Introducing the Issue
Forward-looking manufacturers are improving processes for product innovation and product development with the intelligent use of Product Lifecycle Management (PLM) software. PLM provides manufacturers significant value including faster product innovation, reduced cost, increased sales, higher quality, reduced waste, and more valuable product portfolios. On the other hand, regulations like REACH and GHS have hampered these companies through lost sales and increased cost. Leading manufacturers are extending the value of their PLM implementations by incorporating capabilities to improve regulatory compliance and sustainability.
Sustainability can’t be left out of the product lifecycle. A significant amount of the value associated with PLM is dependent 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. Product compliance risk may not be a glamorous topic, but it is critical to developing and selling profitable products and achieving responsible, sustainable corporate profitability. Further, many manufacturers are taking a more positive approach to compliance to support “green” marketing and promote themselves as a sustainable corporation.
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.
Sustainability is gaining focus in New Product Development (NPD) and PLM initiatives, but at what level of priority? For which jurisdictions? How will the supply chain be involved? Without proactive management, sustainability problems are often found at the most inopportune times. This paper will review real examples of regulatory crisis caused by design flaws. The paper will discuss the impact of these flaws on the business and the value that focusing on compliance throughout the life of the product can provide. Design for sustainability and proactive product compliance monitoring can help companies navigate the myriad of regulatory requirements, protect their PLM improvements, and develop a profitable, sustainable business.
Compliance is Critical to Sustained Product Value
Throughout the product lifecycle companies must ensure that they comply with governmental regulations and internal corporate guidelines. Without a sustainability strategy, the PLM value proposition is at risk. Accelerating time to market is a common PLM goal. Companies have invested in compressing product development cycle times through supply chain efficiencies, more effective product commercialization, and other approaches to get products to market before their competitors can react. Product compliance is critical to time to market. If sustainability is not designed into the product from the very beginning, costly time can be consumed redesigning or reformulating the product. One cause for redesign is introducing a product to a new market. Regulations can vary significantly based on where the product is being sold as well as 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.
Without a sustainability strategy, the PLM value proposition is at risk.
Another key goal of PLM initiatives is minimizing the cost of a formulation or design. Companies have been able to significantly reduce the cost of their products by proactively managing both internal and supply chain costs in the product design phase. This reduced cost provides benefits in increased margins or more aggressive competitive pricing if the savings are passed along to the customers. Again, sustainability is critical to achieving these benefits. If product designs are developed that violate regulatory rules, the product may have to be modified to comply after it has been released into the market. The redesign may result in significant additional cost to ensure sustainability by requiring additional pollution control equipment during manufacturing, protective packaging, rigid storage requirements, or specialized waste disposal.
In addition to increased cost, redesigns to address sustainability can result in compromises to product performance which can damage sales and customer satisfaction.
Figure 1: Windows of Opportunity for Product Compliance
The degree of flexibility that the designer has to make changes is drastically reduced once a product is released and in use by customers. The sooner that sustainability is addressed, the more options the designer can leverage to keep product costs optimal. As time runs out, so do options, and the cost goes up (Figure 1). These costs are not limited to ingredient or component costs. Other costs that can quickly erase the value that cost-optimized designs provide include increased handling, transportation, manufacturing, and regulatory fines. In addition to increased cost, redesigns to address sustainability can result in compromises to product performance which can damage sales and customer satisfaction.
Another common PLM goal is improving the value of product portfolios. Companies can increase their value by offering more differentiated products through increased innovation. But what value does a reputation for leading and innovative products stand against an environmental or sustainability 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. On the positive side, a “green” company reputation may increase company valuation.
Perhaps company valuations should be discounted based on regulatory risk. On the positive side, a “green” company reputation may increase company valuation.
Sustainability issues are a risk for most of the value realized from an effective PLM program (Figure 2). These risks from non-compliance can negate or reverse the benefits of PLM. While the benefit and the potential risks are not always clearly related, analyzing the potential impacts serves the purpose of highlighting the need to include sustainability in a PLM strategy. Companies that invest in PLM and ignore sustainability 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.
||Consequence of Noncompliance
|Improve Time to Market
||• Product Introduction Delays
• Design Rework for Compliance
• Delayed Rollout to Geographies
|Reduce Product Cost
||• Last Minute Design Changes
• Need to De-Optimize Designs
• Fines and Penalties
• Unforeseen Supply Chain Costs
• Manufacturing Process Changes
• Unidentified Pollution and Exposure Control
|Reduce Development Cost
||• Design Rework
• Manual Creation of Documentation
• Manual Effort to Catch Flaws
|Increase Value of Product
|• Limited Markets for Products
• Product Value Discounted for Risk
• Company Value Discounted for Risk
• Negative Public Perception
• Criminal Prosecution
• Company Not Seen as a “Green” Company
||• Last Minute Design Constraints
• Product Delays or Cancellations
|Increase Success Rate of
New Product Development
|• Missed Window of Opportunity
• Products Not Valid for Geographies
• Product Registration and Limitation
• Unforeseen Pollution Control Issues
|Improve Handoff From R&D
to Manufacturing /
|• Last Minute Labeling Problems
• Last Minute Repacking Problems
• Unidentified Health Risks
• Unidentified Safety Risks
• Delays for Regulatory Documentation
• Delays and Extra Costs for Transportation
• Right to Know Requirements not Met
• General Compliance Documentation issues
|Increase Product Quality
||• Product Performance Reduction from Changes
Figure 2: Impact of Sustainability Issues on PLM Value
Sustainability Issues Surface at Inopportune Times
Sustainability is not accidental. It requires knowledge of the applicable rules and regulations and adherence to those constraints throughout design and production. Sustainability starts with gathering and sharing knowledge across the supply chain and stretches throughout the life of the product. Failure to focus on regulatory requirements can lead to design flaws. Sustainability design flaws discovered in the design phase are relatively easy to correct. The later a problem is found, however, the more costly it will be to address. When design flaws surface at inopportune times, particularly when the product has been sold and delivered, the flaws can escalate into a regulatory crisis. Sustainability design flaws are points in time where past inattention to sustainability issues become critical, and sometimes public, problems. The following examples highlight the impact of non-compliance, how easy the flaws are to create, and how they can be avoided.
Sustainability design flaws are points in time where past inattention to sustainability issues become critical, and sometimes public, problems.
Design Flaw – Found in Design
Let’s start with an optimistic example. During the design phase a company discovers that a new product, perhaps a reagent for medical diagnostic equipment, is not only an excellent product for the US market but also for Europe. The problem, however, is that one of the components in the formula is not registered in the EU by the supplier. There are several approaches to overcome this:
- Registration and classification of the chemical in Europe under REACH and CLP. This may require extra testing and notification, which could take more than half a year
- Substitute another chemical with similar properties and try to correct for any resulting change in performance of the product
- Keep the US version of the product the same and develop an alternative for Europe
If a problem is found during the design phase, the potential resolutions can be reviewed and selected proactively before the product is released.
This design flaw is really more of a nuisance than a crisis. Before a product has been released, the R&D team has more flexibility to make changes. When this type of problem is found during the design phase, as in this example, the potential resolutions can be reviewed and selected proactively before the product is released to the market in the first place. If the product had been released without the component being flagged, or if the potential for the product to be sold in Europe is not identified in advance, the options for resolving the problem are much more limited.
Design Flaw – Found in Production
The next regulatory crisis is an internal issue. This example is one that causes internal delays, disruption, and expense. A new product was scheduled for production that was successfully piloted in R&D but not scaled to full production at the plant. A routine check during production planning discovered that this product, targeted for an important customer in Thailand, contained a new solvent, gamma-butyrolactone (GLB). GLB is on the Thailand Hazardous Substance List and a permit is required in order to import, export, or possess this substance. Due to this decision, the use of GLB has to be authorized for this product. This results in uncertainty on whether the permit will be granted and a delay of at least several months before the product can be put into production.
If this type of problem is found in production, the options for recovery are more limited and the potential impact of the problem is greater.
If this type of problem is found in production, the options for recovery are more limited and the potential impact of the problem is greater. The resulting change in the production schedule will likely add unnecessary cost. In addition, the customer will be disappointed. Had this problem been discovered in the design phase, the impact would have been much lower.
Design Flaw – Found at Customer
According to California Proposition 65, even traces of Dioxane contained in a printing ink (as an impurity in one of the raw materials) make it necessary to name the chemical on the label when sold in California. This ink is sold world-wide with a common label which discloses the traces of Dioxane. A customer in Australia discovers that the ink contains Dioxane and thinks his health is in danger from the ink. He sends letters to the trade magazines of his “discovery,” resulting in a damage of the good name of the company. The company could have mentioned the chemical only on products sold in the State of California because there are no legal obligations to put Dioxane on the label or even disclose it in a Safety Data Sheet.
Manufacturers must manage regulatory and sustainability requirements across geographies and jurisdictions.
This example highlights the fact that manufacturers must manage sustainability requirements across geographies and jurisdictions. By designing the labeling for the most restrictive jurisdiction, the company simplified the management of their labeling but created a potential problem. The alternative, which requires a greater level of coordination and control, is to develop alternative labeling or recipes to meet different regulatory demands globally. Accurate, detailed requirements information by geography allows companies to better analyze their options and then strategically implement them effectively. If manual processes are required to review every potential impact of a regulatory change, it is likely that some problem will be overlooked and customers’ satisfaction and trust will be disrupted.
If manual processes are required to review every potential impact of a regulatory change, it is likely that some problem will be overlooked and customers’ satisfaction and trust will be disrupted.
Implementing Design for Compliance
Experience in multiple manufacturing disciplines shows that driving flaws out of processes drives better quality. In the same way, product design processes can be improved to prevent sustainability design flaws. A design flaw should be considered a quality issue in the design process whether the problem occurs in the physical or commercial aspects of the product. Sustainability must be considered a critical outcome of the design process. In order to achieve this, regulatory requirements must be identified and addressed early in the lifecycle. Sustainability should be included in all product development stages for companies that have adopted a gated process. This includes the very beginning stages of design before any resources from R&D may be involved. A thorough review of target markets should identify the intended use of the product as well as the geographies in which it will be sold. These are critical design constraints for the product developers and represent sustainability knowledge that must be managed and shared across the enterprise and the supply chain.
A design flaw should be considered a quality issue in the design process, whether the problem occurs in the physical or commercial aspects of the design.
When designers have all of the appropriate constraints in hand, the next challenge is to ensure that they have the tools available to identify exceptions. The tangle of requirements is far too complex and changes too rapidly for any person to hope to address without automation. Designers should have access to tools that can automatically interrogate their designs and flag potential issues early in the design process. The ideal scenario would include the ability to instantly view the results that the design would have on product labeling, registration, and compliance issues.
Effectively and efficiently managing sustainability requires a tool that can manage the complexity for the designer. It also requires a trusted source of updated sustainability information integrated into the tool in the form of rules. Further, it requires the ability to gather and validate sustainability information across a distributed, global supply chain. Although some companies attempt to develop these systems on their own, packaged solutions and services are available and have reached a level of high maturity. Based on the complexity and the dynamic nature of regulations, the regulatory information and tool are both good candidates to be outsourced to take advantage of industry-level economies of scale. In this way, individual companies don’t have to proactively monitor for new and changing regulations.
Based on the complexity and the dynamic nature of regulations, the regulatory information and tool are both good candidates to be outsourced to take advantage of industry-level economies of scale.
Implementing Proactive Sustainability Monitoring
Figure 3: Product Compliance Framework
Sustainability checks are critical in the design phase to develop products that meet regulatory demands. Unfortunately, sustainability is a moving target. Rules and regulations are in a constant state of flux and can impact a product anywhere along its lifecycle. Recent regulations, in fact, have begun to place even higher emphasis on the environmental impact of the product on energy consumption and carbon footprint. Changing regulations and sustainability requirements must be proactively identified and compared to existing (and sometimes previous) product designs in order to trap potential issues. Manufacturers must also consider product or ingredient changes across the supply chain and their potential impact on product compliance. Monitoring sustainability requires a framework that manages product and sustainability knowledge from across the enterprise and supply chain and identifies sustainability issues for review and resolution (Figure 3).
Monitoring sustainability requires a framework that manages product and sustainability knowledge from across the enterprise and supply chain.
Clearly, companies first have to design sustainability into products. But in many circumstances they must also prove it. Documentation is an important aspect of sustainability. Companies must have access to all sustainability requirements as well as the proof that they are being adhered to. This reporting must be based on a solid foundation of product knowledge that identifies the specifications and composition of the compliant materials. Sustainability reports and ad-hoc analysis should identify potential future problems by displaying all raw materials and products that would no longer comply. Reports should identify issues based on future requirements to allow the maximum possible lead-time to address the issues. This forward-looking approach allows companies to make optimal design choices instead of last minute fixes with negative consequences including increased product cost. Whether standard or ad-hoc, documentation of sustainability shows that the process is in control and can be as important compliance itself.
In many cases, the documentation serves as proof of compliance. Products incorporating hazardous and other regulated materials require a significant amount of information to allow informed decisions for people who are routinely exposed to the substance, individuals that may come into contact during transportation, or those that must respond to spills or other potentially hazardous situations. Product documentation demands have become increasingly comprehensive with increased demand for public safety and public awareness of potential exposure and consequences. This has placed an increased demand on manufacturers to provide accurate, detailed information about their products and their potential consequences. This documentation – which includes identification of raw materials, product registration forms, labels for the product, and detailed material safety data sheets (MSDS), or Workplace Safety Cards (WSC) – can require a cumbersome, manual effort if it does not rely on repeatable and automated processes.
In many cases, the documentation serves as proof of compliance.
For companies that ship products to multiple geographies, the complexity of multiple sustainability requirements in combination with multiple languages can be staggering without technology to assist in developing the documents. Companies should look for the ability to automate the creation, publication and dissemination of this documentation in order to provide and prove operational compliance with sustainability requirements.
Companies should look for the ability to automate the creation, publication, and dissemination of this compliance documentation in order to provide and prove operational compliance with sustainability requirements.
Based on industry experience and research for this report, Tech-Clarity offers the following recommendations to:
- Include sustainability requirements very early in the product design process to identify design constraints
- Monitor changes to existing products in a proactive manner to ensure sustainability is not compromised
- Evaluate outsourcing maintenance of regulatory, compliance, and sustainability requirements in order to leverage industry-level economies of scale
- Embed sustainability into product lifecycle processes and technology to eliminate the variability of how and when it is addressed
- Recognize sustainability as a corporate responsibility as well as a solid business investment, not as a “necessary evil” but as a competitive advantage
- Consider a technology partner that can enable the process of collecting information and analyzing sustainability that is pre-integrated with a sustainability database
- Recognize sustainability as a global issue and proactively manage requirements for multiple jurisdictions and multiple languages
About the Author
Jim Brown is the President of Tech-Clarity, an independent research and consulting firm that specializes in analyzing the true business value of software technology and services. Jim has over 20 years of experience in software for the manufacturing industries, with a broad background including roles in industry, management consulting, the software industry, and research. His experience spans enterprise applications including PLM, ERP, quality management, compliance, service, manufacturing, and others. Jim is passionate about improving product innovation, product development, and engineering performance through the use of software technology and social computing techniques.
Jim is an experienced researcher, author, and public speaker and enjoys the opportunity to speak at conferences or anywhere that he can engage with people that are passionate about improving business performance through software technology.