THE PLM STATE

The PLM State: The Hidden Value of Regulatory Compliance

At the executive level, if you really do the cost benefit analysis around regulatory compliance, sometimes, it appears that the cost associated with it versus the penalties of non-compliance might be a wash. We have all heard the horror stories about the PlayStations sitting on the cargo ship because Sony couldn’t prove they had removed restricted materials from their products. But, how often do companies really experience zookeeper-clients-sony-playstation-logoconsequences that extreme? Moreover, the compliance landscape is ever-shifting so it seems almost impossible to keep up with every regulation out there, and again, the cost and effort for companies can be daunting. The latest regulatory trend has popped up here in the US around conflict minerals. Passed in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires that US listed companies report whether minerals they purchase are being used to fund militia groups in Central Africa. The law is pretty vague but each year more and more attention is being put on it and companies are wrestling with ways to proof their compliance. Back in April 2015, a report was released by Amnesty International and Global Witness claiming that of a 100 listed companies reporting to the SEC, 79 of them had failed to comply with the law. The interesting thing about this law is that it is not really clear on how to satisfy the requirements nor are the penalties spelled out. So the result of all this hand waving really ends up for naught. What is clear, however, is that there are hidden benefits to compliance that savvy executives can capitalize on that have nothing to do with avoiding penalties and have everything to do with linking their company brands to positive publicity which should improve their prospects in the market. This article will spell out this strategy as another potential reason companies should have a clearly articulate compliance strategy tied to their product development and manufacturing processes.

With the continued growth of social media and the intertwined relationship between these channels and company branding, the type of publicity mentioned above can be very damaging to a company’s reputation. So really the penalties for non-compliance to environmental standards like RoHS, REACH, and Conflict Minerals could be trivial compared to the damage that could be done if a company is portrayed as callously disregarding the welfare of the planet by continuing to use toxic materials that poison their customers. The article cited above is an example of corporate shaming and this technique is becoming even more powerful with the advent of Facebook, Twitter and various other outlets that enable a variety of individuals and organization to forward their agendas. It is critical that corporations recognize this trend and proactively address the potential accusations that inevitably follow corporate success. Most of these regulations put the burden of proof on the corporation and can be triggered by a single complaint. By putting infrastructure in place, corporations can not only respond to these accusations but tout their commitment to ensuring their products are safe and environmentally friendly.

There is no way to accurately predict the future of environmental regulations except to anticipate there will be more of them and they will be more challenging to address. Trying to pursue each one as they become an issue is a losing proposition. Companies that attempt this will forever be out of compliance and portrayed in a negative light by the media and their competitors. Committing to processes and technology that will lay a foundation to accommodate future regulations is the key to success in this area. Understanding that ultimately accurately tracking all materials going into products and being able to quickly document the composition of these products is a core need along with empowering design engineers with the information they need to try and eliminate regulatory concerns early in the process. This will give companies the ability to tout their “green” nature without really doing anything extra beyond normal process. The key is to blend compliance into normal processes and not create new bureaucracy or information silos. If it is part of your core process then the overhead to maintain it becomes insignificant and you now have the ability to respond to future changes since you have built it into your mainstream methodology. Product Lifecycle Management platforms are an excellent place to embed these methods since they can accommodate most of the information fields and reports needed for compliance. They also serve as a central hub between CRM and ERP which typically are on the front and back end of product development.

By recognizing the opportunity to recast your organization as an active agent in environmental safety you not only avoid negative publicity but generate positive goodwill that can impact sales and profitability. Governance and compliance is not an expense to be endured but an opportunity to change your company’s product development process in a meaningful way that will change the way your company is perceived by its clients. Building a scalable infrastructure will put your company in a position to capitalize on your ability to instantly respond to the future stream of regulations that are coming and avoid both the negative consequences of non-compliance and the bad publicity that inevitably flows from this failure.

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[Edit: repost from 2015]

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