Achieving Green Compliance

Analyzing process-based vs. test-based manufacturing.

For many of us, a debate regarding lean-green, process-based manufacturing vs. testing-based manufacturing as a means to achieve green compliance is a “no brainer.” For some reason, however, many executive-level managers are unaware of what lean-green, process-based manufacturing management professionals already know: Lean and green are a good combination. Together they can save your company money, save your customers money, and help you demonstrate your commitment to good global environmental stewardship.

Somewhere along the way, Corporate America received a series of misleading messages from legal teams and industry associations related to the European Union’s directives on the recycling of electrical and electronic product waste (WEEE) and the restriction of hazardous substances (RoHS). The message was simply, “If you fail to meet these requirements, the penalties will be high.” According to EU member state representatives, fines of up to 15 million Euros could be imposed, and senior management representatives could receive prison sentences of up to 10 years. The message was clearly given to ensure that executive managers paid attention.

Is the message getting through?

As I visit companies throughout the United States, attend Import Safety Summit meetings in Washington D.C., and participate in U.S. and international technical committee meetings, I continue to be amazed by the processes that U.S. executive managers support and implement and the level of company resources committed to these processes. After years of spending time and money to learn and implement lean process management systems (LPMS), they continue to adopt hazardous-substance-free, green manufacturing programs based on testing methodologies that were proven inefficient, ineffective, and very costly more than four decades ago. What happened to the lessons that we learned about process management and lean manufacturing?

At a time when everything around us is changing minute by minute, our manufacturing environments cannot afford to revert back to the old ways and days. Testing to ensure compliance with emerging environmental management standards is not the answer. Although I admit that some testing is required, it should be done on the basis of validating that lean-green manufacturing processes are under control. Testing should not be used to determine whether every toy train, cell phone, GPS, iPod, laptop computer, hair dryer, toaster, curling iron, and talking teddy bear is compliant with hazardous substance and recycling management requirements.

Senior managers seem to be taking their direction from folks that have not learned the value of process management or simply do not believe in it. By direction of some of the smartest technical minds in industry, the amount of time and money that Corporate America is pouring into technology to manage hazardous-substance testing and data collection and reporting is staggering. We are talking about millions and millions of dollars. I have repeatedly seen companies respond to lengthy hazardous-substance content questionnaires from customers. Most of these questionnaires have 50 to more than 100 questions. Whole departments staffed by environmental engineers and supply chain assessors have been created just to handle these customer inquiries. This has been done in large part because lawyers have told managers that if their companies fail to properly control the hazardous-substance content of their products, they could be fined and imprisoned. With this degree of justification, it really is not hard to see how middle management could easily get executive management to sign up to supporting a high degree of product testing. With corporate lawyers indicating that these new requirements can be referred to as “Be a Manager; Go to Jail,” it isn’t hard to understand why even the chief financial officers grin and bear the cost with little to no serious challenge.

What managers need to know

Clearly, middle and senior management need to step back and ask themselves several key questions with regard to hazardous substances:

• Which departments are actually affected by hazardous substance and recycling management requirements?

• How many people in the company are and/or should be involved in hazardous substance and recycling management systems?

• What hazardous substance and recycling management system activities in the company are better managed using process methods rather than testing and/or material reporting?

• What effect has an approach to hazardous substance and recycling management had on the supply chain?

• What is the cost effect of these programs on the supply chain, and what is the cost effect for the organization itself?

• What is the actual total cost of the organization’s hazardous substance and recycling management systems compliance?

If your company has not approached the implementation of your hazardous substance and recycling management systems using a lean-green approach, it is quite likely that you are spending thousands if not millions of dollars more than you should be.

Let’s take a look at these questions and see if we can find some of the money that might be saved.

Finding answers

I cannot stress strongly enough that executive management must question every decision made that does not start and end with a lean-based green evaluation of the hazardous substance aspects and effects on every process and activity in the company.

To address these questions, start by drawing a diagram that shows each of the departments in your organization. Then, next to each department, list the effects that hazardous substance and recycling management requirements will have on it, as seen in figure 1 below. Be sure to pay attention to the following items by department:

• Customer requirements. The customer requirements and/or the sales department is the first to be affected by the system. Each customer agreement or contract must be reviewed to ensure that what you are agreeing to sell meets the customer’s technical hazardous substance and recycling requirements. If this is not done, your risk of noncompliance goes up substantially.

• Design requirements . Design is the next to be affected. The designers are responsible for ensuring that all regulatory, statutory, customer, and company requirements are met. They must generate the specifications for procurement to use when purchasing materials and the test or performance requirements for each piece of material. If you are relying on your supply chain to provide the technical details, there could be a major time delay. If you are specifying your requirements without communicating with your suppliers, you could discover later that you have no parts or, even worse, that the parts the suppliers send don’t meet customer specifications. To ensure ongoing compliance, the design department must have a way to stay abreast of new requirements at all times. These may be regulatory-, statutory-, customer-, or company-driven requirements, or they may be national and/or international requirements.

• Purchasing requirements . If the design and supply chain management departments are on top of their game, the purchasing process is straightforward. They need only purchase the materials according to specification at the right time for the right price. Unfortunately, this has not been the case when distribution channels are used. There are tons of noncompliant materials being dumped into the supply chain and passed off as compliant. Imagine, if you will, the effect of a printed circuit board with 100 noncompliant capacitors being produced in volume. How many systems would need to be reworked, and at what cost?

• Receiving department. In most organizations, the receiving department has been mostly eliminated over the years. Highly reliable materials and supply chain management programs had pushed the issues of compliance back into the system. That has changed with today’s demand for full disclosure of the substances in a product. Persons doing the receiving process need to be able to read and understand chemical test reports. Failure to stop a suspect product based on an XRF test or a self-declaration of conformance that indicates an out-of-tolerance condition could create major problems for an organization.

• Material control . One of the most overlooked areas in a company today is the material control and inventory management department. Many companies decided that it was more cost-effective to simply add another letter to their part numbers to distinguish between hazardous-substance-compliant and -noncompliant materials. Although this saved a lot of time and money administratively, depending on the physical inventory management system, compliant and noncompliant material is now easily mixed up in the bins. Keep in mind that one mislabeled roll of resisters, capacitors, diodes, or bin of nuts, bolts, washers, or wire, can create a major problem for an organization.

Although you may have only a few dozen bad units, if the process management system is not sound with good traceability, you could be forced to examine your entire inventory to be confident that you have resolved the identified problem(s). Those of us who have had to manage such a situation never want to repeat the experience. The most recent example of this can be found in the toy industry during the 2007 holiday season. Millions of dollars of revenue were lost, and there was a significant effect on the market credibility of the companies involved.

• Supply chain management . This is perhaps one of the most significant employment growth opportunities of the last decade. The farther down the supply chain you go, the less likely you are to find the technical competence required to ensure compliance. The cold, hard truth is that small supply-chain companies either lack the technical competence within their organizations, or they lack sufficient staff to stay on top of the changes in technology. Components and subassemblies that are not affected are those that do not contain identified hazardous substances and/or banned substances. However, there are very, very few of these. The regulations that drive hazardous substance and recycling management systems clearly address the need of a producer to know and ensure compliance throughout its supply chain. Failure to ensure compliance can and will surface in the marketplace with negative implications for your organization, whose reputation and finances are on the line.

• Kitting and production department(s) . This area of activity represents two opportunities for multiple, unexpected problems: cross-contamination and process oversight. Cross-contamination is one of the mistakes that many companies experience if they have not taken steps to mitigate the possibility beforehand. The other hidden disaster is the failure of your technical staff to assess the assembly process to determine what if any hazardous substances may be introduced into your product during manufacturing and/or rework. The reuse of scrap materials is but one of the processes often overlooked when a company depends on a testing-based rather than process-based approach for compliance.

• Finished goods and shipping department(s) . Although these two departments seem to represent very low risk, they are still the source of many compliance failures. Let’s consider packaging. Packaging needs to be evaluated for the potential introduction of hazardous substances and to ensure that it is compliant with the EU packaging directive. Cross-contamination is another risk if the company makes both hazardous substance and hazardous-substance-free products. Remember also to evaluate any pass-through products that are purchased as a finished-good item and simply shipped with your finished-good products. These pass-through products can cause the entire system to be deemed noncompliant if they fail to meet the requirements. Bulk or large-lot packaging, including pallets and master pack crates, must also comply with the requirements. The new style fiberglass, plastic, and pressed fiberboard reusable pallets can introduce hazardous and/or banned substances, resulting in failure of compliance. Packaging tapes, inserts, and bags are also potential problems, as are wooden crates that are put together with nuts and bolts, nails, and/or metal straps and shrink wrap.

• Customer satisfaction department . Although it may not contribute to avoiding a noncompliant situation, it is critical to understand the customer’s expectations and the end-use of the finished product that you sell them. If the customer is the end-user, then its receipt of a functioning product that is compliant with its requirements is the end of your responsibility unless you are required to provide a recycling program. On the other hand, if your customer uses your finished-good product to make its own finished-good product(s), then there is the possibility that your liability will continue onward. It is important to remember that some EU countries have invoked laws that allow them to include the end-product producer’s supply chain, should a noncompliant product be detected.

About The Author

Stanley H. Salot Jr.

Stanley H. Salot, Jr., is the founder and president of HSF Mark Alliance. He is an acknowledged expert in business and quality process management and is active in U.S. and international industry standards development bodies. He serves as president of the Electronic Component Certification Corp. (ECCC), the U.S. representative of the International Electrotechnical Commission Quality Assessment System for Electronic Components (IECQ). Salot co-authored the international standard for electronic components, QC 080000—Hazardous substance process management system requirements.