Compliance: Put Success Within REACH

Effectively meeting the mandate requires a new approach to environmental compliance management.

By Sebastian Pleister, SI PRO

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Today the chemical industry and companies using chemical products are struggling to cope with the Registration, Evaluation and Authorization of Chemicals (REACH) legislation of the European Union (EU). Most experts regard REACH as the strictest law to date regulating chemical substances. Under REACH, all chemicals manufactured or brought into the EU in a quantity greater than one metric ton per year must be registered with the European Chemicals Agency (ECHA), Helsinki, Finland, regardless whether they are well established or completely new in the market.

To make things even more complex, the amount of data needed for registration depends upon the quantity of the chemical to be manufactured or imported. Additionally, the firm must specify usage and exposure scenarios for the material. This means that a company must register its substances with a maximum tonnage per year as well as define their intended uses.

Over the past few years, organizations affected by REACH have put a lot of effort into preparing for the regulation. The first hurdle was the pre-registration phase that ended on November 30, 2008. Pre-registration enabled companies to use a phase-in period before complete registration information had to be provided.

Whether the industry has met its pre-registration targets will only be known when enforcement begins. Nevertheless, the main workload of actual data gathering, data generation and registration of substances really starts now. Staying in compliance will be no less demanding a task.

Achieving REACH compliance entails addressing both internal and external complexities. Besides compiling all necessary registration data and getting internal processes “REACH-ready,” a company must make sure its partners and suppliers attain compliance, as many don’t think REACH impacts them.

Therefore, REACH requires a new approach to environmental compliance management (ECM), demanding enterprise-wide business process integration as well as up- and downstream integration of the supply chain.

Information technology (IT) is the enabler of these concepts. Providing an adequate IT infrastructure substantially impacts a firm’s ability to effectively meet the REACH compliance challenge.

The IT infrastructure must allow the company to efficiently manage the REACH registration process and implement a new integrated approach to environmental compliance. While a single REACH IT template can’t address the needs of all chemical companies because their requirements, existing infrastructure and resources vary greatly, the solutions we’ll discuss should provide a rough guideline for the time and effort required for implementation.

A New Approach
Compared to existing global chemical inventory regulations, REACH takes a much more holistic approach to environmental compliance. Substances’ registration with ECHA in Helsinki isn’t a one-off activity. Instead, REACH compliance must be continuously confirmed for all material movements up and down the supply chain. Therefore, a company must take a fresh look at how it manages environmental compliance. REACH must be met by a new comprehensive strategy, new processes and adequate ECM systems. Indeed, it demands fundamental changes in existing organizational models and modes of cooperation — both internally and across company borders.

So far due to the rather technical nature of environmental regulations, dedicated environmental, health and safety (EH&S) professionals often in separate corporate units handle compliance. Their typical work is event oriented, not transactional, i.e., integrated into logistical operations. From a company perspective, EH&S functions usually aren’t part of the supply chain organization and EH&S information systems rarely communicate with logistical execution systems.

New product development and introduction (NPDI) is another area that needs to be considered. It’s here that the composition of a product is determined. EH&S often isn’t integrated into this process enough. Frequently environmental compliance isn’t checked until after a product has been developed or even sold. Furthermore, NPDI information systems, often part of product lifecycle management (PLM) systems, are separate systems and don’t interface with EH&S systems.

Along the supply chain, customers, vendors and other business partners usually don’t share information about environmental compliance apart from receiving and sending material safety data sheets (MSDSs). With REACH the activities of supply chain partners become extremely important for achieving compliance. This, in turn, requires more open and proactive communication.

The following recommendations are starting points for a more integrated approach to ECM and more efficiently adapting to REACH:

Integrate environmental compliance into supply chain management (SCM) and NPDI organizations and processes. A company must change its approach to chemical compliance and needs to think across all operations. It must embed ECM into supply chain organization and activities. Processes need built-in compliance.

The goal is to check and track the registration status of substances and their respective volumes through all planning and execution phases of the supply chain. For example, a firm must keep tabs on long- and midterm planned quantities against registered substance quantities, sellers must consider whether potential sales volumes are within the REACH limits, and purchasing must ensure the registration status is okay for all items to be bought. Likewise, environmental compliance must be part of every design decision during NPDI.

Increase supply chain visibility. Activities of its business partners are essential for a company to become and, more importantly, stay REACH compliant. So, supply chain communication is a major part of REACH registration activities. To maintain REACH compliance, this communication must become part of regular business communication. The gathered information must be visible within the company and throughout the supply chain.

Every step of the value chain requires ready access to the following information (Figure 1):

• What is the substance composition?
• Who are the business partners?
• What is the registration status for each material?
• How is the substance being used (usage scenario)?
• What is the exposure of users (exposure scenario)?

Provide an adequate REACH IT infrastructure. Environmental compliance only can be efficiently integrated into SCM and NPDI processes if EH&S information and compliance checks are available in logistics execution and PLM systems. Furthermore, the company must have automatic accessibility to REACH compliance information from its supply chain.

Implementation of this new approach to environmental compliance will help firms cope with REACH and existing chemical regulations and also will prepare companies for future regulations. Figure 2 summarizes the benefits of this approach.

The Importance of IT
IT is one of the determining success factors of every REACH initiative. REACH-specific IT requirements range from the use of third-party systems to collect data, register or collaborate, to requirements for internal systems to identify substances and their quantities, execute multiple registration projects in parallel, and enable collaboration internally and externally.

The most prominent third-party tool is IUCLID 5, which is provided by ECHA. IUCLID 5 is used to collect data points and generate registration dossiers. SIEFreach is an IT system initiated by CEFIC (the European Chemical Industry Council, Brussels) for collaboration in substance information exchange forums (SIEF). Other tools, e.g., to generate exposure scenarios, carry out chemical safety assessments and produce chemical safety reports, are under development.

However, many companies are still struggling with a bigger issue: How to internally manage REACH registration and ongoing REACH compliance?

So far, most organizations have relied upon quick fixes and a lot of manual data manipulation to get started and meet initial due dates. Several IT systems are available that promise to address REACH compliance on a stand-alone basis or as part of an isolated EH&S package. The downside to many of these solutions is that data must be (semi-)manually fed into the system and no access to actual transactions in ERP systems is available. While such solutions can help companies get started or may suit organizations with very limited exposure to the EU market, they aren’t a long-term solution for any larger company taking environmental compliance seriously.

The new approach to ECM must trigger a re-evaluation of the role of EH&S information systems. Frequently, these have been seen as isolated systems to support a very specialized “exotic” corporate function. Companies have implemented few, if any, interfaces, e.g., for MSDS shipments or dangerous goods declarations on transport documents.

With the ever increasing importance of environmental compliance, organizations should view EH&S functionality as one of the core business IT functions. The goal must be to implement an environmental compliance solution that’s fully integrated into the existing ERP landscape. Such a holistic approach enables compliance objectives to be considered on a transactional level, e.g., with substance volume tracking or online compliance checks, and on a planning/strategic level with adequate business intelligence and planning functionality. At SI PRO, our approach is based on SAP.

An integrated IT architecture for environmental compliance should have a number of critical characteristics, such as:

• It must be based on an integrated compliance data model that has a comprehensive data structure that can be easily enhanced and links EH&S data objects to logistical and PLM data objects like products, vendors, clients, sales orders, recipes, formulas, etc.

• There also must be access to standard PLM and logistical functions, e.g., to generate data, evaluate transactions or block processing. An example is substance volume tracking functionality that aggregates manufactured and imported quantities from production and purchasing orders.

• A central compliance check engineis needed as a central repository for compliance rules with predefined integration points into logistical processes to execute compliance checks and access logistical and EH&S master data.

• Additional features like project management with integration into accounting or document management can expedite compliance management and, especially, REACH registration. Furthermore, standard tools can foster internal and external collaboration and supply chain communication.

The Right Way Forward
The time and effort to execute such an integrated IT architecture for environmental compliance, of course, exceed those for a quick-fix stand-alone system. Furthermore, implementation can only be achieved with a step-by-step approach. But opportunities to increase environmental compliance and to automate transactional ECM tasks definitely are worth the time and effort. In addition, an integrated compliance management solution will dramatically reduce the pain of adopting future environmental compliance regulations.


Sebastian Pleister is an associate of SI PRO Consulting, which is based in Boston, Mass., and Mannheim Germany. E-mail him at sebastian.pleister@si-pro.com.

 

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