Atrion User Conference Highlights Need for Regulatory Compliance in PLM

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 for Product Profitability

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.

Value to Time to Market

Throughout the product lifecycle companies must ensure that they remain in compliance with governmental regulations and internal corporate guidelines. Without a compliance strategy, the PLM value proposition is at risk. For example, companies have recognized the strategic value that getting products to market faster can offer. Accelerated time to market is a frequent goal that companies look for from better management of products, and companies have invested in compressing product development cycle times, supply chain efficiencies, more effective product commercialization, and other methods to make their products available before their competition can react. Compliance is critical to time to market. If compliance is not designed into the product from the very beginning, precious time can be consumed redesigning or reformulating the product to address compliance. A common scenario for redesign occurs when expanding a product to a new market. Regulations can vary significantly based on where the product is being sold, based on different regulatory bodies and jurisdictions. If a designer develops a product without visibility to its eventual markets, restricted materials may be included in the product and force significant design rework. These design flaws, if they are not caught early in the process, can cost companies significantly in time to market.

Value to Cost Reduction

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.

Value to Product Portfolios

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.

Impact of Non-compliance on PLM Value

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.

Table 1: Consequence of Non-compliance on PLM Value Source: Tech-Clarity

Summary

Atrion presented a vision and direction that will allow them to serve their customer's regulatory requirements within product lifecycle management. The customers echoed the need for focus on compliance. The conference was an excellent discussion about the trends regarding compliance, and provided a forum for discussion of the strategic importance of Environmental Health and Safety (EH&S) in the context of PLM. Atrion put forward a strong message of its intention to provide solutions that will continue to ensure compliance and protect the value of products and PLM initiatives throughout their life cycle.

About the Author

Jim Brown has over fifteen years of experience in management consulting and application software focused on the manufacturing industries. Brown is a recognized expert in software solutions for manufacturers and has broad experience in applying enterprise applications such as product lifecycle management, supply chain management, enterprise resource planning, and customer relationship management to improve business performance. He began his professional experience at General Electric before joining Andersen Consulting (Accenture), and subsequently served as an executive for software companies specializing in PLM and process manufacturing solutions.

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.

He can be reached at jim.brown@tech-clarity.com or jbrown@technologyevaluation.com.