New regulations around the use of hazardous chemicals will force many manufacturers to overhaul their supply chains...
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and perhaps invest in an expensive new class of software aimed at helping them achieve compliance.
REACH, which stands for Registration, Evaluation, Authorization and restriction of CHemical substances, will regulate the use of hazardous chemicals in products sold in the European Union. The first phase of the process has already begun and will be phased in over the next 11 years.
It will be the major compliance challenge for manufacturers, including many discrete manufacturers, in the coming years, according to analysts. If companies fail to comply, they won't be able to sell their products in the European Union.
"[Don't] think it's not going to affect your company," said Simon Jacobson, research director at Boston-based AMR Research. "Understand what substances are used, understand supplier risk around REACH, and think about things from the customer perspective."
Manufacturers and importers will be required to gather information on the properties of chemical substances in their products and register the information in a central database run by the European Chemicals Agency (ECHA) in Helsinki, which will act as the clearinghouse in the REACH system.
Many companies just wrapped up pre-registration, during which they started declaring what they're going to register, Jacobson said. The regulations are aimed at protecting people and the environment and call for the eventual, progressive substitution of the most dangerous chemicals when suitable alternatives have been identified, according to the ECHA website.
Because the regulations require extensive documentation, the overarching challenge for manufacturers will be enabling better product traceability through the supply chain.
To start, supply chain traceability will require companies to develop a successful master data management (MDM) strategy, Jacobson said.
"You have to go through tangled webs of product information, manual systems," he said. "The data's everywhere, and harnessing it is a real problem."
But companies will have to be able to track back the origins and content of all of the products. Supply chain visibility demands a look at the entire product supply network and understanding more than one step back and one step forward, Jacobson said.
"It's a fundamental part of supply chain transformation too," he said. "You have to react to the demands of the customer, moving from being market-focused to being a decoupled set of sites looking at some form of customer value across the network."
Existing supply chain technologies are good at tracking where things are, but they're not good about tracking the genealogy and traceability of those items, according to Dan Miklovic, who is research vice president at Stamford, Conn.-based Gartner Research.
This means that companies have to understand the product architecture, product structure, who their suppliers are and what their suppliers' bill of materials look like, he said.
"I think we're seeing companies really struggle with this," Miklovic said. "It's a risk management problem, is what it really comes down to."
To that end, the regulations have opened up a huge market for new REACH compliance software. Many companies will either need new software or have to upgrade and add on a module to ease compliance, Miklovic said. Companies are also looking to applications for transportation management and environmental health and safety applications, according to Jacobson.
Both existing vendors and new ones are springing up just to serve the market.
In the automotive industry, for example, companies joined a consortium and use a Web-based system that is being managed by EDS.
"It's working reasonably well," Miklovic said. "Most of the participants like to do it over again -- it's not exactly cheap, but it works extremely well."
In turn, SAP added a REACH compliance module to the suite and charges an "arm and a leg for it," he said. SAP has done a very good job of providing an integrated solution, but the challenge for companies is when they look at the cost to implement it.
"The benefit to SAP is going to be [that] a lot of customers in this economy are going to be looking to ERP vendors for compliance," Jacobson said.
The best way to get started with REACH compliance is to seek out help from a consultancy, Miklovic said. Specialty consultancies are emerging, and large systems integrators like CSC are starting practices geared toward compliance.