Event Summary
The
Atrion International User Group met in Montreal, Quebec (Canada) in the fall
of 2004 to discuss ways to improve regulatory compliance for their respective
companies. Atrion International is a leading provider of material compliance
software and data to global manufacturers. It focuses on helping companies maximize
regulatory compliance while minimizing costs. The conference was an excellent
event for professionals with a common interest in better managing regulatory
compliance to learn from each other and share ideas. The conference highlighted
Atrion executives discussing the vision and strategy for Atrion to be recognized
as the world leader in regulatory components of product lifecycle management
(PLM). During the conference, customers shared their company successes using
Atrion software and discussed important news relating to product compliance.
The conference also highlighted topics from outside speakers, including a review
of the Globally Harmonized Systems (GHS) initiative by an expert in
international hazardous communication regulations, Paul Brigandi. Overall, the
conference was well attended and well received by Atrion customers.
The
conference provided an excellent opportunity to focus on the need for regulatory
compliance as a critical component of a manufacturer's PLM Program. For more
information about defining a PLM Program to achieve the strategic value of PLM,
please see The
PLM Program: An Incremental Approach to the Strategic Value of PLM.
To accomplish its vision of helping companies increase regulatory compliance
within PLM, Atrion presented its plans to provide a global regulatory compliance
platform. This platform includes content, rules, and software applications based
on their current Intelligent Authoring solution and supported by a worldwide
group of regulatory experts. The solution includes not only the applications,
but also the critical regulatory data that companies must access in order to
communicate potential hazards of dangerous materials—both internally to their
company and externally to the supply chain.
Renewed Regulatory Emphasis
Atrion's
focus on regulatory management within the PLM context parallels a general industrial
trend towards better management of global regulatory requirements and environmental
impact. Many regulatory bodies have taken a renewed focus on product compliance.
The requirements will vary impacts by industry, of course, as do many PLM requirements
(for more information see PLM
is an Industry Affair—Or Is It?) and by company. Automotive companies,
for example, must address new requirements of the Transportation Recall
Enhancement Accountability and Documentation Act(TREAD) in the United States.
Electronics and high-tech companies must meet new needs introduced in the European
Union in the Waste of Electronic and Electrical Equipment (WEEE). The
chemical industry, and companies that rely on chemicals within their plants,
have a host of new regulations to address including Restrictions on Hazardous
Substance (ROHS) and others.
The
chemical industry faces particular scrutiny from a regulatory perspective. At
Atrion's user conference, for example, companies discussed the impacts of ECLIPS
(European Classification and Labeling Inspections of Preparations, including
Safety Data Sheets), REACH (Registration, Evaluation and Authorization
of Chemicals), SCALE (Science, Children, Awareness, Legislation and
Evaluation), and GHS (Global Harmonized System for the Classification
and Labeling of Chemicals). Atrion customer, Judith Dobbs, global product
EHS manager for Huntsman, leveraged her thirty years of EH&S experience to highlight
the challenges of multiple regulatory agencies with differing regulations and
lists of chemicals considered dangerous. She pointed out that companies need
to take into account regulations at the regional level (European Union), national
level (Canada, US, China, Australia, Japan), and at more local levels such as
federal, state, and local regulations. To give an idea of the scope of the regulatory
challenge, Atrion currently tracks over 500 regulatory documents (acts, laws,
Code of Federal Regulations, regulations, directives, etc.) that are currently
in effect. Increased regulation makes this more costly, which is why many companies
have decided to utilize a service like Atrion instead of—or in addition to—tracking
the regulations internally.
Regulatory Compliance in a Global Economy
Globalization
also makes regulatory compliance more difficult. Not only do the number of regulations
increase based on geography, global business requires increasing communication
to the people that come in contact with the product in the supply chain. To
be effective, this communication must be in local language. Atrion, for example,
supports regulatory documentation in thirty-seven different languages. In response
to a question from the audience, one speaker commented that while some companies
are standardizing on a set of core, common languages in certain aspects of their
business, regulatory and compliance professionals are in the business of "hazards
communication". The speaker gave an example that if the person on a loading
dock does not understand what to do with a spill because of a language barrier,
compliance communication fails in its key requirement—to ensure safety of the
people and the environment.
Regulatory
Compliance in PLM
In
parallel with the renewed focus on regulatory compliance, the manufacturing
industry is also placing a renewed emphasis on product lifecycle management
(PLM). The value that PLM initiatives provide to manufacturers comes in many
forms, including faster introduction of products; reduced product cost; increased
product sales; higher product quality; reduced waste; and more valuable product
portfolios. These are some of the more positive aspects of PLM that people like
to talk about. One area that doesn't get as much attention is compliance. Regulatory
compliance, while nobody would dispute the critical need for it, is not as exciting
or enjoyable to discuss. The problem with leaving compliance unspoken is that
a significant amount of the value associated with PLM is dependant on addressing
compliance in a cost-effective manner. In fact, all of the benefits of PLM could
be quickly erased by significant, non-compliance events that impact the company
through fines, penalties, negative publicity or prohibition to sell a new product
in key markets. Compliance risk may not be a glamorous topic, but it is critical
to the development and sale of profitable products and responsible, sustainable,
corporate profitability. Compliance has become strategic, and is an important
part of PLM.
Regulatory compliance is critical to attaining—and protecting—product profitability. Focusing on regulatory and compliance concerns early in the product life cycle can prevent costly mistakes and non-compliance issues. Regulatory compliance problems can appear during different times in the product life cycle. The conference highlighted the impact of noncompliance found during the design phase, production, logistics or at customer site. Not surprisingly, the cost and impact of the problem increases dramatically depending on when the problem is found. An ingredient that is identified during formulation as a controlled material in a target geography may be easily designed out of the product. If found in production, the options for remediation may be more limited. Several customers identified issues that were identified during logistics, such as products that unexpectedly required additional packaging or needed to be shipped by more expensive means for compliance reasons. Finally, compliance problems found at customer sites require not only remediation, but can also cause customer satisfaction problems and potentially regulatory fines.
Minimizing
the cost of a formulation or design is another key benefit sought from PLM initiatives.
By actively managing both internal and supply chain costs in the product design
phase, companies have been able to significantly reduce the cost of their products.
This reduced cost provides benefits in increased margins or increased competitive
pricing if the savings are passed along to the customers. Again, compliance
is critical to achieving the benefits. If product designs are developed that
violate regulatory rules, the product may have to be modified to comply after
it has been released to the market. Alternatively, the design may result in
significant additional cost to ensure compliance in the form of additional pollution
control equipment during manufacturing, protective packaging, rigid storage
requirements, and specialized waste disposal. Once a product is released and
in use by customers, the degree of flexibility that the designer has to make
changes is drastically reduced. The sooner that compliance issues are addressed,
the more options the designer can tap to keep product costs optimal. As time
runs out, so do options, and the cost goes up. These costs are not limited to
ingredient or component costs. Increased handling, transportation, manufacturing
and regulatory fines are other areas of cost that can quickly erase the value
that least cost designs can provide.
A
final example of additional value of is improved value of product portfolios.
By increasing the level of innovation within a company, and bringing more differentiated
products to market, companies can increase their value through improved products
on the market. Improved products increase sales and should lead to increased
company valuations. But what value does a reputation for leading and innovative
products stand against an environmental or regulatory public relations crisis?
In the same way that the net present value of a new product idea is discounted
by risk factors, perhaps company valuations should be discounted based on regulatory
risk.
In
a more positive discussion on portfolio value, a speaker from Ecolab discussed
the value of Corporate Social Responsibility (CSR). Bill Phillips,
director environmental health and safety compliance and corporate toxicologist
for Ecolab, discussed the direct financial benefits of providing environmentally
preferable products. So-called "green" products have provided increased sales
to the government based on legislation requiring US government agencies to prefer
the purchase of products that are friendlier to the environment. This buying
trend has also spilled over into the private sector—including hotel chains,
cruise lines, caterers, and others—furthering the sales advantage of "green"
products.
For
most of the proven value that an effective PLM program generates, there is risk
from non-compliance that can negate the benefits of PLM as seen in the table
below. While the benefit and the potential risks are not always clearly related,
the comparison of value to potential downfall serves the purpose of highlighting
the need for regulatory compliance within a PLM strategy. Companies that invest
in PLM and ignore compliance issues may be getting their product development
house in order, but it may turn out to be a house of cards if there is not a
solid foundation that minimizes the risk of non-compliance.
Brown is the president of Tech-Clarity, a research and consulting firm dedicated to making the value of technology clear to business, where he is a frequent author and speaker on applying software technology to achieve tangible business benefits. He also serves as the PLM analyst for Technology Evaluation Centers and The PLM Evaluation Center.