We are witnessing a noticeable trend of increasing importance of private and public regulations & guidelines as condition to do business in major economies. Even banks started advocating for responsible investments pertaining to Green House Gas (GHG) and EU on emission targets & UN on sustainability guidelines. Day by day many countries are implementing regulatory requirements as a precondition to do business i.e., in EU as many as 150 businesses and CEO being requesting to raise EU 2030 GHG Emission targets, and in other countries there is huge debate on Food and allied products guidelines and Agriculture compliance requirements. These guidelines increased the regulatory stringency for manufactured goods and imports and exports of products. These guidelines put additional burden on the countries manufacturing the products to meet the guidelines be it securing funds, ensuring chemical safety or environmental impact. How do countries react to these new guidelines and requirements? We have examples of how many countries adopted to regulations like RoHS, Chemical Inventory Lists or REACH by implementing country specific guidelines. What are the implications of such requirements on countries which have not adopted them yet? In this blog I would like to elaborate the regulatory percolation of such requirements on countries and the need for countries to adopt to these requirements.
There are many regulatory requirements being implemented all over the world. The main emphasis of those regulations is to ensure trade and to maintaining safety to humans and environment. These regulations require importers to adhere to compliance levels provided by home country manufacturers. One benefit cited in the literature for such regulatory implementations is to ensure compliance with limited investment from the country in question. For example, less burden on the country when it has free economy managed by greater number of global importers operating in the country. That is, you can ensure maximum compliance with implementing the regulatory requirements as the burden of implementation falls with the manufacturing companies be it technology changes or process changes. This type of regulatory burdens also give edge to local markets and yet respect the international trade regulations or treaties. When regulations such RoHS introduced, major countries which are doing business with EU, started implementing the regulations by adopting to new requirements. Few implemented the similar guidelines while others started implementing more stringent versions of the regulation. The main motivation for countries includes, enhancing trade competitiveness, reducing market failure and preventing environmental degradation.
Some of the implications of global regulations on developing countries include i. Likelihood of products being rejected – When products are not meeting the regulatory requirements, they are most likely to be rejected by the importer ii. Likelihood of supply chain changes – When a supplier is failing to meet the requirements, they are likelihood of organizations trying to scout for alternative suppliers and it might result in change of suppliers and manufacturers iii. Market changes to new markets – when a country is more stringent and it is no more a viable option for company to ship its products, it might see for alternate consumers and there might be a change in the markets and new markets emerge iv. Implications on cost of the products – when a regulation requires additional changes in the product and process it might result in additional monetary burden on the manufacturer and can result in increase in costs and finally v. Government initiatives to implement regulations – each specific country might see in a shift of government approach to tackle to these requirements and might promulgate new regulatory requirements.
Some of the recommendations to coping up with these types of regulatory requirements include
I. Risk Assessment of new requirements
There are many regulatory and sustainability guidelines being suggested or implemented. Organizations needs to carry out Enterprise Risk Assessment covering the introduction of those regulatory requirements
II. Change in the production processes
Sometimes the required compliance requirements require organizations to modify the production processes. Like for example change in raw materials or other mix of process changes. A careful change in production process can achieve the compliance
III. New facility development
Sometimes it is profitable for the organizations to set up a facility in a new location to ensure compliance, instead of manufacturing outside the jurisdiction in consideration. Such careful assessment of facility location logistics will help organizations to plan to adhere to regulatory challenges
IV. Product design changes
A change in product design process with less impacted raw materials, energy consumption paths etc., can result in more compliant products. Like for Circularity and GHG management, it makes sense to modify the product design if it helps in reduction in impact. Such design considerations needed to be considered.
V. Testing changes
A careful testing approach is needed to identify the impact of the product on environment, humans. As more and more regulations require adherence organizations needed to develop stringent testing approaches. Such scenarios and testing set up needed to be established.
VI. Warehouse management
A detailed approach for optimum management of warehouses and segregation of stock is also a requirement.
VII. Contamination management
As known if the products are from Agriculture and Allied industries contamination is a serious issue. Sources of contaminants and management of contamination is a pre-requisite to reduce the noncompliance risk.
VIII. Supplier auditing
A proper auditing plan for suppliers needed to be established like the validation criterion and assessment of various parameters. A robust supplier network with well-established network and countries which are implementing the guidelines will be of huge benefit to the organization.
IX. Purchase policy
It needs a careful planning of purchasing like supplier auditing as mentioned above, material testing, certifications etc., are needed to be carried out.
X. Certifications management
In order to be a compliance manufacturer, companies needed to participate in various certification activities. Generation of necessary documentation, carrying out of audits and 3rd party or regulatory bodies certification are needed to be done.
XI. And finally Investing in IT landscape
IT is needed for to ensure appropriate BPM and integration with core Supply chain processes. All these regulatory requirements have strong impact on the supply chain processes. How the requirements of circularity, GHG and REACH like regulations are integrated with your core Supply chain processes. How best your supply chain processes are realigned to meet to requirements defines the success of an organization. A mechanism of carrying out simulation studies to identify the impact for example Lifecycle assessment in case or Circularity, Enterprise carbon Management in case of GHG management. It also includes how the digital technologies like Block chain, Artificial Intelligence and Automation are used to manage your processes.
To conclude, we are witnessing changes in the Product Regulations, Sustainability covering GHG and Circularity. We also witness how countries are planning to introduce REACH or REACH like regulatory requirements and starting to compile inventory of Hazardous chemicals for registration, evaluation, authorization and management. Given these complex conditions, companies need to chalk a multiyear plan on realignment of their business processes, changes to existing IT landscape and the they way they work with their supply chain. Without proper planning or technology adoptions to manage those requirements companies will not be able to make any progress, which requires a mix of country specific and voluntary participation of industries. It is now the right time to ask following questions.
- Do you have successful Enterprise Risk Assessment procedure available and IT tools and infrastructure are set up to carry out the analysis?
- Do you see your organization braced for such challenges, what were you experiences with managing similar regulations earlier?
- What you think has worked fine for you and what you think is challenging and needed a dramatic change in processes, and procedures?
- Do you see your organization or industrial consortium leading the away and advocating on the regulatory requirements to staying competitive?
- Is your process having the right technology to participate in the regulatory or sustainability requirements like reduction of GHG, Circularity? What it takes to embark on technology adoption to comply the regulatory requirements.