Turning compliance into innovation and profit
Turning compliance into innovation and profit
Few businesspeople like the word “regulation,” but some companies are netting some unexpected benefits from it. In the process of gathering the data they need to comply with all of the state and federal laws, international legislation and the demands of modern-day sustainability reporting, companies are finding new ways to improve their products and even boost their profit.
It turns out knowing absolutely everything about how your product gets made can actually be a good thing -- and not just in terms of mitigating risk and avoiding potential legal and PR pitfalls.
“You never just redesign for compliance, you always take the need for regulatory compliance as an opportunity to do value engineering throughout your design process,” explains Ashish Sarkar, senior integration architect and project manager for biotech company Varian Medical Systems (NYSE: VAR).
Here's how three companies have turned compliance into an innovation tool:
Varian Medical Systems
Varian used SAP software to help it collect and analyze all the necessary data to meet the European Union’s Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) and Restriction of Hazardous Substances Directive (RoHS), with which it will have to comply in the coming few years. (Medical devices were added to RoHS as of 2013, but many have received exemptions that push their compliance date to 2017).
The company is using the system not only to comply with REACH and RoHS, along with various other regulatory frameworks, but also to phase out materials that could become problematic in the future as well. In the meantime, easy access to data about its products has enabled Varian to re-engineer products in five days as opposed to the 18 days such work once required. Between the savings of avoiding potential fines and the savings from a newly streamlined design process, the company expects its investment to yield a substantial net return.
Access to data is the key, whether companies are reporting to regulatory commissions, to shareholders or to the public. Take Sappi, one of the largest paper manufacturers in the world, which began using a data collection system from software company OSIsoft back in 1984. The intention was both to help ensure that its machines were kept up and running and to collect data for annual reports and sustainability reports. The company used that data to reduce costs and inefficiencies.
As a result, today Sappi is considered a sustainability leader in the pulp and paper industry, a role the company says has helped it attract more business. Access to real-time power consumption and emissions data has also helped the company to spend less money on power while reducing emissions at its North American mills.
Hard-drive manufacturer Seagate has, similarly, established itself as a sustainability leader by moving far beyond compliance in every regulatory framework and using data to continuously improve its product. It’s a move that has often given the company a competitive advantage.
In 2009, for example, when its competitors hard drives were failing due to bromine contamination, Seagate took the opportunity to tell the world about its bromine-free drives. By opting for eco-friendly design, the company had also designed a disk drive that was more resilient and robust
Taking the next step
Of course many, if not most, companies are still in the first stage of data gathering -- the onerous requirement stage. “Rarely do these companies use the data they’re gathering to proactively look at ways to improve,” says Mike Kirschner, president and managing partner of supply chain consulting group Design Chain Associates. “They don’t often say, 'Here’s a substance that could actually show up on the [REACH] Substances of Very High Concern list. Can we get rid of it?' Most companies just want to get by.”
Kirschner says this is particularly true of small- to medium-sized businesses, which typically don’t have a toxicologist or a chemist on staff -- or the budget to hire one as a consultant. However, he adds, that may change as companies become more familiar with the regulations and as the marketplace begins to demand more green chemistry. “I think marketing departments should start looking at this stuff and figure out how to use it,” he says.
The public increasingly expects sustainability reports to include more disclosure about chemicals as well. With more investors paying attention to such reports, companies may soon see a financial benefit in knowing more about what’s in their products and eliminating chemicals of concern.
I think most companies are probably reporting more on corporate environmental impacts, like greenhouse gas emissions and waste, than on what’s in their products, but that’s coming soon as we get more product reporting standards,” Kirschner says. “There’s already interest and demand to see more transparency in product manufacturing, if not from shareholders then from customers.”
Photo by Jojje via Shutterstock.