiaries

Relationship between MAC and TKC

MAC, as the parent company of TKC, has been and is currently sending its
officers and employees as secondees to TKC. In particular, the managers of TKC allconsisted of secondees from MAC. However, given the nature of secondment, theirservice period was as short as approximately two years and the turnover of secondees was
frequent .
On the other hand, with respect to the business collaboration framework between
MAC and TKC, even though there were certain attempts such as study sessions fortechnical cooperation in the past, none of them were continual, and effectively the- 48 -

collaboration was only through secondees.
2

Lax control over TKC

Under the circumstances described in 1 above, it has to be questioned to what
extent MAC was able to control TKC.
In fact, as described in Chapter 3, Section 2 3(2) above, since August 2017 when
the Earlier Case (TKC) was discovered, in response to the discovery of the issue thatmeasurement was based on Hw, rather than Hv and of the automatic mill test certification
creation system, TKC implemented the remedial measures for those issues, but noinformation was shared with MAC even though that was the decision of TKC itself.
Given the lack of a system to promptly share with MAC the above issues, which
are directly connected to quality control at TKC, it cannot be recognized that the parent
company’s control over TKC was sufficient.
3

Insufficient reflection on MAC’s own issues responding to the issues at TKC

In February 2017, an extraordinary quality audit of TKC conducted by MAC
discovered the Earlier Case (TKC), which was also reported to MAC’s Response
Furtherance Committee.
However, no fact can be found that, in response to the Earlier Case (TKC), MAC
examined its own practices from the perspectives of whether there are any similar issues
with its own extruded products or whether there are any similar issues with sheet andplate products and foil products. If MAC had duly verified its own records relating to
product inspections and conducted interviews in response to the Earlier Case (TKC), it
would have been highly likely that MAC became able to discover the Misconduct earlier.
Consequently, it can be viewed that MAC itself only considered TKC’s issues as“someone else’s business.”
As described in Chapter 3, Section 2 3(3) above and Section 2 above, theMisconduct of TKC and MAC have a number of points in common not only in terms ofthe nature of Misconduct but also their root causes and backgrounds. It can be said thatthe facts that the similar root causes and backgrounds led to the same type of Misconduct
continuing at MAC and its subsidiary, TKC, and that even though part of such
Misconduct was discovered one after another, it took time to establish the whole pictureof such Misconduct, indicate that there is an issue of control over the subsidiary as
described in 2 above and also MAC failed to sufficiently reflect on its own issues.
Chapter 5

Recurrence Preventive Measures

Section 1

Recurrence Preventive Measures Formulated in Response to the
Earlier CaseIn response to the Earlier Case, from March 2017, MAC formulated the recurrence
preventive measures as substantially set forth in the following table and implemented- 49 -

them as necessary.
[Table: Recurrence Preventive Measures Formulated by MAC in Response to the
Earlier Case]
Objective

Specific Measures

Confirmation of Verify mill test certification withaccuracy of mill inspection equipment data by thetest certificationQA Department;
Conduct oversight by the Business
Audit Department

Status of Implementation
Implemented with respect
to the products subject to
the Concession Measure
Implementation Rules

Establish a system in which any Commenced the operation
inconsistency between the content with respect to all productsof mill test certification andinspection equipment data isrecorded as a log
Enhancement of
the awareness of“compliance” and“quality
assurance”

Provide education on complianceand quality assurance
Provide re-education on thewhistle-blowing system

Providedcomplianceeducation tailored to eachlevel of officers andemployees in order from
June 2017

Strengthening of Ensure independence between thequality assurance QA Department and the Technicalmanagement
Section for Sheet and Foil Products
by strictly separating them
Have the employees who
concurrently work in boththe QA Department andthe Technical Section for
Sheet and Foil Products
work exclusively in the
QA Department

Terminated double-hattingof the employees
Currently considering thedetails of the transfer of the
product inspection process
to the QA Department

Transfer the productinspection process under
the jurisdiction of theTechnical Section for
Sheet and Foil Products to
the QA Department- 50 -

Objective

Specific Measures

Status of Implementation

Establish the system in which test Considering
data may not be rewritten
establishment

theEstablish the Quality Supervisory Established the Quality
Department
Supervisory Department as
an organization directly
reporting to the President asof July 1, 2017
This department has thefollowing duties.


Quality audit
Planning
andproposalofmatters such as themeasurestostrengthen
thequality assurance
framework
Management ofquality-related
matters of theentire GroupStrengthening
monitoringof Implement quality audit of MAC [MAC]
and its subsidiaries on a regular MAC conducted quality
basis
audits to confirm whether
Non-Conforming Productsthat deviated from thespecifications
underdelivery specifications had
been shipped with respect
to sheet and plate products,
foil products and extruded
products, and as a result nosuchinstanceswereconfirmed.
The Quality Assurance
Department will be audited- 51 -

Objective

Specific Measures

Status of Implementationin April 2018.
[Subsidiaries]
MAC conducted quality
audits of subsidiaries,
includingoverseassubsidiaries by January 23,
2018 to confirm whether
Non-Conforming Productsthat deviated from thespecifications
underdelivery specifications had
been shipped, and as aresult no such instanceswere confirmed.

Checking of thequality assurance
managementbymanagers
Fundamental
improvement

Establish a council or a similar Continuously handled bybody to confirm the PDCA cycle the Response Furtherance
forthequalityassurance Committee
management

Improveprocess
capacities; Implemented with respectof Request customers to change the to the products subject totheproduct specifications
process capacities

the Concession Measure
Implementation Rules andthe customers

However, the above recurrence preventive measures were limited from theviewpoint of the relationship with the Misconduct as described below.
①

Implementation of the recurrence preventive measures focusing on the“Concession Measure Implementation Rules”

The verification of test result reports between mill test certification and testing
equipment data and the request for a change to the specifications to the customers werelimited to the products subject to the “Concession Measure Implementation Rules”
because these measures were intended to prevent recurrence of rewriting of test data basedon the “Concession Measure Implementation Rules”, and therefore these measures failed
to prevent misconduct other than rewriting of test data based on the Concession Measure
Implementation Rules.
The quality audit for fiscal 2017 conducted in MAC only confirmed whether Non-

- 52 -

Conforming Products for which a “Non-Conformance Report” (“Withheld Product andProcessing Repor”t in the case of extruded products) was drafted had been shipped, anddid not lead to the discovery of Misconducts. However, as described in Section 2 2(3)A.,
the Technical Section for Extrusions ended rewriting of test data by the Quality
Committee due to the inspection of the “Withheld Product and Processing Reports” by
the quality audit. Accordingly, it is recognized that in this respect the quality audit
exerted a certain function as a deterrence to the Misconduct.
②

Compliance education without information sharing regarding the past
misconduct

As described above, MAC provided compliance education tailored to each levelof officers and employees in sequence from June 2017. However, partly because MAC
had not announced the Earlier Case when this compliance education was provided, inconsideration of the necessity for information management, the compliance education,
particularly the one for general employees, did not clearly explain the details of rewritingof test data based on the Concession Measure Implementation Rules and only stated thata breach of compliance had been identified.
As a result, the awareness of the issue was not accurately shared with theemployees who received the compliance education and the compliance education did not
fully function as an opportunity to review the adequacy of the Misconduct.
③

Insufficiency of reform of quality assurance framework

As described above, in order to strengthen the quality assurance framework, MAC
establish the Quality Supervisory Department as of July 1, 2017 as an organization
directly reporting to the President and independent from the manufacturing division, andwhich is exclusively engaged in the quality assurance-related duties such as quality audit.
However, the Quality Supervisory Department currently has two members at thispoint and in fact it is difficult for them alone to cover quality audit, which was assigned
as the duties of the Quality Supervisory Department when it was established. In otherwords, under the current situation, it is difficult to say that the Quality Supervisory
Department has necessary and sufficient human resources to fulfill the check-and-balance
function relating to the quality assurance-related duties.
Section 2

1

Proposal of the Preventive Measures in Response to the Discovery of
the Misconduct

Introduction

In consideration of the discovery of the Earlier Case, MAC formulated andimplemented the recurrence preventive measures as mentioned in Section 1 above. These- 53 -

measures yielded certain results, 50 serving as an opportunity to end part of the
Misconduct. However, in light of the points described in ① through ③ in Section 1
above, the preventive measures fit for remediation of the discovered issues but failed toroot out the misconduct at MAC.
Moreover, in the course of the interviews in the Investigation, many employees
pointed out the issue with MAC’s corporate culture itself.
Given the abovementioned point raised by the employees and others in addition
to the factual circumstances leading up to the previous recurrence preventive measures,in order to eradicate the misconduct, more in-depth reform of corporate culture would be
essential.
To that end, we propose the recurrence preventive measures taking the discoveryof the Misconduct into account, including the remake of corporate culture, as follows.
2

Reaffirming the importance of quality assurance and reestablishing thecompany-wide quality assurance framework

MAC sustained the framework in which the Technical Section for Sheet and Foil
Products and the Technical Section for Extrusions, which belong to the manufacturing
division, had all responsibilities for the judgment on how to handle Non-Conforming
Products. As a result, it cannot be denied that in judging how to handle Non-Conforming
Products, the perspective of production efficiency with the goal of meeting the delivery
deadline through, among other things, efforts not to produce waste for disposal or
reprocessing was valued, and the quality assurance perspective of “shipping the productsthat are in compliant with the standards” took a second place. Reflecting on this situation,
MAC needs to reaffirm the importance of the significance of “quality assurance” andreestablish the framework to ensure quality assurance.
Specifically, it is necessary to clarify the respective roles of the Quality
Supervisory Department and the QA Department which are independent of the
manufacturing division, and have them fulfill the cross-sectional management andsupervisory functions with respect to quality assurance by laterally covering the entire
manufacturing division. Moreover, it would be also essential to secure sufficient numberof personnel and establish a system that ensures authority so that the Quality Supervisory
Department and the QA Department can exert their own roles to the fullest extent.
It is also considered that the enrichment of “quality assurance” is not realized only
through the improvement of process design or enhancement of product inspections but isrealized through multifaceted consideration and verification from various view points
from manufacturing, production engineering, research and development, sales, and otherfunctions. Accordingly, it is desirable to establish a company-wide quality assurance
50

For instance, of the Misconduct, with respect to the incident of foil products in which when the elongation value
deviated from standards as a result of tensile testing, the personnel responsible for mill test certification issuance
would rewrite test data, it was discovered and abolished after the personnel in charge of mill test certification,
who received the compliance education described in Section 1 above, themselves reported to the Assistant Plant
General Manager managing foil products.

- 54 -

framework under the initiative of the Quality Supervisory Department and the QA
Department, in which the Technical Section for Sheet and Foil Products, Products
Research and Development Department, Engineering Department, Sales Department, andso forth have clear roles in line with their own positions. As a foundation of such quality
assurance framework, it is desirable to enhance the educational system that reminds eachand every employee of the significance and importance of “quality assurance.”
Specific measures to make such quality assurance system effective would include,
for instance, the establishment of a cross-product “quality assurance system” independentof product-specific production control systems and the implementation of educational
programs targeted at a wide range of officers and employees, even including management
members and employees of the Head Office, under the initiative of the Quality
Supervisory Department.
3

Fostering Risk Awareness Regarding “Contractual Breaches”

The standards set forth in the delivery specifications were part of the agreementswith customers, and it is undeniable that there was an extremely shallow awareness at
MAC of the fact that non-compliance with those standards meant a breach of contract.
The decision to prioritize the delivery deadline taking into account the small
impact on the performance, etc. of products can, from one perspective, be said to be
guessing at the customer’s desire to avoid causing any problems for their production lines
due to late delivery, as long as there is no effect on product performance, etc. However,
the obligation to “deliver a product in accordance with the agreed standards” is nothing
less than a contractual obligation owed to the customer. Therefore, the shipment of NonConforming Products is objectively a breach of contract, even if the judgment to do so
was based on an assumption as to the customer’s wishes. Furthermore, if the customer
incurred damage due to the shipment of Non-Conforming Products, it is undeniable that
MAC would consequently be liable for a failure to perform its contractual obligations,which in some cases would give rise to losses that far exceed the losses associated withdisposing of Non-Conforming products.
It is necessary to develop risk awareness of the breaches of contract like thosedescribed above, not only at the Fuji Plant, but at headquarters and on the part ofmanagement personnel responsible for sales functions.
4

Fostering an Understanding of the Fact that “Improving Corporate Value
Generates Profits”

Not a few employees pointed out that traditionally, MAC focused too heavily on
winning orders and continued order winning activities with disregard to its production
capabilities. This corporate culture consequently undeniably helped to force theresponsible personnel in the Technical Section for Sheet and Foil Products and Technical
Section for Extrusions to rewrite test data, and lead to the Earlier Case and the
Misconduct. In addition, the fact that activities to win orders, like those described above,were carried out is evidence demonstrating a very low awareness of the importance of“abiding with the agreement with the customer” and “delivering products with quality- 55 -

conforming to customer requests.”
Changes to the nature of companies brought on by market globalization, etc. meanthat nowadays, companies can no longer get away with just chasing profits, and they mustseek to generate value for a wide variety of stakeholders. In particular, consumers now
watch manufacturers much more carefully due to the recent increase in scandals andquality problems in the manufacturing industry. It is undeniable that, in this kind ofenvironment, continuously acting with integrity with respect to customers andheightening trustworthiness as a company – even by going as far as to increase the numberof work hours to ensure quality or limiting the scope of orders accepted to those ordersthat are suitable in terms of the company’s production capacity – will conversely lead to
profits.
Based on the above, we believe that, rather than viewing the acquisition of orders
from a short-term perspective as their only source of profit, MAC needs to establish
awareness that the improvement of corporate value from a broad perspective will
ultimately generate even larger profits. In particular, we were told that the recent
expansion of product fields and market globalization have meant that MAC has to develop
new customers. As new customers lack the established relationship built up from a historyof business transactions, new customers have to pay even closer heed to the reputation ofpotential business partners. In order to promote the development of new customers, MAC
has to enhance its standing as a business by executing its business with integrity andmaintain a good reputation in the market.
5

Fostering a Corporate Culture where Each Employee Thinks of MAC’s
Mission as a Company and the Significance of Their Own WorkAs described in 6 of Section 2, Chapter 4, most employees continuously carriedout misconduct as part of their routines, without a second thought. It is undeniable thatthe background to this was the fact that most employees relied on succession orientation
carried out by their predecessors, and the fact that they carried out their duties without
taking into consideration MAC’s corporate mission and the significance of their own jobs.
Moreover, this situation cannot be brushed aside as something that arose due tothe attitudes of individual employees. As described above in 4 and 5 of Section 2, Chapter
4, we found that the implementation of the company-wide quality assurance framework,
such as quality assurance training, at MAC was insufficient, which led to employees
engaged in quality assurance work to have been provided with insufficient information inlight of MAC’s corporate mission and the importance of their own jobs. It is the duty ofmanagement and headquarters to provide them with such information and to establish anenvironment where each employee can engage in their duties independently.
At MAC, management is required to take the initiative and take measures to leteach employee understand MAC’s corporate mission and the significance of their jobs,
rather than leaving it up to the Fuji Plant.

- 56 -

6

Necessity of Having an Awareness of MAC as Company and a CorporateGroup

As discussed above in 4 of Section 2, Chapter 4, MAC is organized vertically
based on product groups, which led to employees engaged in business for different
product groups, and employees in manufacturing and other departments, having a low
awareness of one another being employees of the same company.
Meanwhile, at MAC, after the Sheet and Foil Division was established, employees
from sheet and plate product divisions assumed positions as managers overseeing foil
product departments at the Fuji Plant, and as discussed above in 1, and we found that
MAC had made some progress establishing interactions with personnel that overcame thebarriers of the departments to which they belonged, such as by establishing quality
supervisory departments independent from manufacturing departments. Going forward,
MAC should encourage proactive interactions between personal and the exchange of
quality assurance information, with the Extrusion Division and the Raw Material Division
as well. Interactions should be encouraged between employees engaged in actual work
practice, as well as site manager rank employees.
With respect to the management of TKC as well, based on the historic backgrounddescribed above in 1 of Section 2, Chapter 2, it can be cited that employees of MAC andemployees of TKC have a very low consciousness of being employees of the same
corporate group.
Although it can be recognized that there was a certain degree of interaction
between employees such as MAC’s Information Systems Department seconding
personnel to TKC as system managers, with respect to product engineering and quality
assurance engineering, etc. there was found to be a lack of frequent technical interaction
between the companies. In addition, until February 20, 2017 after discovery of the Earlier
Case (TKC), MAC never audited TKC for quality assurance matters.
Based on these circumstances, the cooperative framework between groupcompanies with MAC as the managing entity is recognized to still be insufficient in the
MAC group including MAC and TKC. This is also regarded as an indirect cause resulting
in MAC’s failure to use the Earlier Case (TKC) as the opportunity to conduct a detailed
investigation of whether there was misconduct at MAC.
MAC must be aware that, as the parent company of each of the MAC Group
companies, it needs to establish a group-wide quality assurance framework. Therefore,
when establishing a group-wide quality assurance framework discussed above in 2, the
MAC Group must pay heed to quality assurance throughout the entire MAC Group as acorporate group, and the framework must address those requirements.
END- 57 -

Exhibit (Timeline)
Date2016.112016.112017.1

MAC-related
MAC conducts internal investigation anddiscovers the Earlier Case.
In the course of the Earlier Case Investigation,interviews are conducted with employees withexperience in the quality assurance management
for foil and extruded products and managementlevel employees.

2017.2.20

MAC conducts an extraordinary audit of TKC
and discovers the Earlier Case (TKC) at the
Yoro Plant.
MAC’s Internal Audit Department reports the
Earlier Case (TKC) to the Response
Furtherance Committee.
TKC voluntarily reports the Earlier Case
(TKC) to the Ministry of Economy, Trade, andIndustry and JTCCM as a violation of the JIS
requirements.
JTCCM conducts an extraordinary JIS
certification maintenance investigation of
TKC.
Hardness testing using Hw and rewriting oftensile testing is abolished at the Yoro Plant,
which leads to the discovery of the automatic
mill test certification generation system.
JTCCM temporally revokes TKC's right todisplay JIS certification, and TKC temporarily
ceases to display the JIS certification.
Use of the automatic mill test certification
system is suspended at the Yoro Plant.
JTCCM conducts re-investigation of TKC
with respect to JIS certification.
JTCCM withdraws its order temporarilysuspending TKC's right to display JIS
certification, and TKC resumes display of JIS
certification.

2017.2.21

2017.7.24

2017.8.1

2017.82017.8.21

2017.9.22
2017.9.29
2017.10.16

End of2017.112017.12.9

2017.12.1819
2017.12.25
2017.12.252018.1.28

2018.1.12

TKC-related

Rewriting of elongation results for some foil
products and rewriting of surface roughness
results for some sheet and plate products using a
multiple are discovered at the Fuji Plant.
JSA conducts an extraordinary investigation withrespect to ISO 9001, which cites the fact that JSA
could not confirm that remedial measurestargeting the Earlier Case were effective.
JQA conducts an extraordinary investigation of
MAC and discovers that MAC's re-inspection
methods, etc. violate JIS requirements.
JSA temporarily suspends MAC's ISO 9001
certification.
MMC conducts a special audit of MAC anddiscovers misconduct such as the rewriting of
data, in different manners from thosedemonstrated in the Earlier Case.
JQA revokes MAC's JIS H 4000 and JIS H 41000
certifications.

2018.1.15-22

MMC conducts a special audit of TKC anddiscovers the Misconduct (TKC).

58

Annex 2

To:

Special Investigation Committee of Mitsubishi Materials Corporation
March 27, 2018

Investigation Report(Concerning the actual state of the framework for quality control of sintered products at
the Niigata Plant of Diamet Corporation)

Attorney

Nishimura & Asahi
Takashi Shibuya

Attorney

Ryutaro Nakayama

Attorney

Jun Katsube

Attorney

Tomoyuki Numata

AttorneyToshiki Kitazumi

Attorney

Jumpei Hotta

Attorney

Natsuki Hosoya

Attorney

Mitsuki Kono

Attorney

Tomoyuki KawanishiThis is a report on the investigation (“Investigation”) Nishimura & Asahi
conducted that was commissioned by the Special Investigation Committee (“MMCSpecial Investigation Committee”) established by Mitsubishi Materials Corporation(“MMC”).
This report summarizes the results of the investigation, analysis, etc. that wereconducted as much as possible and believed to be appropriate within the given time andconditions, and there is a possibility that the conclusions or other aspects will change if
new facts or other details are discovered. Please also be aware that this report does notguarantee any judgement of the courts or decisions of other relevant regulators, etc.

Table of Contents
Page
Section 1
Circumstances Leading to the Investigation and the Purpose of theInvestigation ······································································· 6
Section 2

Progress on the Investigation ············································ 7

1Overview of the Investigation and the investigation framework · 7

2

Detailed review of relevant materials ·································· 7

3The status of conducting digital forensic investigation ············· 7

4The status of conducting interviews ···································· 8

5The Reference Date for the Investigation ····························· 8

Section 3

Overview of the Niigata Plant ··········································· 81

Details on the business and products handled by the Niigata Plant·················································································· 8

2The organizational structure and division of operations at the
Niigata Plant ································································· 93Operational flow from receipt of order to shipment of sinteredproducts ·····································································10(1)AReceipt of order, design and process design ····················10Preparation of written quotation and determination of receipt
of order for a new product ···································10
Production of sample, determination of specification andproduction and inspection process ·························10Design Review (DR) ·················································12
Production process ··················································13
Inspection process and shipment ·································14
Types of inspection and the flow until shipment ··············14

B

Explanation about details of inspection ·························15

A
B
C
(2)
(3)

4

Operational flow when Non-Conforming Products areproduced ·····································································17(1)Measures taken when Non-Conforming Products are found inacceptance inspection ···············································17

-2-

(2)

Measures taken when Non-Conforming Products are found in
in-process inspection ················································17
Measures taken when Non-Conforming Products are detectedin the final inspection ···············································18(3)Section 4
Misconduct Relating to Quality Control at the Niigata Plant
Discovered as a Result of the Investigation ································18
1Circumstances leading to the discovery of First Discovered
Incidents ·····································································182Details of misconduct discovered at the investigation on First
Discovered Incidents ······················································19
(1)

A
B
C
(2)

3

Misconduct related to the final inspection (omission of the
final inspection, conducting final inspection after shipment,
neglecting release of Non-Conforming Products, rewriting of
inspection reports) ···················································19
Description of misconduct ·········································19
Circumstances and time of the commencement ···············21
Awareness of management ·········································22
Other misconduct detected in the investigations on the First
Discovered Incidents ················································22

The response after the discovery of the First Discovered Incidents·················································································23
(1)
(2)
A
B

C
D
(3)

Fact finding ···························································23
Analysis of cause ·····················································23
Common causes of each issue in the First Discovered
Incidents ·························································23
Cause of the misconduct concerning the final inspection(omission of the final inspection, conducting final
inspection after shipment, neglecting release of NonConforming Products, rewriting of inspection
reports) ···························································24
Cause of process change without customers’ approval ······24
Cause of the omission of the magnetic flaw detecting
inspection process ··············································24
Formulation and implementation of recurrence preventive
measures ·······························································24

-3-

A
B

C
D

General recurrence preventive measures ·······················24
Recurrence preventive measures against final inspectionrelated misconduct (omission of the final inspections,conducting final inspection after shipment, neglecting
release of Non-Conforming Products, rewriting of
inspection reports) ·············································26
Recurrence preventive measures against process changes
without customer approval ··································26
Recurrence preventive measures against omission of themagnetic flaw detection inspection process ···············27

4Background leading to discovery of the Later Discovered
Incidents ·····································································27

5Misconduct in the Later Discovered Incidents ······················28(1)Misconduct in the final inspection (omission of the final
inspection, conducting final inspection after shipment,
neglecting release of Non-Conforming Products, rewriting of
inspection reports) ···················································28
Description of misconduct ·····················································28(2)Circumstances and time of the commencement ·········30(3)Circumstances surrounding the continuance of(4)

misconduct even after the discovery of the First
Discovered Incidents ··········································30
Awareness of management ···································33

Section 5

The Root Causes and Background ·····································34

1Background ·································································34
(1)
(2)

2.

DM’s Financial Situation···········································34
Positioning of inspection departments at DM ·················34
Cause analysis common in the First Discovered Incidents andLater Discovered Incidents ··············································35

(1)
(2)
(3)

Order intake and mass production of specifications thatexceeded its process capacity ······································35
Process capacity to manufacture products that satisfied
customer specifications deteriorated ····························36
Quality assurance framework was deficient ···················37

-4-

(4)
(5)
(6)

Insufficiency of manpower and equipment for inspection ··38
Pressure of delivery date and pressure on the inspection
departments from other departments ···························38
Reduction in the consciousness for quality ·····················393Analysis of the root causes of continued release of NonConforming Products even after discovery of the First Discovered
Incidents ·····································································39

Section 6

Recurrence Preventive Measures ······································40

1Receipt of orders in accordance with process capacity andimprovement of process capacity by strengthening technology
departments·································································402Receipt of order in accordance with production capacity ········413Reconstruction of quality assurance framework ···················41

4Automation of inspection equipment, and increase of the numberof inspectors and inspection ability ····································415Reduction of pressure of delivery date by appropriate
management of inventory quantity ····································426Awareness makeover in quality·········································42-5-Section 1

Circumstances Leading to the Investigation and the Purpose of theInvestigation

As described in Section 4.1 below, through notice to MMC’s Internal Contact
Office, as of approximately August 2016, MMC discovered that there had been
misconduct including process change not authorized by customers of Diamet Corporation(“DM”), MMC’s wholly-owned subsidiary, and shipment of products that deviated fromthe range of specifications agreed with DM’s customers (“Customer Specifications”)(hereinafter, deviations from Customer Specifications are referred to as “NonConformance,” and products with Non-Conformance are referred to as “NonConforming Products”) at DM’s Niigata Plant (“Niigata Plant”) (the circumstances ofthis misconduct, etc. that MMC discovered at the time are hereinafter referred to as the“First Discovered Incidents”).
As described in Section 4.3 below, an internal investigation committee, including
external lawyers, had investigated facts and determined the root causes, and there has
been formulated and implemented the recurrence preventive measures against the First
Discovered Incidents. In addition, after the discovery of the First Discovered Incidents,
DM had notified, in sequence, customers to whom DM shipped the products relating to
the misconduct as described in Section 4.2 below, and completed those notifications andreceived confirmation that there was no safety issue.
After that, there was a notice to MMC’s whistleblower hotline on January 24,
2018, informing of a possibility of incorrect recording of inspection data at DM, and
MMC made an investigation by conducting interviews of concerned individuals of DM.
MMC found that misconduct, including shipment of the Non-Conforming Products,
which is one of the misconduct in the First Discovered Incidents, had been continuing in
the Niigata Plant (“Later Discovered Incidents”), and therefore, MMC’s special audit
on DM was conducted from January 30, 2018. In light of the seriousness of the situation,
MMC initiated an investigation to discover the facts related to the Later Discovered
Incidents based on an instruction from the MMC Special Investigation Committee
established as of December 1, 2017 by MMC, and made an announcement regarding theLater Discovered Incidents on February 8, 2018.
The MMC Special Investigation Committee determined that it would be necessary
to perform a thorough investigation from an objective and neutral perspective, and it
requested that Nishimura & Asahi conduct an investigation and review with the following
objectives:①

Investigate the actual state of the framework for quality control of sintered②

products 1 in the Niigata Plant (including investigation on the First
Discovered Incidents and the Later Discovered Incidents);
Analyze the root causes and background circumstances based on the

Sintered machinery parts (“Machinery Parts”), sintered oil-impregnated bearings and sintered special alloy(hereinafter, sintered oil-impregnated bearings and sintering special alloy are collectively referred to as “Functional
Parts”).
1

-6-

③

Section 2
1

results of the fact-finding review of ① above; andPropose measures to prevent recurrences based on the analysis of ②
above.
Progress on the Investigation

Overview of the Investigation and the investigation framework

Based on the circumstances in Section 1 above, Nishimura & Asahi performed
the investigations described in ① through ③ below:①

A detailed review of relevant materials;②

A digital forensic investigation of email data, etc. possessed by relevant
parties; andInterviews of relevant parties.

③

The Investigation was led by attorney Takashi Shibuya and ten other attorneys of
Nishimura & Asahi, who have no interests in DM. Additionally, an expert forensic vendor
was engaged to assist with the Investigation under the direction and supervision of
Nishimura & Asahi.
Nishimura & Asahi commissioned such forensic vendor, to the extent necessary
and possible, to collect email data on DM’s email servers and individual PCs and mobile
phones issued to the relevant parties by DM. The forensic vendor was also commissioned
to narrow down the data and conduct a first-level data review under Nishimura & Asahi’s
direction.
2

Detailed review of relevant materials

Nishimura & Asahi collected the materials that currently exist at DM relating theactual state of the framework for quality control of sintered products at the Niigata Plant(policies and procedures relating to quality control, inspection records, audit-relatedmaterials and materials from quality-related committees, etc.) and performed a detailed
review and verification of their content.
3

The status of conducting digital forensic investigation

As stated in 1 above, Nishimura & Asahi preserved, to the extent necessary andpossible, the data from preserved email data from individual PCs and mobile phones
issued to the relevant parties by DM and DM’s email severs and other email data from a
total of twenty three (23) officers and employees who are involved in the sinteredproducts business at the Niigata Plant.
Due to the time constraints on the Investigation, it was necessary to apply
reasonable limits to the data that was preserved, so Nishimura & Asahi decided to extract
data using keyword searches, setting the target period as January 1, 2016 to January 31,-7-2018. With respect to the data for which extraction was completed by the Reference Datestated in 5 below, the forensic vendor mentioned in Section 1 above conducted the firstlevel data review, and Nishimura & Asahi conducted the second-level data review. This
report is based on these materials.
4

The status of conducting interviews

In order to make clear the actual state of the framework for quality control ofsintered products at the Niigata Plant, Nishimura & Asahi conducted interviews with a
total of forty one (41) officers and employees of DM up until the Reference Date statedin 5 below. We note that some interviewees were interviewed multiple times.
5

The Reference Date for the Investigation

The Investigation began on January 29, 2018. The reference date for this report isMarch 26, 2018 (“Reference Date”), and the description below summarizes the facts,
results of examination, etc. that have become known as of this Reference Date.
Section 3
1

Overview of the Niigata Plant

Details on the business and products handled by the Niigata Plant

Mitsubishi Mining Company Ltd. (current MMC) began operations at the Niigata
Metals Plant (currently the Niigata Plant) in 1944. Since beginning to manufacture
sintered oil-impregnated bearings in 1947, The Niigata Plant has been manufacturing
Machinery Parts, such as those for variable valves and transmissions and oil pump rotors;
sintered oil-impregnated bearings, such as bearings for fuel pumps, electronicallycontrolled throttle and exhaust gas recirculation systems; and sintering special alloy, suchas soft magnetic cores, wear resistance materials and stainless parts. It has been sellingthese products mainly to auto parts manufacturers.
In 1987, MMC established the Fujioka Plant (now the Fujioka Plant of DM; the“Fujioka Plant”) and expanded globally by establishing sintered product production
facilities in the US in 1988, Malaysia in 1993, and China in 2005.
In December 2005, MMC split off its sintered products business and transferred
control of its sintered products business to Mitsubishi Materials PMG Corporation(“MMPMG”), a joint venture with the Austrian company Plansee Holding AG(“Plansee”). In December 2009, the joint venture between MMC and Plansee wasdissolved, with MMPMG becoming a wholly owned subsidiary of MMC and being
renamed Diamet Corporation, in which form it has operated to this day.
A special feature of DM’s products comes from its manufacturing method called“powder metallurgy (funmatsu yakin).” The powder metallurgy is a way of producing
metal parts by solidly pressing metal powders and combining them by heating.

-8-

2

The organizational structure and division of operations at the Niigata Plant

Divisions taking part in receipt of customers’ orders, development, manufacturing
and inspections are the Sales & Marketing Division, Production Engineering Division,
Research & Development Department, Production Division, and the Quality Assurance
Division. Each division’s or department’s operation is described in the chart below. The
chart below is based on the organizational structure of DM as of January 2018, because
the Investigation is initiated due to a discovery of the Later Discovered Incidents inJanuary 2018.
Name of Division
Sales &
Tokyo Branch,Marketing
Nagoya Branch,
Division
Osaka Branch
Sales Engineering
Department
Production
MachineryEngineering
Engineering
Division
Department
Production
Engineering
Department
Research &Machinery Parts
Development
R&D Section
Department
Functional Parts
R&D Section
Production
Niigata Mold
Division3
Section
Functional Parts
Manufacturing
SectionSmall Parts
Manufacturing
Section, Large
Parts
Manufacturing
SectionOperation
Matters related to sales and marketing forcustomers in each region and their overseas
affiliates
Matters related to responding to customers’
technological needs in sales activities
Matters related to outsourcing control,
subcontract act, managing costs of materials
and processing technologies
Matters related to production technology,
facility and engineering
Design, prototype production, material
development and production method
development, etc. of Machinery Parts
Prototype production, material development,
etc. of Functional Parts2
Matters related to production and repair ofmolds and press jigs
Matters related to design, prototype
production and production of bearings andspecial alloy products (valve seat products,
etc.)
Matters related to the manufacture ofMachinery Parts

2

Design of the Functional Parts is taken charge by the R&D Unit of the Functional Parts Manufacturing Section of the
Production Division (currently the Functional Parts Department).

3

Due to the organizational structure change as of February 15, 2018, the Mold Production Department that supervises
the Niigata Mold Section and Fujioka Mold Section, the Functional Parts Department that is promoted from a section
to a department, the Machinery Parts Manufacturing Department that supervises the Small Parts Manufacturing
Section, Large Parts Manufacturing Section and Material Performance Control Section, and the newly established
Machinery Parts Engineering Department are placed under the Production Division.

-9-Name of Division
Material
PerformanceControl Section
Quality
Niigata Quality
Assurance
Assurance Section
Division,
Quality
Assurance
Department
Niigata Quality
Control Section
3

Operation
Matters related to the supply of Machinery
Parts materials
Matters related to quality assurances for
products

Matters related to quality control, analysis andinspection of products

Operational flow from receipt of order to shipment of sintered products

The following explains operational flow from receipt of order to shipment for the
Machinery Parts.
(1)

Receipt of order, design and process design

A

Preparation of written quotation and determination of receipt of order for a
new product

When each of DM’s branches and sales offices receives an inquiry from acustomer for a new product, they send a request to the responsible employee of the Sales
Support Section of the Business Administration Department to prepare a written
quotation. The personnel of the Sales Support Section jointly confirm degree of difficulty,
etc. of the customer’s request with the responsible employee of the Machinery Parts R&D
Section of the Research & Development Department, and a meeting (DR0 referred to in
C below) is held based on a judgment of the General Manager of the Business
Administration Department if responding to the customer’s request is difficult because ofa technical reason or otherwise. The personnel of the Machinery Parts R&D Section
prepare a written quotation based on the specification agreed upon with the customer, andobtain an approval of it from the General Manager of the Research & Development
Department after a consultation with the customer on alteration of the customer’s request,
if adjustment of the customer’s request is necessary because it is deemed difficult, etc.,
to meet the customer’s request on the specification by taking into account the review of
the customer’s request and the result of the meeting. Afterwards, the customer verifies
discrepancies, etc. between the customer’s order and the quotation and places an official
order if there is no problem.
B

Production of sample, determination of specification and production andinspection process

After a formal determination is made to accept an order, the employee of the Sales
Support Section of the Business Administration Department directs the employee in- 10 -

charge of prototype production in the Machinery Parts R&D Section to produce a sample
in accordance with a sample specification issued by each branch and sales office.
There are two types of samples which are produced before mass production. One
is made by machining a sintered block, such as cutting (entire processing), and the other,called a new mold sample, is made by producing a mold in the same way as for a real
product. The entire processing sample is made at first, and customer’s approval is
obtained after.
The new mold sample starts to be produced after the customer approves a sample(entire processing) and places an order for the new mold sample. The employee in chargeof design in the Machinery Parts R&D Section initiates the design process when a branchor sales office issues a production order of the new mold sample to the Machinery Parts
R&D Section. The design is conducted in the order of (a) drafting of a written design plan,(b) review of a drawing, and (c) review and approval of the drawing by the Manager ofthe Machinery Parts R&D Section. Following these processes from (a) to (c), a meeting
chaired by the Machinery Parts R&D Section as the responsible department is held among
the employees of the Sales Support Section of the Business Administration Department,
the employee in charge of the design, the manufacturing section, and the quality assurance
section, etc., in order to discuss related issues on process designing such as productdrawing, mold drawing, and process specification sheet4 (DR2 referred in C below). In
light of the discussions in such meeting, the designer from the Machinery Parts from the
R&D Section5 designs the process, based on which the aforementioned documents suchas product drawing, mold drawing, and process specification sheet are prepared andtechnical registration is conducted. 6
Moreover, the documentation management
personnel of the Niigata Quality Assurance Section prepare the QC process chart, 7
referring to the product drawings and process specification sheet, and the details of thetechnical registration. This process determines all of the processes for manufacture andinspection of the product in question. 8 Based on the product drawings, etc., thedocumentation management personnel of the Niigata Quality Assurance Section also
prepare the inspection specification document that sets forth the details of final inspection.
Then, the new mold sample is created and delivered to the customer, followed by mass

4

A process specification sheet is a standard operational document that specifies administrative items in the process of
production of each product, in-process inspection specifications, and precautions for the operation, etc.

5

The Design Unit of the Functional Parts, Production Division handles the process design for Functional Parts.

6

Specifically, entering the process settings (what kind of process to be conducted in what order) in DM’s system forthe product in question.

7

The QC process chart is a document which sets forth each process from production to shipment of a product, thename of a document which specifies the machine facilities used and the specification or the standard that shall becomplied with in each process and inspection method, etc. Each of the QC process chart and the technicalregistration mentioned above contain process-related information, but while the technical registration was forregistering the process-information shared within DM, while the QC process is created as a document to be submitted
to customers.

8

The Production Control Unit of each Manufacturing Section (the Large Parts Manufacturing Section, the Small Parts
Manufacturing Section and the Functional Parts Manufacturing Section (currently the Functional Parts Department))of the Production Division determines how to proceed along with the determined process for each product.

- 11 -

production after the customer’s approval. It takes a year or two from an inquiry to an
approval of a new mold sample by a customer.
C

Design Review (DR)DM conducts a design review (“DR”) in five steps in total pursuant to a written
design plan, starting from the quotation to the beginning of mass production as necessary.
The breakdown of the five steps is as follows:①

DR0

At the quotation stage, as the responsible department, the Business
Administration Department leads review of issues from theperspective of facility capacity and technical capacity among an
employee of the Sales Support Section of the Business
Administration Department, a design employee of the Machinery
Parts R&D Section, and an employee of the relevant production

②

DR1

③

DR2

④

⑤

DR3

DR4

section.
At the stage of instruction for creation of a new mold sample, adesign employee of the Machinery Parts R&D Section and theManager of the Machinery Parts Section, etc., review the customer’s
specifications.
At the process design stage, as the responsible department, theMachinery Parts R&D Section leads the examination of the process
design, etc., among an employee of the Sales Support Section of theBusiness Administration Department, a design employee of theMachinery Parts R&D Section, an employee of the section in chargeof the product, an employee of the Quality Assurance Section, etc.
At the stage of manufacturing an initial product of mass production,
as the responsible department, the Machinery Parts R&D Section
leads sharing issues at the stage of sample production with theProduction Division (and succeeds mass production to it) among theManager of the Sales Support Section of the Business
Administration Department, the Manager of the Machinery Parts
R&D Section, the manager of the section in charge of the product,
and the Manager of the Quality Assurance Section, etc.
At the stage of approving transition to mass production, the director
in charge of Research & Development, the Deputy General Managerof the Production Division, each manager of production sections, theGeneral Manager of the Research & Development Department, andthe Manager of the Machinery Parts R&D Section, etc., participate- 12 -

in confirmation of issues designated in DR3, and the director in
charge of Research & Development approves the transition.
(2)

Production process

Products produced in the Niigata Plant are done so through the processes ofpowder mixing, compacting, sintering, sizing, and after-treatment (machine processing,heat processing, and oil impregnation). Some products completely omit the aftertreatment, and others require only a specific part of it (for example, machine processingonly).
In the powder mixing process, the weight of various metal powders is measured
by a scale for a specific composition and raw materials are formed by mixing the powders
uniformly with a mixer. The powder mixing process is conducted by the Powder Mixing
Unit of the Material Performance Control Section.
In the compacting process, a compacting mold is filled with t raw materials, anda compacted block is formed by pressing the powder, raw materials, with a uniaxial pressmachine.
In the sintering process, the sintered block is made by heating the compacted blockat high heat.
In the sizing process, the sintered block is placed into a high-precision mold again,
and its dimensions are improved and its shape is fixed by pressing with the press machine.
The Small Parts Manufacturing Section or the Large Parts Manufacturing Section
conducts processes from compacting to sizing depending on variation of the Machinery
Parts.9In the after-treatment process, machine processing which adjusts dimensions byprocesses such as cutting, as well as processes such as heat processing to enhance
hardness, are conducted. The Material Performance Control Section is responsible for andconducts the after-treatment process. Out of the entire after-treatment process, machineprocessing is outsourced to cooperative companies of DM by the Material PerformanceControl Section because of the lack of a machine processing facility in the Niigata Plant(outsourced processing).
Following each process above, appearance of every product is inspected. This
inspection is conducted by either the Small Parts Manufacturing Section or the Large
Parts Manufacturing Section depending on the type of the Machinery Parts.10

9

The Functional Parts are processed by the Functional Parts Manufacturing Section (currently the Functional Parts
Department).

10

The Functional Parts are inspected by the Screening Inspection Unit of the Functional Parts Manufacturing Section(currently the Functional Parts Department).

- 13 -

In addition, each manufacturing section11 issues a written production order12 at
the Niigata Plant for each process number prior to the beginning of mass production. At
DM, the process number is assigned to a divided lot of products within the same lot, anddivision criteria are decided on a product-by-product basis based on their handlingnumber.13 The process number is comprised of ten digits (e.g., “E12345 0100” etc.),
which indicates the following: the letter at the beginning shows a production category(showing either mass produced items or spot items, etc.); for the nine numbers, the next
five numbers are serial numbers of production order indicating continuous production
through sizing processes with the same conditions (i.e. products with the same production
instruction series number are from the same lot); the first two digits out of the final four
digits number is the divided lot number where the same lot has been divided; and theremaining two digits designates a divided lot number where the lot has been further
divided. For example, the first lot is assigned “0100,” 14 and the second lot and thesucceeding lot are assigned “0200,” “0300,” and so on. Occasionally, the lot number“0100” is divided into subdividing numbers like “0101” and “0102,” but the number“0100” is displayed if it is not split.
(3)

Inspection process and shipment

A

Types of inspection and the flow until shipment

The Niigata Plant conducts three types of inspections comprised of an acceptanceinspection, an in-process inspection and the final inspection. An acceptance inspection
inspects raw materials (including purchased goods and supplied goods; hereinafter thesame). An in-process inspection inspects intermediate products that have not completed
all of the production processes, and this inspection is conducted at each production
process. The final inspection inspects the final products after all of the production
processes. Details of each inspection are described in B below.
Once final inspection has been completed (the details of which are as described
below in B(c)), the product is packed and shipped to distributors and customers, etc.

11

The Functional Parts Manufacturing Section (currently the Functional Parts Department) issues the written
production order for Functional Parts.

12

The written production order is an operational instruction document used for producing products containing a
product number, a process number, a number of production instruction and sequences of the process, etc. and issued
for each of the process number. The staff operates pursuant to the production order and fills in the actual performance.

13

Because not all products from a same lot can be moved within the plant at once, the lot is split in accordance withthe prescribed handling protocols.

14

It is called “100 process number” at DM.

- 14 -

B

Explanation about details of inspection(a)Acceptance inspection
The inspection items and contents vary with raw materials.

Specifically, ①acceptance inspection is conducted by the accepting section using
an operation standard set forth by that section for any materials other than OEM
products 15 and those processed outside, ② for OEM products, the Niigata Quality
Control Section conducts inspection and inspection items and specifics are specified in a
written inspection standard, etc. set forth by the Quality Assurance Department, and ③
for materials that have their processing outsourced, the outside contractors conduct
inspection pursuant to a written outsourced inspection standard for contractors that wasapproved by the Quality Assurance Section. When materials processed outside areshipped into the Niigata Plant, the on-site supervisor for the next process after outside
processing checks whether the outside processing process has been completed, based on
the written production order and by visually checking the actual products.
(b)

In-process inspection

The in-process inspection is conducted after the completion of each production
process from powder mixing, compacting, sintering, sizing, and after-treatment (except
for machine processing that is outsourced). The inspection items and contents of the inprocess inspection are determined by a process specification sheet or an operational
standard, etc. set forth by each department.
After the completion of each production process, an employee in charge of eachof the production process in the Manufacturing Section conducts voluntary in-processinspection for each inspection item in a process specification sheet in accordance withpre-determined standards and conditions. The result of the voluntary inspections at eachproduction stage is recorded in a voluntary inspection data sheet.
(c)Final inspection

At the final inspection, a sampling check measuring dimensions and physicalcharacteristics, etc. of products and documentation review are conducted.
The scope, frequency, items, etc. of the inspection depends on agreements withcustomers, but in principal it is conducted based on the ways described here. An employee
in charge of the final inspection picks up certain samples from the first divided lot16 thatare provided for the final inspection out of the same production instruction series, andthen inspects their dimensions and physical characteristics, etc. for each inspection item
OEM products mean DM’s products that are produced in other companies based on an outsourcing contract with
DM.

15

They are frequently “100 process number” divided lots, though the sequence of the divided lots varies depending on
the process of outsourced machine processing, etc.

16

- 15 -

set forth in an inspection standard, in accordance with pre-determined standards andconditions,17 and records the result into an inspection report. Other divided lots within
the same production instruction series usually do not face the sampling check but only
the document check described below.
At the document check, an employee in charge of the final inspection checks thecompletion of every process up until the final inspection required by a written production
order as well as contents of the voluntary inspection data sheet and the outsourced
inspection report 18 attached to the written production order that contains in-processinspection results of each production section. In case a defect report in a production stage
and/or outsourced machine processing stage is attached, the employee will confirm whatkind of measures is taken up until the final inspection process. If Non-Conformance isfound, the employee checks whether a concession application document is attached or not(see 4(2) below for an explanation of “concession”). In addition, the employee confirms,
regarding the product, whether a technical reporting document is issued or not,completion and the result of a treatment instructed by the technical reporting, whether acard showing that the product is the initial product of mass production is attached or not
and a treatment based on the card, whether the number (number of containers) written ina written production order and that (number of containers) of the actual products are thesame or not, any difference in actual products and the absence of abnormal appearance.
It is believed that DM and its customer agreed that the sample check is to be
conducted before the shipment pursuant to the pre-determined conditions, as arepresentative sample of a QC process chart agreed between DM and its customer that
we received showed that the sample check for dimensions and physical characteristics is
a process to be conducted prior to the shipment.
However, the only explicit provision requiring a “final inspection” before
shipment in DM’s internal rules regarding inspections is the aforementioned document
check, and there was no requirement to perform the sample check described above prior
to shipment. In fact, at the Niigata Plant, with regard to the shipment of each production
instruction divided lot, including the first divided lot for which the sampling check above
is conducted, passing certificates were issued based on the document check above only
and were regarded as eligible for shipping. On the other hand, as described in Section 4.2(1) below, it has become the normal practice that either the sampling check above isconducted after the shipment or no such check is conducted.
In this report, unless otherwise specified, “final inspection” means the sampling
check referred to above, though this wording is differently used in DM’s internal rules
regarding inspections.

17

The inspection items and standards, etc. of the final inspection are different from those in the acceptance inspection
and the in-process inspection. Generally speaking, the inspection items of the final inspection are more than those of
the in-process inspection, and standards applicable to dimensions and physical characteristics may vary because of
the difference in shapes and properties of products at each stage of post-forming, post-sintering and post-completionof machine processing.

18

Outsourced inspection reports contain the results of inspections conducted by outsourcing providers.

- 16 -

4

Operational flow when Non-Conforming Products are produced(1)

Measures taken when Non-Conforming Products are found in acceptanceinspection

If Non-Conforming Products are found in the acceptance inspection and those are
judged to be usable for raw materials, a department using the raw material decides how
to treat those. Otherwise, raw materials are to be returned to the supplier.
(2)

Measures taken when Non-Conforming Products are found in in-processinspection

If Non-Conforming Products are found in the in-process inspection, DM’s internal
rules regarding the handling of defects govern the measures taken.19
Specifically, after the finding of Non-Conforming Products in the in-processinspection, a production of the products is immediately suspended and they cannot moveto the next production process.
There are four possible measures to be taken for Non-Conforming Products,
which are “reproduction,” “modification,” “concession,” and “selection.” Reproductionmeans disposing of the products and producing alternatives based on the judgment that
there is no prospect of recovery. Modification means turning the products into
conforming products by modifying them. Concession means applying to customers fortheir approval for concession. Selection means sorting out conforming products byinspecting all of the products.
When Non-Conforming Products are found in the in-process inspection, aprescribed defect report20 is prepared by the employee in charge of inspections and theincident is reported to the Section Chief supervising such employee or other relevantsuperior. The concerned Section Chief, etc. decides the measures to be taken out of thosedescribed above depending on the details and degree of Non-Conformance. If the Section
Chief, etc. is not able to decide the measure to be taken based on his or her sole judgment
such as when a judgment on highly technical issue is required, he or she defers to the
judgment of the responsible employee in the Technical Unit of each manufacturingsection. The Section Chief, etc. or the employee obtains an approval on the decided
measure from the manager of the section in charge of the product or certain deputies after

19

The internal rules regarding the handling of defects stipulate different measures depending on a degree of defect. If
a “major defect” such as a crack, etc. is found in a product, measures including an immediate report to the Quality
Assurance Department are required. On the other hand, Non-Conformance that does not meet the customer
specifications does not quality as a “major defect,” so measures described in the main text is enough.

20

The defect report is issued and attached for each process number of products.

- 17 -

deciding the measure. 21 Afterwards, the Manager of the Niigata Quality Assurance
Section endorses the measure finally.
(3)

Measures taken when Non-Conforming Products are detected in the final
inspection

The operational flow for Non-Conforming Products found in the final inspection
is basically the same as the case of the in-process inspection described in (2) above, basedon the internal rules regarding the handling of defects. On the other hand, if it is foundthat products out of which Non-Conforming Products are found are shipped already,necessary measures are decided after the Quality Assurance Department promptly
informs addressees of the shipment (agent, customers, etc.) in writing such as an email,etc.
Possible measures are the same as described in (2) above, divided into four
categories including reproduction, modification, concession, and selection.
Section 4

1

Misconduct Relating to Quality Control at the Niigata Plant
Discovered as a Result of the Investigation

Circumstances leading to the discovery of First Discovered Incidents

In February 2015, there was a whistleblowing from an employee of DM to
MMC’s Internal Contact Office pointing out that unpaid overtime work was occurringand that the production sites indicated for products were different from the actual
production sites. In response to this, MMC’s Internal Contact Office received explanationfrom the President before the former President of DM, who was the president at the time,
confirmed how DM would treat this incident, and responded to the whistleblowing basedon such information. In July 2015, the whistleblower pointed out that these incidents had
not been corrected yet, and in March 2016, that the former issue had not been corrected
and the latter issue had increased. Therefore, the office conducted an investigation on
those incidents. As a result, it was confirmed that indicated production sites of products
were different from the actual production sites in DM, so MMC decided to conduct a
detailed investigation in July 2016 and initiated such investigation from August 2016. In
September 2016, an internal investigation committee including external experts wasestablished, and an investigation by the committee was started. The investigation
continued to March 2017.

21

When the department finding Non-Conformance in the in-process inspection (finding department) is different fromthe department in charge of inspecting Non-Conformance (responsible department), an employee responsible forinspection in the finding department drafts a defect report and the incident is reported to the Section Chief, etc. incharge in the finding department. Afterwards, the incident is reported to the Section Chief, etc. of the responsible
department from the Section Chief, etc. of the finding department, and the Section Chief, etc. of the responsible
department decides the measure.

- 18 -

As a result of the investigation of the committee, it was discovered that
misconduct classified into the following categories were conducted (First Discovered
Incidents).
(i)

(ii)
(iii)

Misconduct related to the final inspection (omission of the final
inspection, conducting final inspection after shipment, neglecting releaseof Non-Conforming Products, rewriting of inspection reports)
Process change without customers’ approval
Omitting of the magnetic flaw detection inspection process2

Details of misconduct discovered at the investigation on First Discovered
Incidents(1)

Misconduct related to the final inspection (omission of the final inspection,
conducting final inspection after shipment, neglecting release of NonConforming Products, rewriting of inspection reports)

A

Description of misconduct(a)Omission of the final inspection

As described in Section 3.3(3)B(c) above, the final inspection is required to be
conducted prior to shipment of products pursuant to a written inspection standard.
Nevertheless, products were shipped without conducting the final inspection before
shipment, and it became habitual for the final inspection not to be conducted even after
the shipment.
Major situations of such omissions are categorized into ① omitting choosing
samples and ② choosing samples but omitting the final inspection on these chosen
samples.
(b)

Conducting final inspection after shipment, neglecting release of NonConforming Products

At the Niigata Plant, products were delivered before the final inspection that must
be conducted before shipment. When the final inspection after such shipment was
conducted and discovered the Non-Conforming Products, normally, formal measures(e.g., preparing a defect report and recalling the Non-Conforming Products) had to betaken. However, at the judgment of the inspectors responsible for final inspections and/or
the Inspection Unit Chief, in light of the track records, etc. of the shipment of the NonConforming Products, the formal measures (e.g., preparing the defect report and recalling
the Non-Conforming Products) were not taken and the release of the Non-Conforming
Products was neglected.

- 19 -

In the case above, when the defect report was not prepared only at the judgmentof the inspectors responsible for final inspections and the Non-Conforming Products werereleased, there was a practice with regard to the Machinery Parts that the inspectors
responsible for final inspections referred to the document called “the administration
record for the final inspection” before such judgment. There might be cases where theadministration record for the final inspection was attached to the written inspection
standards, etc. of the products, which were kept by the Inspection Unit, and it recorded
the dates when the Non-Conformance was discovered in the past, the items of the NonConformance, the actual measurement value, the name of the employee in charge in theTechnology Unit who approved the shipment, etc. Although the Non-Conforming
Products were discovered through the final inspection after the shipment, the inspectors
responsible for final inspections neglect the release of the Non-Conforming Products
without taking the formal measures (e.g., preparing the defect report and recalling the
Non-Conforming Products) when the values of the Non-Conforming Products were
within the actual measurement values in the administration record for the final inspection.
(c)

Rewriting of inspection reports

At the Niigata Plant, there were some products for which the inspection reportmust be submitted regularly to the customer or for which the inspection report must be
submitted to the customer at the customer’s request under the contract with the customer.
When the final inspection after the shipment discovered Non-Conforming Products withregard to the dimensions and the physical characteristics of the products, certain solutions
were supposed to be taken, such as reporting the actual measurement values to thecustomers and obtaining concessions from the customers. However, the values in theinspection report for lots where the Non-Conforming Products were discovered were
rewritten as if they had fallen within the customer specifications and then the inspection
report was provided to the customers.
The inspectors responsible for final inspections in the Manufacturing Department
at that time rewrote the actual results of inspection reports saved on a shared server, andthe steps taken are as follows:①②③

At the instruction of the Inspection Unit Chief or as described in (b) above,
the inspectors responsible for final inspections referred the administration
record for the final inspection and then rewrote the values in the inspection
report without preparing the defect report at his or her own discretion.
After preparing the defect report and the discussion with the Quality
Assurance Department, the inspectors responsible for final inspections
decided the shipment was acceptable in light of the past track records andthen rewrote the values in the inspection report.
After the discussion with the person in the Technology Unit of the
manufacturing department, the inspectors responsible for final inspections
decided the shipment was acceptable in light of the past similar trackrecords and then rewrote the values in the inspection report. In some cases,- 20 -

the inspectors responsible for final inspections prepared the defect report,
but in other cases he or she did not.
B

Circumstances and time of the commencement

Regarding the circumstances and time of the commencement of the omission of
the final inspection, conducting final inspection after shipment, neglecting release of
Non-Conforming Products, the following facts were revealed through interviews.
With regard to the Machinery Parts, until around 1980, sampling inspections for
all divided lots were conducted for all products produced at the Niigata Plant. However,after that time sampling inspections for all divided lots were not carried out for someMachinery Parts.22 In particular, regarding the initial products23 of the mass produced
Machinery Parts produced with sufficient process capacity, when the sampling inspection
did not discover the Non-Conforming Products from them and the Non-Conforming
Products were not found even after the sampling inspection for several tens lots of the
products, the products were treated as “A rank products.” For the A rank products, insteadof the sampling inspection for all divided lots, the sampling inspection for limited
products, such as only for divided lots that had the 100 process number, were conducted.24
However, afterwards, although it is not clear when it began, even the sampling inspection
for limited products began not to be conducted. In addition, for the Machinery Parts, fromapproximately 2014, the products were classified into the following classes: (Class A)
products for which the customers requested the company to submit the inspection reportor products that customers have complained about in the past, and all other products as“Class B.” Based on this classification system, final inspections were implemented
preferentially for Class A products rather than for Class B products, and therefore final
inspections were frequently not conducted for class B products in particular.
On the other hand, as for the Functional Parts, among inspectors responsible forfinal inspections, one stated that the omission of the final inspection and neglecting the22

According to the results of the interview from a person in charge who knows the situation at that time, although heor she did not remember the reasons, etc., the sampling inspection for all divided lots could not be conducted due tothe number of the personnel and capacity of the equipment and facilities of DM, in light of the reasons such as theincrease of the orders for the products.
According to DM’s rules, “initial products” are defined as (i) new products, which are the products for which a newnumber is assigned, (ii) design-changed products, which are the products for which the assigned numbers are changed,(iii) the process-changed products, (iv) the remanufactured products that are not produced for more than two years(provided, if there is an instruction from a customer regarding the term, such instruction shall be followed) and (v) the
mold-changed products, which are the products of which the dimensions, such as the nominal, are changed, theproducts of which the program of the mold modification was changed, the products that are changed by the renewalof the molds and by the stretch repair and the products the customer instructs specially.

23

24

As for the Class A products, checks using the documents are conducted such as verification between the standard
values in the process specification sheets and the actual measurement values in the voluntary inspection data sheets
were conducted.

- 21 -

release of the Non-Conforming Products were conducted from around 1977, when that
person joined DM.25
Regarding the circumstances and time of the commence of the rewriting of theinspection report, although the concrete circumstances and time were not revealed,according to the outcome of the interviews,26 for Machinery Parts, in approximately 1977,
there was an internal system in DM called “concession in the inspection.” “Concessions
in the inspection” differ from the “concessions” described above in Section 3.4(2) whichwere official measures for Non-Conforming Products (concessions where a concession
application was submitted to the customer and the customer’s approval for shipment was
obtained). “Concessions in the inspection” was a system where the Non-Conforming
Products were able to be delivered when the inspectors responsible for final inspections
reported Non-Conformance which was discovered in the final inspection to the Managerof the Quality Assurance Section and the Manager concluded that customers could use
the products without problems and approved the shipment of the products. At the latest,
it can be considered that the inspection reports were rewritten when the “concessions in
the inspection” began, because the values in the inspection reports needed to fall withinthose in the customer specifications, not within the actual measurement values, in orderto deliver such products without the claim from customers.
In addition, with respect to the Functional Parts, at the latest, it can be guessedthat the inspection reports began to be rewritten from approximately 1977 in order toprevent customers from realizing the release of the Non-Conforming Products, if the final
inspection after the shipment and neglecting the release of the Non-Conforming Products
began from approximately 1977.
C

Awareness of management

According to the outcome of the investigation conducted for the First Discovered
Incidents, it was found that some members of management were aware of the misconduct
described in A(a) to (c) above, but because the First Discovered Incidents were discovered
relatively soon after the former president (the “Former President”) assumed the positionof representative director and president in 2015, it cannot be ascertained that the Former
President was aware of the possibility of misconduct existing.
(2)

Other misconduct detected in the investigations on the First Discovered
Incidents

According to the outcome of the investigations conducted when the First
Discovered Incidents were found in addition to the misconduct described above in (1),25

The interviewee stated that he or she did not recognize that the final inspections were not implemented for the
Functional Parts.

26

Among the interviewees, there was one who stated that the inspection reports began to be rewritten fromapproximately 20 years ago.

- 22 -

misconduct was also discovered which involved process changes not approved bycustomers and omission of magnetic flaw detection inspection processes.
Process changes not approved by customers involved DM changing the process
without customers’ approval even though the company agreed with the customer that
customer approval was required to change the process in the normal situation.27
The omission of the magnetic flaw detection inspection process involved themagnetic flaw detection inspection for a part of the products of Machinery Parts by the
Producing Support Division in the Producing Division28 at the time was conducted onlyby the sampling inspection or the magnetic flaw detection inspection was completely
omitted when the products were delivered to the customers, even though the magnetic
flaw detection inspection should have been conducted for all Machinery Parts.
3

The response after the discovery of the First Discovered Incidents(1)Fact finding

As described in 1 above, the investigation on the First Discovered Incidents by
the internal investigation committee was conducted from September 2016 to March 2017.
(2)

Analysis of cause

DM analyzed the common causes of the First Discovered Incidents as describedin 2(1) and (2) above, as well as the particular causes of each misconduct.
A

Common causes of each issue in the First Discovered Incidents

As the cause in the First Discovered Incidents, it was pointed out that the
management and employees of DM lacked the pride and the awareness as a member ofthe manufacturing industry and the MMC group, that they lacked the complianceawareness and morality, that the organization and structure of DM was insufficient andthat the oversight of MMC was insufficient.
In addition, it was pointed out that the auditing structure of DM was insufficientand the internal whistleblower system (MMC’s Internal Contact Office) did not function
well so that the First Discovered Incidents were not found for a long period of time.

27

In particular, the following cases were found: (i) the products were delivered to customers, pretending that the
products were produced at the Niigata Plant, even though a part of or most of the production processes were transferred
to foreign affiliated companies, (ii) the products were delivered to customers, pretending that the products were
produced at the Niigata Plant, even though a part of or most of the production processes were transferred to the Fujioka
Plant, (iii) the products were delivered to customers, pretending that the products were produced at the Niigata Plant,even though a part of or most parts of the production processes were outsourced to other companies in the same
industry and (iv) outsourcing vendors for the machine processing were changed from the agreed outsourcing
companies to other companies without the approval from customers.

28

This is currently called the Material Performance Control Section of the Machinery Parts Manufacturing Departmentof the Production Division (see footnote 3 above).

- 23 -

B

Cause of the misconduct concerning the final inspection (omission of the final
inspection, conducting final inspection after shipment, neglecting release of
Non-Conforming Products, rewriting of inspection reports)

As the cause of the misconduct concerning the final inspection, the following
causes were pointed out: the acceptance of orders of the products that were difficult tomanufacture in light of the products’ specifications, the inactiveness of the quality
improvement activities, insufficient capacity of the product inspection (e.g., the numberof the personnel and testing equipment for the final inspection), insensitivity to the quality,
the corporate cultural climate that put the deadline before the quality, and the failure in
the checking function of the final inspection.
C

Cause of process change without customers’ approval

As the cause of the process change without customers’ approval, the following
causes were pointed out: the acceptance of orders of the products that were difficult tomanufacture in light of the products’ specifications, the lack of the mechanism forchecking the progress of the process change and of the suspension of the shipment of the
products for which the process was changed without customers’ approval, and the lack of
the understanding of the persons in charge of the rules regarding the process change.
D

Cause of the omission of the magnetic flaw detecting inspection process

As the cause of the omission of the magnetic flaw detecting inspection process,the following causes were pointed out: the lack of ability of the products inspection (e.g.,
the number of personnel who conduct the magnetic flaw detecting inspection andinspection equipment) and insufficient time for inspection.
(3)

Formulation and implementation of recurrence preventive measures

The following were the main recurrence preventive measures and were
formulated and implemented based on the analysis of the causes described in (2) above.
A

General recurrence preventive measures(a)

Recurrence preventive projects

With the aim of correcting the issues of DM’s nature (corporate culture),
personnel, facilities and equipment, and mechanisms cited above in (2), from around
October 2016, DM rolled out company-wide recurrence preventive activities, launching
the (i) corporate culture reform project, (ii) product yield improvement project, (iii)
inspection process improvement project, and (iv) IT system project.
(i) The corporate culture reform project was launched with the aim of creating aquality-focused culture, and improving communication between employees andincreasing job motivation, and sought to achieve this by means such as by holding- 24 -

meetings between DM’s executives and employees (management-level) from eachdivision and assemblies of all employees, as well as conducting employee surveys.
(ii) The product yield improvement project was implemented with the aim of
improving yield rates for products with the 57 product numbers that were found to havebeen Non-Conforming Products shipped to customers in the investigation when the First
Discovered Incidents were discovered and which, at the request of customers, require
100% inspection screening of such Non-Conforming items, and sought to achieve this by
studying and implementing improvement measures for each product.
(iii) The inspection process improvement project was implemented with the aimof augmenting inspection capacity, and sought to study measures for establishing andmaintaining a final inspection system and establishing and maintaining a 100% inspection
screening system, etc., and carried out augmentation of inspection personnel and facilities.
(iv) The IT system project was implemented with the aim of preventing theshipping of products that have not undergone process change procedures, and sought toconvert the process change procedure system to an online system, and visualize theprogress status of process change processing.
(b)

Reorganization

After discovery of the First Discovered Incidents, DM reorganized its structure toenhance its inspection framework and improve productivity. With the aim of establishinga mechanism to ensure that final inspections would be performed effectively, as of
October 1, 2016, DM newly established the Niigata Quality Control Section under the
Quality Assurance Department, transferred and consolidated final inspection functions,which had formerly been the located in manufacturing departments (Production Division),
to quality assurance departments. As of April 1, 2017, DM also changed the Board of
Directors to the new structure, and four directors were replaced. Additionally, as of May
1, 2017, DM put in place mechanisms to ensure that the issues did not reoccur, by newly
establishing the Quality Assurance Division, structuring its organization so that the
Quality Assurance Department was under the direct management of the Quality
Assurance Division, taking public relations measures to show that the quality assurance
framework had been strengthened, and appointing a full time director as the General
Manager of the Quality Assurance Division.
(c)Ensuring production capacity

In order to reduce the risk of quality problems reoccurring and to reform business
operations, on July 25, 2017, DM’s Board of Directors approved the DM Management
Reorganization Measures, which were a plan for initiatives to renew old facilities andequipment and automate the production process, etc. On the following day, July 26, 2017,
MMC’s Board of Directors gave approval for support for the DM Management
Reorganization Measures.
DM established the Re Project Promotion Office in September 2017 to facilitate“ensuring production capacity” through capital expenditure in DM, which was one of theaims of the reorganization plan. The Re Project Promotion Office comprised seven teams:- 25 -

the Product Transfer Team, In-House Processing Transfer Team, Construction andEquipment Team, Guangdong Equipment Team, Personnel Appointment Team,
Productivity Improvement Team, and Inspection Capacity Team. These teams shared
information with one another while acting to realize the goal of “ensuring production
capacity” for DM.
In order to facilitate “ensuring production capacity” through capital expenditurein accordance with the plan and improve productivity and yield rates, DM approved
approximately 3.6 billion yen of capital expenditure for the Niigata Plant and Fujioka
Plant. Thanks to this capital expenditure, state of the art facilities and equipment were
installed at the Fujioka Plant, which had further potential for expansion, and the
production of some products was transferred from the Niigata Plant to the Fujioka Plant.
In addition, automatic inspection equipment such as magnetic flaw detection inspection
and visual inspection equipment was installed at the Niigata Plant to automate theinspection process, etc. and improve productivity.
B

Recurrence preventive measures against final inspection-related misconduct(omission of the final inspections, conducting final inspection after shipment,
neglecting release of Non-Conforming Products, rewriting of inspection
reports)

As recurrence preventive measures targeting final inspection-related misconduct,
firstly, of the 257 product numbers for Non-Conforming Products picked up from theinspection reports for the period from February 2016 to September 2016 wheninvestigating the First Discovered Incidents, a product yield improvement project isunderway for the 57 products that customers identified as requiring 100% inspection
screening, and DM aimed to end 100% inspection screening quickly.
From October 2016, the number of inspectors engaged in final inspection wasincreased from just under 30 to just over 60, and 3D measurement equipment, etc. wasinstalled. At the same time, DM implemented inspection level checks by a third-party
organization in order to improve the skills of inspectors engaged in final inspections.
DM also implemented internal education initiatives relating to final inspection,such as familiarizing all employees with the importance of various inspections such as inprocess inspections and final inspections.
Please note that between October 2016 and December 2017 MMC conductedmonthly quality audits of the in-process inspections and final inspections at DM.
C

Recurrence preventive measures against process changes without customer
approval

The following measures were put in place as recurrence preventive measurestargeting process changes not approved by customers. First, in order to perform sufficientconfirmation of production capacity at DM, Production Capacity Adjustment Meetings
have been held once a month since January 2017, and production capacity is now checked- 26 -

periodically. DM now systematically renews and maintains aged facilities and equipment
under the management of the Production Engineering Department.
Prior to discovery of the First Discovered Incidents, defects in the process change
progress confirmation function and the loss of documents, etc. led to the shipment of
products that had not undergone process change procedures. Therefore, an online system
for managing the progress status of process changes was put into operation in April 2017
in order to prevent the loss of documents and allow the progress status to be viewed inreal time. This system established a mechanism that prevents products from being shipped
unless the General Manager, Quality Assurance Department grants approval for processchanges requested using the system.
The Process Change Management Rules, which set forth the provisions relating
to the process changes at DM, were revised as of December 20, 2017 such as byappending the Process Change Application Guidelines that clarified the rules regarding
process change applications with respect to machine processing.
With respect to employees as well, not only did the executives explain to
management-level personnel in relevant departments what issues for process changes
without customer approval were in the First Discovered Incidents, they also familiarized
all employees in relevant departments with the necessity of submitting process change
applications, etc., and implemented education initiatives to ensure understanding of theprocess change rules.
D

Recurrence preventive measures against omission of the magnetic flaw
detection inspection process

The number of inspectors engaged in magnetic flaw detection inspection wasincreased and facilities and equipment were augmented, such as by establishing a newmagnetic flaw detection inspection line, as recurrence preventive measures against
magnetic flaw detection inspection omissions and to establish a framework that ensuresthat 100% of magnetic flaw detection inspections are performed.
4

Background leading to discovery of the Later Discovered Incidents

As described in 3(3) above, DM implemented a range of recurrence preventive
measures after discovery of the First Discovered Incidents. As part of these measures,
DM increased its capacity to conduct final inspections for even more products than before
discovery of the First Discovered Incidents, thanks to an increase in the personnel
engaged in, and augmentation of the inspection facilities and equipment used for final
inspections.
During the period from around October 2016 to around March 2017, thisaugmented inspection capacity resulted in the discovery that Non-Conforming Products
had continued to be released even after the discovery of the First Discovered Incident,with respect to products other than the issues with the products in the investigation of theFirst Discovered Incidents cited in 2(1) or (2) above. In response to the situation, DM
decided at that time to get an understanding of the circumstances of the release of Non-

- 27 -

Conforming Products and quickly resolve the issue, without reporting the issue to MMC
and customers, and conducted a follow-up investigation of the final inspection results anda study of the causes and remedial measures regarding the production of Non-Conforming
Products (see 5(3)C below for details).
While this was taking place, in January 2018 a report was submitted to MMC’s
internal hotline to the effect that the rewriting of inspection reports was continuing, so
DM reported the facts of the issues such as the release of Non-Conforming Products (theLater Discovered Incidents) that it was aware of as of January 2018.
5

Misconduct in the Later Discovered Incidents(1)

Misconduct in the final inspection (omission of the final inspection,
conducting final inspection after shipment, neglecting release of NonConforming Products, rewriting of inspection reports)

Description of misconduct
A

Omission of the final inspection

As stated in 3(3) above, DM implemented the various remedial measures toprevent a recurrence after the First Discovered Incidents were found. One of the measures
was to increase the number of personnel and inspection facilities for the final inspection,such that the final inspection was able to be implemented for more products than before
the First Discovered Incidents was found. However, DM was not able to significantly
improve the situation immediately, and thus there were still lots from which only samples
were taken but for which no inspections were conducted.
In addition, new matters were discovered during the process of investigation of
the Later Discovered Incidents. Among the special alloy products manufactured by theSpecial Alloy Unit of the Functional Parts Manufacturing Section at the Niigata Plant, it
was discovered that there was no final inspector for valve seats and soft magnetic products,
and final inspections were not being conducted. During that time, the decision to ship
valve seats and soft magnetic products was made by the personnel in charge of the
manufacturing of these products in the Functional Parts Manufacturing Section (currently
the Functional Parts Department).
B

Conducting final inspection after shipment and neglecting release of NonConforming Products

In response to the discovery of the First Discovered Incidents, as described in 3(3)above, DM took measures to enhance the execution rate of the final inspection for the
Machinery Parts and shorten the period between the shipment of the products and thefinal inspection as much as possible. However, DM took few measures to aim atconducting the final inspection before shipment and thus the final inspection for the
Machinery Parts which are produced at the Niigata Plant was still not conducted before
shipment even after the discovery of the First Discovered Incidents. In addition, as- 28 -

described in 5(3) below, most of the problematic products that were Non-Conforming
Products in the First Discovered Incidents were Machinery Parts, and therefore measureswith respect to Machinery Parts were prioritized. Regarding the Functional Parts, theremedial measures in light of the First Discovered Incidents were not taken in the firstplace and therefore the final inspection for the Functional Parts produced at the Niigata
Plant was not being conducted before shipment even after the discovery of the First
Discovered Incidents.
Because, as described above, at the Niigata Plant, the final inspection was notconducted before shipment even after the discovery of the First Discovered Incidents, thetiming of discovery of Non-Conforming Products was also after shipment. When the
Non-Conforming Products were discovered in the final inspection, as stated in Section
3.4(2) and (3), a defect report was prepared by the inspectors responsible for final
inspections, and when the Niigata Quality Assurance Section could not make a decisionof the handling thereof, the personnel responsible in the Technical Unit of each
Manufacturing Section made the decision. The personnel responsible in the Technical
Unit sometimes took measures, such as recalling the shipped products when the products
were stored in the premises of distributors. However, in the case where the products werealready delivered to customers, the Technical Unit took measures like consulting with theperson in charge in the Niigata Quality Assurance Section, but did not take measures suchas recalling the products, except in the case of products of which the degree of NonConformance was large. 29 As a result, the release of Non-Conforming Products
continued.
C

Rewriting of inspection reports

After the First Discovered Incidents were found, around October or November
2016, the Manager of the Niigata Quality Control Section instructed the inspectors
responsible for final inspections that, from then on, the defect report must always be
prepared when Non-Conforming Products are discovered in the final inspection and theinspection reports must not be rewritten. Therefore, regarding the Machinery Parts, theinspectors responsible for final inspections never rewrote the inspection reports by his or
her own decision. However, because the release of the Non-Conforming Products
continued as described in B above, both the Manager and the Deputy Manager of the
Niigata Quality Control Section at that time instructed the inspectors responsible for final
inspections that, when Non-Conforming Products were discovered in the final inspection,
it must be reported to the aforementioned Manager and the Deputy Manager. Then, onlyby themselves, the Manager and the Deputy Manager rewrote the inspection reports
regarding the Machinery Parts with regard to which there was report of discovery of NonConforming Products, except the products for which the degree of Non-Conformance waslarge.30 With respect to the scope of rewriting inspection reports, the Manager and the
Deputy Manager rewrote the inspection reports not only for the products for which
29

Some interviewees stated that the products that were delivered to the customers might be recalled in case the degreeof Non-Conformance was large, but they also stated that the frequency of such retrieval was low.

30

As the Manager of the Niigata Quality Control Section, he or she did not want to involve the person responsible forfinal inspections into rewriting the inspection reports. Therefore, the Manager and the Deputy Manager of the Niigata
Quality Control Section rewrote the inspection reports only by themselves.

- 29 -

customers periodically request the inspection reports, but also for the other products, incase DM was asked to submit the inspection reports.
On the other hand, regarding the Functional Parts, the Chief of the Functional Part
Inspection Unit of the Niigata Quality Control Section continued rewriting the inspection
reports and did not prepare the defect reports at his or her own discretion, despite thedirections described above, even after discovery of the First Discovered Incidents.
In addition, new matters were discovered during the process of investigation of
the Later Discovered Incidents. Among the Functional Parts manufactured by the
Functional Parts Manufacturing Section (currently the Functional Parts Department),
although confirmation31 of physical characteristics included in the final inspection items
was carried out, the Functional Parts Manufacturing Section would enter the measurement
results for those physical characteristics into the inspection report for final inspection sothat they satisfied customer standards if the actual results did not satisfy the customer
standards.
(2)

Circumstances and time of the commencement

The circumstances and time of commencing of the omission of the final inspection
before shipment, implementing the final inspection after shipment and neglect of therelease of the Non-Conforming Products were described in 2(1)B above. The failure to
conduct final inspections for valve seats and soft magnetic products began around June2007 when the Special Alloy Section, which had been in charge of valve seat and soft
magnetic product manufacturing and inspection until that point, was integrated with the
Sintered Bearing Manufacturing Section, Niigata Plant, and became the Bearing andSpecial Alloy Parts Manufacturing Department. At that time, DM ceased to appoint aninspector to conduct final inspections of valve seats and soft magnetic products, andceased to conduct final inspections of valve seats and soft magnetic products.
The background leading to, and commencement date of, the rewriting of
inspection reports is as described in 2(1)B above, but discovery of the First Discovered
Incidents led to DM putting an end to rewriting by the inspectors responsible for final
inspections. However, as described in (1)C above, the rewriting of inspection reports by
the Manager and the Deputy Manager came to be carried out after discovery of the First
Discovered Incidents. According to interviews conducted, the rewriting of inspection
reports for some Functional Parts by the Functional Parts Manufacturing Section(currently the Functional Parts Department) was carried out from around 2013 at the latest.
(3)

Circumstances surrounding the continuance of misconduct even after the
discovery of the First Discovered Incidents

As described in 3(3), driven by the discovery of the First Discovered Incidents,
various recurrence preventive measures were taken, including that when the release of31

Until around December 2017, inspection of such physical characteristics was outsourced, and the Functional Parts
Manufacturing Section (currently Functional Parts Department) would check the measurement results from thesubcontractor and enter them in the inspection report for the final inspection.

- 30 -

the Non-Conforming Products was discovered, the shipment of such products was
suspended and the 100% inspection screening for the products was implemented.
Therefore, regarding the products that were regarded to be at issue in the First Discovered
Incidents, the issue of release of the Non-Conforming Products was improved andresolved. DM therefore explained to MMC and DM’s customers that the release of the
Non-Conforming Products was prevented.
On the other hand, the remedial measures for the final inspection were also taken
as one of the remedial measures taken against the First Discovered Incidents. However,
the main goal of such remedial measures was not to conduct the final inspection before
the shipment of the product per se, but was also intended to decrease the amount of
required time for the final inspection in addition to eliminating the omission of final
inspection. In addition, the increased personnel and equipment were invested with a focus
on things other than the final inspection for general mass-produced products, such as theinspection for the initial parts with a process change and the release from the 100%
inspection screening duty requested from certain customers due to the outcome of theFirst Discovered Incidents. Thus, the remedial measures for implementing the final
inspection before shipment continued to be insufficient.
In such circumstances, as stated in (4) below in detail, the Manager of the Niigata
Quality Control Section recognized around October 2016 that in DM, the release of the
Non-Conforming Products existed with respect to the products other than those regarded
as being at issue and reported it to the Former President around November or December
2016. By approximately January 2017, directors and other managements other than theFormer President at that time also recognized the release of the Non-Conforming Products.
However, according to the Former President, at that time, DM was very busy withthe responses to the First Discovered Incidents, including the temporary response forpreventing the shipment of Non-Conforming Products and the customer responses,
because it was just after the discovery of the First Discovered Incidents. Therefore,
although he knew of the release of the Non-Conforming Products in relation to the
products other than those regarded as being at issue, he did not think that DM had theremaining capacity to take measures for the issues after investigating and recognizing theactual condition of the issues. Therefore, the responses to the First Discovered Incidents
were prioritized. Moreover, according to the Former President, DM needed a capitalincrease from MMC in order to continue its business due to DM’s liabilities exceeding
its assets temporarily in March 2017. One of the conditions for such capital increase wasto decide on a plan of remedial measures to prevent the recurrence of the First Discovered
Incidents by clarifying the cause of the First Discovered Incidents. Therefore, the Former
President thought that it was better not to disclose to MMC the fact that the final
inspection after shipment and neglecting the release of the Non-Conforming Products andrewriting the inspection reports were continuing. He gave an instruction to conceal the
documents, etc. in relation to the release of the Non-Conforming Products in March 2017,
when the audit by the Internal Audit Department of MMC was conducted, and May 2017,
when the general compliance inspection by MMC was conducted.
After that, in April 2017, a person was seconded from MMC to DM, who was
appointed as a new Director and new General Manager of the Quality Assurance Division(the “General Manger of the Quality Assurance Division”) of DM. In the later part of- 31 -

May 2017, when conducting interviews as a part of the general compliance inspection, heheard from the Manager of the Niigata Quality Control Section that the release of the
Non-Conforming Products continued. On May 25, 2017, he made a report in a meeting
attended by all full-time directors, etc., including the Former President, that the release of
the Non-Conforming Products was continuing and that the values in the inspection reportsthat must be submitted regularly to the customers were also being rewritten in connection
with such release. At the same time, he also asked whether or not the issues should bereported to MMC and DM’s customers. However, the Former President did not think thatit should be disclosed to MMC. He also thought that it would bother the customers when
it was reported to the customers since the response to the customers by the whole DM
would lead to stoppage of the production line. On the other hand, the Former President
thought, as a part of the remedial measures for the First Discovered Incidents, that thevarious measures including reinforcing the equipment and facilities at the Niigata Plant
and Fujioka Plant would decrease the frequency of occurrence of the Non-Conforming
Products, and in the future improve the situation regarding the release of the NonConforming Products and rewriting of the inspection reports associated therewith.
Therefore, the Former President stated his opinion that it was a technological issue thatmany Non-Conforming Products were being generated, that it was difficult to
immediately improve such situation because there was a large number of cases, that it
would therefore be futile to report such issue to MMC, and that what DM must do is toeliminate the Non-Conforming Products which would be the best way for the company.
The other full-time directors in attendance did not make explicit objections against theFormer President’s opinion.32 Therefore, DM decided not to report to MMC and to thecustomers the fact that, even after the First Discovered Incidents were found, the final
inspection was conducted after shipment and that the release of the Non-Conforming
Products and rewriting of the inspection report continued. DM aimed instead for the
resolution of the misconduct through the improvement of the quality of the NonConforming Products.
As a part of such decision, at that time, a project called the Quality Improvement
Project, which consisted of the General Managers of each department and each office,was established. Then, the project played the central part in preparing a list of products
to be improved by picking up the products for which the final inspection discovered NonConforming Products after January 2017. During the period from approximately May
2017 to approximately January 2018, a meeting was held about once every other week,where the members of the project gathered and improved the Non-Conformance one-by-one with reference to the list.
On the other hand, because most of the problematic products that were NonConforming Products in the Earlier Discovered Incidents were Machinery Parts, DM
prioritized measures targeting Machinery Parts after discovery of the Earlier Discovered
Incidents. Therefore, DM put increasing the number of final inspection inspectors for
32

The full time directors who were appointed newly in April 2017 stated in the interviews that they could not oppose
the policy of the Former President because there was no prospect that the frequency of the occurrence of the NonConforming Products would improve even if they reported it to MMC and the customers, and they were afraid that
DM would have faced the crisis if they had disclosed it and if they had reported the misconduct to MMC, and thecustomers DM would have needed to use a lot of energy for the response to the customer after that, and there would
have been the possibility that it stopped the customers’ line.

- 32 -

Functional Parts on the back burner, which led to only a small increase in the number ofinspectors for final inspections of Functional Parts, resulting in the shipment of valve seatand soft magnetic products without conducting final inspections, even after discovery of
the First Discovered Incidents.
(4)

Awareness of management

As described in 3(3) above, DM took few measures to aim at conducting final
inspection before shipment even after the discovery of the First Discovered Incidents.
Therefore, as described in (1)A above, the final inspection for many products
manufactured in the Niigata Plant was conducted after shipment. Thus, since thediscovery of the First Discovered Incidents, the Former President and the Director and
the General Manager of the Production Division (“General Manager of the Production
Division”) were aware that the final inspection after shipment continued even after the
discovery of the First Discovered Incidents.33
Regarding the fact that the release of the Non-Conforming Products and rewritingof the inspection report continued, the Former President became aware of it around
November or December 2016 from the report by the Manager of the Niigata Quality
Control Section.
In addition, at the latest by around January 2017, the General Manager of the
Production Division received the report from the Manager of the Niigata Quality Control
Section that the release of the Non-Conforming Products and rewriting of the inspection
report continued, and they thus became aware of these facts.
It was thought that, as of January 2017, when the Manager of the Niigata Quality
Control Section reported to the full-time directors the fact that the release of the NonConforming Products continued, the former Managing Director and former Director andGeneral Manager of the Sales & Marketing Division recognized such fact.
In addition, the General Manager of the Quality Assurance Division becameaware that the release of the Non-Conforming Products and rewriting of the inspection
reports continued based on the report by the Manager of the Niigata Quality Control
Section as of May 2017. Moreover, the Director and General Manager of the Production
Engineering Division were aware that the release of the Non-Conforming Products andrewriting of the inspection report continued based on the report by the General Managerof the Quality Assurance Division as of May 2017.

33

On the other hand, the Former President and the General Manager of the Production Division stated that they did
not have a clear awareness that final inspections continued to be omitted even after discovery of the First
Discovered Incidents.

- 33 -

Section 5

The Root Causes and Background1

Background(1)

DM’s Financial Situation

MMC’s sintered products business had the largest share in the domestic market
until around 1990, but receded to around third place in the domestic market in the 2000’s.
In 2005, MMC separated its sintered products business and, with Plansee, jointly funded
and incorporated MMPMG, as the precursor of DM. While the business increased its
overseas manufacturing bases, deficits continued, and in 2009, four years after theincorporation, the joint venture with Plansee was terminated and DM became a wholly
owned subsidiary of MMC. Upon this, the manufacturing bases in the United States andChina were assigned to Plansee, leaving DM with no overseas manufacturing bases
except for its Malaysian base, and DM’s international operations lagged behind its
competitors. After that, although DM sometimes achieved surpluses, it was only a few
hundred million yen, and thereafter DM sometimes fell into the red again. In order toexpand its international operations again, DM established manufacturing facilities in
China in 2012 and Indonesia in 2014, and dedicated all of its investment in humanresources and capital expenditure to its international manufacturing facilities. Given suchoperating environment and results, personnel and facility investments in the Niigata Plant
were minimized. In particular, manufacturing facilities and equipment deteriorated andbecame obsolete because keeping costs down was prioritized and renewals were
postponed to the as much as possible with respect to renewals of manufacturing facilities
and equipment that did not result in production increases. For example, 80% or more of
the equipment, such as the press machine used in DM, were used 30 years or more without
being replaced.
As described above, personnel and facility investments were inhibited at DM in
the past, but on the other hand, production volume increased year-by-year. The cause ofsuch production increase was the increase in demand for DM products by DM’s
customers, due to factors such as the increase in automobile production by automobile
manufacturers, the major supply destination of DM products. At DM, in general,customers’ orders were not rejected, even if they exceeded DM’s production capacity,
because it was necessary to ensure profit by increasing production volume, and also DM
did not want to cause trouble to its customers by rejecting their order (there were only afew sintered product manufacturers who could substitute DM and supply products).
(2)

Positioning of inspection departments at DM

At the Niigata Plant, the inspection departments were formerly under the quality
assurance departments but transferred to the manufacturing departments around 1988,
and then transferred back to the quality assurance departments around 2004 but
transferred once again to the manufacturing departments in 2007. Thereafter, the First
Discovered Incidents were discovered, and as one of the recurrence preventive measures,in October 2016, the inspection departments were again transferred to the quality
assurance departments to ensure independence of the inspection departments. However,- 34 -

as stated above, the inspection departments were one of the organizations under the
manufacturing departments for a long time.
Multiple personnel pointed out that, because at DM, attracting new orders andincreasing production were considered important, and together with the fact that theinspection departments were positioned under the manufacturing departments, theinspection departments were perceived as departments that “would not generate money”
by personnel from other departments, and compared to the development andmanufacturing departments, their status in the company was considered low.
As described above, at DM, the inspection departments were perceived as
departments that would not generate additional value and their status was consideredlower than the other departments.
2.

Cause analysis common in the First Discovered Incidents and Later
Discovered Incidents(1)

Order intake and mass production of specifications that exceeded its processcapacity

As customers’ products became more advanced, specifications of products DM
was requested for became more complex. However, because personnel investment was
minimal, as described in 1(1) above, in DM’s R&D departments, only technicians
themselves had the knowledge that would enable the discussion of product specifications
with customers on even ground. Therefore, upon accepting orders for products from
customers, the R&D departments were not able to negotiate specifications with customers
based on DM’s process capacity, and as a result DM had been accepting orders withspecifications that exceeded DM’s process capacity.
In addition, mass production should have been commenced only after problems
such as the Non-Conformance detected at the inspection of prototypes (samples) werecorrected before mass production upon examination by the relevant departments during
each step of the DR described in Section 3.3(1)C above. However, in reality, for example,
even though the personnel in charge of samples were aware that the specification actually
exceeded DM’s process capacity as a result of sample testing during DR1 of the sample
production process, such personnel gave an evaluation to the effect that it was possible tomeet the specification, due to pressures from the sales departments. In addition, multiple
personnel in management, R&D departments, and quality assurance departments statedthat there were cases where they were faced by the deadline for commencing mass
production without completing correction of the items pointed out by relevant
departments as requiring improvement during the DR3 of the transition phase to mass
production, because the time requested by the customers to commence mass production
was approaching soon. As such, in reality, DR was reduced to mere formality and it must
be pointed out that it did not yield expected outcomes, i.e., preventing development andmass production of the Non-Conforming Products.
As a result of the above, the Non-Conforming Products occurred frequently whenmass production of products that were overreached at the order intake phase commenced.

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(2)Process capacity to manufacture products that satisfied customer
specifications deteriorated

As described in 1(1) above, at DM, cost suppression was prioritized and renewals
of manufacturing facilities and equipment were postponed to the extent possible withrespect to manufacturing facility and equipment renewals that did not result in production
increase and as a result, facilities deteriorated and became obsolete. Thus, despite any
attempt to improve quality during the manufacturing process after the commencement ofmass production of products that were overreached at the order intake phase as describedin (1) above, due to the deterioration of the process capacity to manufacture products thatsatisfied customer specifications, DM was in a situation where it was incapable ofimproving quality.
As a result, additional costs caused by the frequent occurrence of the NonConforming Products resulted in further worsening of business results. At DM, as ameasure against the worsening business results, as described above, customers’ requests
such as new order intakes and increased production were not rejected despite the fact thatthey exceeded the production capacity, and the efforts were made to secure profits by
operating the manufacturing facilities and personnel in excess of their production capacity.
Under such situation, sufficient facility improvement was not possible despite any attempt
to renew the manufacturing facilities because manufacturing lines could not be stopped.
In addition, while there was the Technical Unit under the Manufacturing Section
as the department responsible for quality improvement of products, personnel in such
Technical Unit were only a few in each Manufacturing Section because personnel
investments were inhibited as described in 1(1) above. Moreover, due to the deteriorationof process capacity, a considerable number of defect reports were issued every day withrespect to matters such as detection of the Non-Conforming Products in each process,34
and the personnel of the technical teams in each Manufacturing Section had to handle thelarge amount of defect reports. When the Non-Conforming Products were detected in the
manufacturing processes, etc. most of the time it was handled on an ad hoc basis byremoving the Non-Conforming Products through 100% inspection screening and thensending the conforming products to the next process, and investigations on the root causeof the Non-Conforming Products and consideration and implementation of remedial
measures were not undertaken.
As explained above, DM was in a vicious cycle whereby it accepted orders thatexceeded its production capacity in order to maintain profit without being able to improve
quality even after transiting to the mass production stage, which resulted in producing
even more Non-Conforming Products.

34

For example, the monthly average number of defect reports issued for the entire Niigata Plant was 1,254 in the fiscal
year 2014, 1,033 in the fiscal year 2015, 1,367 in the fiscal year 2016 and 1,649 between April and December 2017.

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(3)Quality assurance framework was deficient

At DM, it was common that products needed to be immediately shipped on the
day on which it came for final inspection in order to meet customers’ delivery datebecause the time to be allocated for final inspections was totally disregarded whenprocesses were planned.35 Thus, it was almost impossible to conduct final inspections
before shipment under the process plans.
In addition to the actual situation above, final inspections of dimensions andphysical characteristics before the shipping were not required under the internal rules
regarding final inspections and internal system regarding shipping management. Thus,
DM’s employees, including the inspectors responsible for final inspections, lacked
awareness as to the necessity of conducting final inspections before shipping despite thefact that the final inspections before shipping were contractually agreed with customers,
and the understanding that it would be sufficient to conduct inspections on certain preselected samples, prepare inspection reports and send them to customers only in situations
such as where the customers’ requested submission of inspection reports was prevalent.
In addition, among DM’s employees involved in final inspections, some statedthat DM’s criteria for shipping approval was in-process assurance, and DM’s quality
assurance framework was premised on the fact that “finished products should be
conforming products if, in each manufacturing processes such as molding and sintering,such manufacturing processes were conducted appropriately and the results were assured
during in-process inspections.” However, such recognition lacked reason because inreality, the process capacity to manufacture conforming products had deteriorated as
described above. In addition, among the inspection items in the final inspections, somewere not included in the in-process inspections during the manufacturing phase, and thus,
there were cases where Non-Conformance to such inspection items was detected for the
first time during the final inspections. There were also cases where the standards set ineach in-process inspection during stage of the manufacturing process were lenient and at
the end of the manufacturing process, the customer specification tolerances were
exceeded. Furthermore, there were cases where processes were conducted without
conducting in-process inspections with regard to certain inspection items although suchinspection items were subject to in-process inspection under the internal rules.
As described above, under DM’s quality assurance framework, final inspectionsof dimensions and physical characteristics before shipping were not a prerequisite.
Therefore, products were already shipped or delivered to customers, or integrated into
automobile parts at the time Non-Conforming Products were detected at the final
inspections and thus difficult to recall.

35

As described in Section 3.3(1)B above, process design is done by the person responsible for designing in the
Machinery Parts R&D Section for the Machinery Parts and the person responsible for designing in the Functional Parts
Section of the Production Division for Functional Parts. The scheduling of processes determined for each product isdetermined by the person responsible for process management in each manufacturing division (the Large Components
Manufacturing Section, Small Components Manufacturing Section and Functional Parts Manufacturing Section(currently the Functional Parts Department)) of the production department.

- 37 -

(4)Insufficiency of manpower and equipment for inspection

As for the reason final inspections could not be conducted before shipment, some
employees, especially people relating to the Inspection Unit, stated that there wereabsolutely not enough staff and equipment to implement the final inspection before
shipment.
In addition to the staffing shortage, DM did not test and figure out how many
employees were needed to implement the final inspection according to an agreement withcustomers because the final inspection was not implemented in many cases in the past.
Furthermore, as shown in 4.3(3)B above, DM implemented certain reinforcement
measures in the inspection department after First Discovered Incidents were discovered,such as the increasing of contractual workers for the Inspection Unit of the Machinery
Parts,36 purchasing three-dimensional measuring machines for the Inspection Unit of theMachinery Parts, etc. These measures achieved certain results such as shortening theperiod between shipment and the final inspection, which was implemented after
shipment.37 However, there were still not enough staff and equipment to implement the
final inspection before shipment and it was an insufficient state.
(5)

Pressure of delivery date and pressure on the inspection departments fromother departments

As shown in 1(2) above, the status of the inspection departments was lower thandevelopment and manufacturing departments in DM, and there was pressure on theinspection department from development and manufacturing departments. For example,
an employee relating to the Inspection Unit said when he or she told the department incharge of the process control in the Manufacturing Section, “Please do not ship the
products until we confirm the Technology Unit” when he/she was checking a defect reportwith respect to an defect which was detected in a previous process during the final
inspection, he/she was told, “Please just ship them quickly.”
There was an employee who pointed out that the causes for the pressure on theinspection departments were that there was pressure of delivery date on sales andmanufacturing departments from customers and there was strong pressure to avoid
stopping customers’ line.
In addition, there was an employee who pointed out that there was not sufficientspace to store stock in the Niigata Plant, which was located in an urban area, and DM
actually could not have stock because production could not keep up with orders. Another
36

There were 27 final inspectors at the end of fiscal year 2016, and there were 61 inspectors at the end of fiscal year
2017, increased by 34 people. The number of final inspectors of Machinery Parts was increased by 32 and that of
Functional Parts was increased by 2.

37

According to the aggregated data of the delivery date and final inspection date after February 2017 (containing only
cases in which final inspection was implemented within a month from the delivery date) made by the Inspection Unitof the Niigata Quality Assurance Section, the average number of days between shipment and the final inspection of
Machinery Parts was 13.5 days in February 2017, and it became 9 days in January 2018.

- 38 -

reason why shipment of Non-Conforming Products became an ordinary state, it isconsidered, is that there was not much stock and products shipped to distributors
immediately shipped to customers for use.
(6)

Reduction in the consciousness for quality

There are some employees in DM who stated that the employees’ consciousness
for quality of products to be shipped had been reduced because misconduct, such as
omission of final inspection and rewriting of inspection report, had been continued
chronically for many years. Among the inspectors responsible for final inspections, there
was one who said “I thought improvement measures would not be executed and situation
would not change completely even if I found Non-Conforming Products in the final
inspection and issued a defect report.”
In addition, there were few opportunities of systematic training for quality control
such about meanings of inspection, and quality control training was basically left to OJT.
Based on these backgrounds, it must be said that the consciousness for quality of
its products had been reduced in DM.
3

Analysis of the root causes of continued release of Non-Conforming Products
even after discovery of the First Discovered Incidents

Analysis of the causes which were common in the First Discovered Incidents andthe Later Discovered Incidents is shown in 2 above, but the reason why the NonConforming Products continued being released, etc. even after First Discovered Incidents
were discovered and the recurrence preventive measures against the release of the NonConforming Products were established and executed in DM is important to know the root
causes of this case in DM, and the following are considered to be the root causes.
As shown in 2(4) above, even though the number of employees in the inspection
departments was increased and inspection equipment was improved, it was still notenough to implement the final inspection before shipment and it was in an insufficientstate.
As shown in 2(1) and (2) above, while the process capacity of producing products
which meet customer specifications had decreased due to deteriorated manufacturing
facilities and so forth and it barely had available capacity to improve quality, DM was too
preoccupied with the responses and so forth to quality improvement of products
designated for the 100% inspection screening by customers after discovery of the First
Discovered Incidents. Accordingly, even though it was sequentially revealed that there
were the Non-Conformance problems in products other than the Non-Conforming
Products which were subject to rewriting and so forth of the inspection report in the First
Discovered Incidents, the management and employees of DM thought it did not haveavailable capacity to engage in further detailed fact-finding investigation thereafter, andinform MMC and/or customers and deal with it.

- 39 -

Afterward, while the number of products which were necessary to improve was
unexpectedly increasing during the process through the Quality Improvement Project, etc.
of checking Non-Conforming Products of which were detected, it was unable to expect
early quality improvement, and the management and employees of DM further
recognized the seriousness of the problems.
Under the situation above, partly because the management and employees of DM
felt fear and pressure that if they informed MMC or customers that the issues of the releaseof the Non-Conforming products had not been improved, it might lead to a situation where
the automobile parts manufacturers and automobile manufacturers that are DM’s
customers have to stop their production lines, they were trying to keep a lid on thesituation without it being discovered under the judgement that it could not take the optionof revealing the situation and seeking a radical solution in order for the company tosurvive.38
As described above, the biggest reason why Non-Conforming Products’ releaseand so forth continued even after discovery of the First Discovered Incidents in DM isbecause of the seriousness of the Non-Conforming Products’ problem which DM had asa manufacturer, and, combined with the fear and pressure of stopping lines of theautomobile parts manufacturers and automobile manufacturers that are DM’s customers,
it is considered that it could not reveal the problems.
Section 6
1

Recurrence Preventive Measures

Receipt of orders in accordance with process capacity and improvement ofprocess capacity by strengthening technology departments

As shown in 5.2(1) above, DM was under the situation of receiving unreasonable
orders which were beyond its process capacity , so it should strengthen quality control
systems from upstream so that “it will not develop the Non-Conforming Products” bystrengthening the formation of development departments, understanding its processcapacity , arranging an organization capable of negotiating specifications with customers
appropriately as well as reviewing systems in the order receipt stage such as DR so thatthey will substantially work.
In addition, as shown in 5.2(2) above, manufacturing facilities were getting aged
and old-fashioned, and process capacity of producing products which meet customer
specifications had decreased, that caused quality degradation, so it should aim to improve
the process capacity by renewing manufacturing facilities and so forth. Furthermore, it
should arrange an organization capable of improving quality by strengthening theformation of technology departments because the technology team which was expected
to perform a function of improving quality did not play the role since it was short of staff

38

Meanwhile, some members on the ground in manufacturing and inspection stated the opinion that the
improper/irregular circumstances of the continued production and release or Non-Conforming Products needed
to be rectified.

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as well as swamped with dealing with a lot of defect reports and so forth, that caused asituation incapable of aiming to improve quality.
2

Receipt of order in accordance with production capacity

As shown in 5.2(2) above, DM received orders which were beyond its production
capacity, that caused the production of the Non-Conforming Products, and then it
received further unreasonable orders which were beyond its production capacity without
being able to improve quality to ensure profits, and as a result, it got caught in a vicious
cycle of producing more Non-Conforming Products.
Since the discovery of the First Discovered Incidents, the Production Capacity
Adjustment Meeting has been held monthly as a recurrence preventive measures against
process changes without customers’ approval to check the balance of production capacityand demand, and it discussed the issue of the adjustment of imbalanced facilities,
including the necessity of process change and new facility investment, but due to a lackof idea of considering a proper volume of orders that could be accepted in light of thecompany’s production capacity, DM should understand its production capacity exactly
and receive a proper volume of orders in accordance with the production capacity going
forward.
In addition, systems or standards of judgment for determining the propriety ofreceiving orders considering production capacity and so forth have not been establishedso far, and it should establish such systems or standards of judgment and institutionallyensure appropriate amount of receipt of orders afterward.
3

Reconstruction of quality assurance framework

As shown in 5.2(3) above, the quality assurance framework at DM was not basedon the premise that the final inspection should be implemented before shipment, so it isnecessary to review internal rules and production management systems and reconstruct
the quality assurance framework so that the final inspection will be appropriately
implemented in conditions agreed with customers before shipment afterward.
After discovery of the Later Discovered Incidents, DM implemented tentative
countermeasures such as changing the production management system and increasing thenumber of inspectors for the final inspection and the 100% inspection screening so that it
would be able to ship products only after the final inspection was implemented, but itshould review the quality assurance framework and revise internal rules such as thequality assurance manual accordingly, and instill the fundamental principle of quality
control by conducting an in-house training periodically afterward.
4

Automation of inspection equipment, and increase of the number ofinspectors and inspection ability

As shown in 4.2(1)A(c) and 5(1)C above, management-level employees andinspectors responsible for final inspections in the inspection departments easily rewrote
inspection reports on a shared server by manual operation, so it should automate- 41 -

inspection equipment to eliminate an opportunity for rewriting in order to prevent
inspection reports from being rewritten afterward.
In addition, as shown in 5.2(4) above, after the discovery of the First Discovered
Incidents, the number of inspectors responsible for final inspections was increased, but
the workload which is necessary to implement the final inspection before shipment inaccordance with an agreement with customers was not calculated and understood, and as
a result, there was still a shortage of manpower. Afterward, it should calculate andunderstand appropriate number of employees and secure necessary number of employees
if there is a shortage, and it is also necessary to strengthen the formation of the inspection
departments to enhance quality of inspection ability. Furthermore, some parts of practicesuch as introducing three-dimensional measuring machines were already implemented,
but it should aim to establish inspection systems with higher inspection efficiency byautomating inspection equipment even more.
5

Reduction of pressure of delivery date by appropriate management of
inventory quantity

As shown in 5.2(5) above, as a result of receiving orders which were beyond
production capacity, DM could not ensure appropriate amount of stock, and this was oneof the reasons for the pressure of delivery date on the inspection departments.
After the discovery of the First Discovered Incidents, as a result of transferring
the inspection departments from under manufacturing departments to under quality
assurance departments as one of the recurrence preventive measures, it is able toappreciate that independence and the function of a check-and-balance system of theinspection departments have been enhanced to some extent; however, it is considered that
it is still not enough to eliminate the pressure of delivery date and so forth. As discussed
in 2 above, it should aim to reduce the pressure on the inspection department of delivery
date and so forth by receiving appropriate orders in accordance with production capacity
as well as managing stock to ensure appropriate amount of stock afterward.
6

Awareness makeover in quality

As shown in 5.2(6) above, the consciousness for quality of products had been
reduced because misconduct had been continued chronically for many years and there
was no opportunity of systematic quality control training in DM, so it should implement
systematic quality control trainings not only for the inspection departments, but also for
all of employees and reform awareness in quality.
In addition, as shown in 5.3 above, the management and employees of DM did
not inform MMC and customers of the situation of the problem and aimed to keep a lid
on the matter without the problem being discovered due to the recognition of severity ofthe problem with respect to the Non-Conforming Products, and the fear and pressure thatit might stop lines of the automobile parts manufacturers and automobile manufacturersthat are DM’s customers. Going forward, the management needs to raise its own risk
sensitivity with respect to quality issues even more, and take measures such as continuous
delivery of messages to employees. Although some employees on the ground in- 42 -

manufacturing and inspections gave their opinion that the improper/irregularcircumstances of ongoing production and release of Non-Conforming Products needed tobe rectified, the management failed to adequately reflect these opinions in their decisionmaking. In light of this fact, going forward, the management needs to work more closelywith employees on the ground, and must strive to appropriately reflect the awareness of
the issues and opinions held by those actually engaged in the work in management
decision-making. Furthermore, it should promote the measures of preventing internal
common sense from being separated from that of the society, such as positively adopting
external perspectives including opinions of quality consultants.
END- 43 -