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Compliance Issues: A Horror Story Waiting to Happen

For manufacturers and suppliers in the electronics industry, there are two words that when paired together can send chills down an executive’s spine: regulatory compliance.  The havoc that these two words can play within your company’s supply and development chain has been well-documented in several scary scenarios—the most recent being the lead paint and heparin contamination problems of last year.

What we do know is that failing to comply with regulations such as the European Union’s Restriction of Hazardous Substances Directive (RoHS), Waste Electrical and Electronic Equipment Directive (WEEE), End-of-Life Vehicle (ELV) or Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) could cost a company millions of dollars between lost sales, products that need to be destroyed and fines. As countries such as China and Korea have followed the European Union’s initial materials regulations with those of their own—in some cases going even further than the EU—the situation created can be one of serious confusion.

Different countries have different regulations and reporting structures—making it even harder to be able to definitively say whether your company’s product has the right makeup to be sold in one country or region, let alone all of them. For example, in the United States, California has stricter product materials laws than the rest of the country, meaning that different versions of the same product may be required to be sold in New York versus LA.

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The Five Questions to Ask

The first step is finding out what you know—and more importantly, what you don’t know— about your products and your company’s compliance efforts. Your answers to the following questions will provide some guidelines as to whether structural and procedural changes need to be made to ensure that you remain up-to-date on the latest compliance issues and are able to instill a continual process of reporting, compliance and recycling:

1)  What is my organization doing for compliance? Have we made the critical links between us, our partners and suppliers that make compliance work—or are we only taking care of ourselves? Is there a way for us to easily report compliance?

To gain a complete understanding of the material and substance composition of its products, companies must perform four critical functions related to all components, parts and sub-assemblies found in new products:

·  Collection of material compliance requirements from customers and markets;

·  Integration of material and substance data from suppliers;

·  Analysis of material and substance data readiness;

·  Reporting of material and substance data compliance to customers, auditors, or legal entities.

Companies must perform these four functions early in the new product design process, so costly product revisions, new design considerations or retrofits and time-to-market delays are prevented. Traditionally, this has been a manual, time consuming process—and one that was very rarely done properly. The best that some companies could hope for was to get feedback and materials/substance data from partners, suppliers, customers and the market only after products had been released, and hopefully before incurring any compliance issues.

Given the thousands of parts originating from a wide array of suppliers, the list of acceptable design options could be tremendously long for a design engineer to review. But with an automated analysis tool, the design engineer could request various views that suit his/her needs and more efficiently design-out any noncompliant parts.

In addition, with the varying regulations by geography, there can be numerous types of reports needed, often with separate requirements for internal and external audiences. Companies should ensure that any materials compliance analysis tool installed has the out-of-the-box (OOTB) ability to produce a wide variety of reports, making it easier to prove your company’s compliance—and that of your partners.

2)  Are your suppliers aware of your product compliance program and the overall effect it has on your relationship with them? How can you help ensure that your suppliers are compliant?

Compliance is a major issue facing manufacturers of all shapes and sizes. However, it also has a major impact on the supply chain—every supplier that provides parts, components, assemblies, etc. to your company needs to understand exactly what materials make up each and every piece of their products—and how that needs to be changed or reported to fit your compliance requirements. In order for manufacturers to be compliant, the suppliers need to certify that their products meet all regulatory requirements and do not exceed threshold levels of banned substances.

Although this may be seen a potentially daunting task for suppliers that sell diverse and complex products—each of which may consist of thousands of parts, materials and substances—suppliers need to understand that this task is part of the cost of doing business today. Having a system in place to track materials makeup, and being able to answer these types of questions for all customers, easily and quickly, is priceless. The very business may depend on this capability—as you can no longer do business with companies unable to provide a materials breakdown—and neither will your competitors.

In fact, many manufacturers/developers have worked closely with their suppliers to help them implement a version of the manufacturer's own in-house system, ensuring that there are no problems in the future.

3)  What are the costs of not having an efficient compliance program in place? Fines, penalties? Is my organization at risk?

The price of non-compliance is severe! Violations can trigger heavy fines and penalties—none have been issued out yet, but rumors put them in the million-dollar range—from the governing boards of these countries. However, fines are the least of an organization’s worries.

In this day and age where green development is growing in importance—and companies are increasingly expected to change their development processes to be more earth-friendly—the potential for damaging publicity is huge. With the short attention spans of today’s consumers, many brands would never recover from this type of negative press.

Companies are often shocked to learn that exceeding hazardous substance thresholds for individual parts—for instance, the power cable—can prompt regulatory agencies to ban the entire product, preventing its import into a country. Such a prohibition translates to lost sales revenues, costly reworkings of existing product designs, potential recalls of product already released in other areas, and another manufacturing run to fit the needs of that country/geography.

AMR Research recently noted in a report titled, “RoHS and WEEE: It’s an Executive Problem”, that one major consumer electronics company lost $110 million in sales because of a ban placed on its new product by the government of The Netherlands for having exceeded acceptable levels of cadmium in the insulation material of a power cable.

If the full materials makeup of each and every single part of your products is not fully known and documented, then you are at risk. What you don’t know, in this case, can indeed hurt you.

4)  How can my organization become more compliant? What are the easiest ways to get a handle on what makes up my products—and what I might need to do to fix the process?

For new product development, the easiest way to begin down a path of compliance is to include materials compliance data early on in the design and development process. By importing the latest regulations into a product lifecycle management (PLM) solution, and creating a way for the makeup of a certain part to be known, along with information about weight and form factor, designers can easily replace a non-compliant piece with a compliant one.

Linking material and chemical substance compliance data to all PLM processes enables manufacturers and suppliers to gain full product regulatory compliance visibility across their organization and supply chain. This will help to drive hazardous substances out of products and avoid a litany of problems—slower time to market, product recalls, costly fines, product bans, poor customer satisfaction, and a damaged public image.

Trade-offs and issues can now be discussed at the earliest stages of product development, minimizing the cost impact of a design change, increasing customer satisfaction and streamlining compliance efforts.

Remaining up-to date on the latest changes and additions across the world’s materials compliance regulations and requirements is of critical importance today. Closer links to your customers, partners, and suppliers will help—but ultimately, it is your responsibility to read the latest articles, join the appropriate industry associations, and remain as up-to-date as possible.

5)  How important is sustainable design? How can my organization set up a part/component reuse and recycling program? What are the benefits?

In order to increase design productivity and lower costs, it is becoming increasingly important to ensure that some level of reuse or recycling is built into the design cycle, from initial conception through to production.

For every organization looking to run their businesses in a less costly and more efficient manner, a reuse/recycling program just makes sense. This sort of information should be incorporated into the design data documentation, enabling engineers to easily choose parts that can be recycled or reused at the end of the product lifecycle—or design-out those parts that do not meet recycle/reuse metrics.

As discussed earlier, green manufacturing is important from a public-relations standpoint—but not to be forgotten is the fact that anything manufacturers can do to limit the environmental damage of the manufacturing process benefits all of us in the end.

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Don’t Be Frightened

Don’t be scared—new product compliance really doesn’t have to be the monster that many in the industry make it out to be.

By leveraging PLM technology, companies can verify materials data against WEEE, RoHS, ELV and REACH requirements at every phase of the product lifecycle—from product development to manufacturing, and all the way to end-of-life recycling—rather than merely checking compliance after a product is built. In addition, with PLM, key stakeholders now have access to material compliance information throughout the product lifecycle, giving them the tools to prove compliance or make corrections where needed.

All deliverables related to collecting, integrating, analyzing, and reporting material compliance information can be accomplished in a single PLM platform and environment, eliminating translation errors and ensuring a “single source of the truth.”

By changing a few basic business processes and establishing closer integration with suppliers, partners, and customers, engineers and designers can have the information they need at their fingertips, and ensure that the building blocks of their company’s products are compliant from the get-go, eliminating any potential horror stories and making the engineer a true hero for the company.

April 5, 2010

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Mike Zepp is director of product strategy for material compliance solutions at Dassault Systèmes ENOVIA.

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