It’s dawned on some manufacturers that environmental product compliance laws will affect every link in the supply chain. The more proactive ones are building
Take Varian Medical Systems Inc., a manufacturer of medical devices and software based in Palo Alto, Calif. The company makes medical imaging and radiotherapy systems used for cancer treatment.
By 2009, Varian knew pending environmental regulations of the European Union (EU) would soon require extensive compliance reports and a redesign of some devices to remove restricted materials. With around 30% of its $2.6 billion in annual revenue coming from Europe, according to a company representative, Varian’s financial exposure from noncompliance is significant.
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The following year, it embarked on a project with its ERP vendor, SAP, to add product compliance verification at critical checkpoints in its engineering, manufacturing and sales processes. “We wanted one single system to manage all of our engineering changes,” said Snehashish Sarkar, Varian’s senior manager of IT.
The regulatory juggernaut looms on the horizon. An exemption for medical devices in the EU’s Restriction of Hazardous Substances, or RoHS, directive that regulates -- and in some cases bans -- hazardous materials, including heavy metals like lead and cadmium, is set to expire in 2014.
In addition, another law called Registration, Evaluation, Authorisation and Restriction of Chemical substances (REACH) targets a broader list of chemicals that are sometimes used in Varian equipment. One of these, nickel, is of particular concern to Varian and the health care providers who buy its machines. “You don’t want someone sitting on an MRI table having a reaction to the metal,” said Matt Dion, the SAP product compliance solution manager involved in the project. “A lot of this really came from Varian’s customer requirements.”
PLM integration vital to product compliance
Varian was already using SAP Business Suite for manufacturing, procurement and sales, and the company had a license for the SAP PLM module but wasn’t using it much, according to Dion. That would have to change because PLM integration and workflows were critical to the project design.
“When we were doing the software selection, the engineering department had never used SAP,” Sarkar said. “There was some resistance, primarily due to the perception that SAP is hard to use.”
The engineers demanded an easy user interface, which then became a priority for the project team. “We had to spend a lot of energy and time on building a whole Web-based front end” in SAP NetWeaver Business Client, Sarkar said. SAP assigned an employee to work on the application for half the year. The result was what Sarkar calls a “very cool” front end with a framework that guides users through product design compliance. The software is still being rolled out to all of Varian’s global engineering sites.
To manage the product compliance data and regulations, Varian needed to purchase SAP Environment, Health & Safety (EHS) Management, which includes SAP Product and REACH Compliance (SPRC). “It leverages the material master [in SAP Business Suite],”said Richard Vermeij, senior director for solution management in SAP’s EHS business.
Verifying compliance of engineering designs doesn’t do much good if the actual, “as built” product ends up noncompliant, Vermeij asserted. “The regulator doesn’t care what the engineer is thinking during design,” he said. So it was important to add compliance verification to the point of sale, which Varian’s field sales force handles in SAP Business Suite’s sales order management and Variant Configuration tools. The orders can be thousands of lines long and differ significantly from the engineering specifications, according to Vermeij.
A "customer exit" in ABAP, SAP's 4GL programming language, allows the new application to reach in and analyze configured sales orders, according to Dion. “In standard code, there’s a call-out to a customer exit,” he said. “Usually they’re blank, [but] you can use them to integrate the custom functionality without impacting the standard code set. In this case, all that we’re doing is calling upon a different function or program that’s within SAP already to filter down the bill of materials based on a specific configuration in a sales order. ”
Two bills of material (BOMs) play important roles at critical steps in the process, Dion said. “There’s the engineering BOM up front,” he said. “What Varian is doing is enabling their engineering user to export their engineering BOMs into [SPRC]. Then there is also the manufacturing BOM -- which really is what’s required to protect your company from any risk of noncompliance -- [and] that you need to be providing on an as-built, plant-specific basis.”
SAP Business Suite already had the integration needed to bring suppliers into the new compliance system, Sarkar said. “The supplier or manufacturer has a mandate to provide the information that they have,” he said. “The system has the capability by which you can trigger a workflow that initiates an email.” Suppliers have a choice of entering their information into a template and returning it by email or by logging into a supplier portal. The information is automatically processed and stored in the EHS database, which has metadata index integration to a content management server that holds related documents, such as supplier certificates of compliance, according to Sarkar.
The system also lets Varian measure worker performance, Sarkar said. “We have built a lot of cool Web-page analytics reporting” and tracking of key performance indicators in SAP BusinessObjects and its Xcelcius data-visualization tool.
Distributed product compliance pays off
The system went live in August after approximately 10 months of implementation, including data migration and training. “We had to do some modification and development, but the data sources are in a single system, so it was pretty easy for us,” Sarkar said.
To Dion, organizational change management was a major part of the project, requiring a significant training initiative and “making sure that the different organizations in the company that were going to be affected were ready.”
Hiring a dedicated compliance manager as the liaison to an outside company that collects compliance information may also have eased the transition by functioning like a service organization to the engineers, according to Vermeij. “Varian’s thinking evolved on this,” he said. “People used to think engineers would organize themselves around [compliance].”
While he doesn’t have exact metrics to show just yet, Sarkar said there has been a return on investment, and Varian has ambitious goals in its sights. “The system which we have implemented is going to bring a lot of efficiency to our process,” Sarkar said. Engineers already need less time to check their designs for compliance. “Now everything is electronic, particularly on the engineering change side.”
The holistic approach to product compliance that Varian adopted is a significant change from what manufacturers believed only a half dozen years ago, Vermeij said. “They thought all we needed to do is put a checkmark in some CAD [computer-aided design] system. Companies have realized that compliance needs to be embedded across all business processes.”