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Competing Globally Starts with Compliance

Leads to more competitive operations

by Louis Columbus, Cincom Systems

Of all the forces impacting manufacturing today, compliance is fundamentally re-ordering the landscapes of entire industries. Lack of compliance can cost millions of dollars in lost market share and inventory write-downs for products that are not compliant, and present significant challenges in turning around a tarnished reputation. In addition, there is the broader and much more costly expense of re-architecting and redefining supply chains and products to be in compliance.

There needs to be a very real sense of urgency around the RoHS Directive, which went into effect on July 1, 2006 throughout the EU and the WEEE initiative. The Reduction of Hazardous Substances (RoHS) and Waste Electrical and Electronic Equipment (WEEE) have become the forefront issues in manufacturing globally due to their implications for any manufacturer selling into the EU.

What manufacturers need to realize is that through the efforts to be more compliant with regulatory standards, they can transform their manufacturing operations to be more competitive.

Transforming Compliance Into a Competitive Strategy

For manufacturers that ignore compliance, the costs can be steep. To ignore RoHS and WEEE directives is to invite a loss of market share, inventory write-downs due to non-compliant products in warehouses, and the costly retrofitting of supply chains to enable a manufacturer to become part of a compliant series of suppliers. Abacus, a distributor located in the United Kingdom, has stated that approximately $6.1M in inventory will be written off due to the products being non-compliant with the RoHS standard.

Manufacturers have the potential to fundamentally redefine their businesses by attaining compliance and using it as a foundation for growing global business development as well as selling, service, and support strategies.

Here are examples of several strategies from manufacturing companies that have looked to transform compliance into a foundation on which lasting competitive strategies can be created:

General Electric – G.E. spent $1.5B on Ecomagination in an attempt to significantly re-brand itself as an environmentally friendly and “green” manufacturer. This has helped the company throughout Europe and continues to be finetuned throughout the compliance strategies the company is using specifically on RoHS and WEEE to gain greater sales.

Toyota – Producing cars in the United States that meet all emission standards and those of the EU, Toyota pays $33 per labor hour versus $88 for General Motors. In addition, lean manufacturing through the use of the Toyota Production System (TPS) has given this auto manufacturer the opportunity to lead the world in auto shipments in 2006. There are immediate implications of this strategy for Toyota today as well. For the first time, in July of 2006, they surpassed all of Ford Motor Company’s brands in unit shipments globally. Clearly, compliance and lean manufacturing are working for Toyota.

IBM – Turning recycling and compliance into a sustainable business model starts with the GARS unit of IBM collecting 20,000 end-of-lease machines each week and then either reselling, refurbishing, or dismantling them, contributing less than 2% to landfill. This recycling operation also contributes several million in revenue to IBM’s leasing operations.

Sun Microsystems – Focusing on trimming down the energy usage of its servers, Sun Microsystems invented CoolThreads technology, which increases the performance of its servers while dropping their energy consumption. This creates energy savings for its customers, contributing to lower operating costs and lowered lifetime cost of ownership.

Fujitsu Transaction Systems – Heavily dependent on sales throughout the EU, Fujitsu Transaction Services has established itself as a leader in retailing, and is actively using environmental regulations as an opportunity to educate and solidify relationships with its retailing customer base. Fujitsu’s strategy of using regulatory compliance as an opportunity to educate both it customers and prospects has turned them into thought leaders in the core markets they serve.

Global auto manufacturer – Developing a series of strategies for managing the discontinuance of older and end-of-life vehicles – which is also an EU regulation – this manufacturer spent less than 1% of its total revenue on complying with Reduction of Hazardous Substances (RoHS) regulations. Many of the company’s competitors are spending up to 4% of revenue on compliance as a result of having to first get processes connected with each other and the need for speeding up the RoHS compliance efforts across its supply chains.

Hewlett-Packard – One of the first manufacturers to embrace the concept of turning compliance into a competitive advantage, HP was the first to define programs specifically aimed at design-for-environment (DfE) objectives in the context of new product development. Starting this initiative in 1992, HP’s efforts to be environmentally compliant has made its transition to RoHS and WEEE compliance to meet the EU directives much more achievable given its experiences in this area. An example of this is HP’s strategies for recycling the tens of millions of CRTs being retired from use throughout Europe. HP has been asked to desegregate the most toxic components of its CRTs and recycle the less-harmful elements. They’ve been able to accomplish this using the processes put in place from DfE initiatives over 10 years ago.

Summary

• Major reduction in production costs within the auto industry. Due to investments in making their manufacturing processes more lean and aligned with customer needs, Toyota pays $33 per labor hour versus $88 for General Motors. In addition, lean manufacturing through the use of the Toyota Production System (TPS) has given this auto manufacturer the opportunity to lead the world in auto shipments in 2006.

• IBM is making compliance pay. Turning recycling and compliance into a sustainable business model starts with the GARS unit of IBM collecting 20,000 end-of-lease machines each week and then either reselling, refurbishing, or dismantling them, contributing less than 2% to landfill.

• Sun Microsystems’ CoolThreads Technology is an example of turning environmental compliance into a competitive advantage – Through the development of an energy-saving server technology, Sun Microsystems has both created a solid computing platform but a very complaint one as well, which is yielding energy savings, also contributing to lower operating costs and lowered lifetime cost of ownership.

Louis Columbus is a member of the Cincom Manufacturing Business Solutions Team and a former senior analyst with AMR Research. He has worked with enterprise clients on defining solutions to their channel management, order management and service lifecycle management strategies. Mr. Columbus also teaches graduate-level international business and marketing courses at Webster-Loyola Marymount University and University of California, Irvine. He is the author of fifteen books on technology and two books on analyst relations. His book, Getting Results from your Analyst Relations Strategies, can be downloaded for free.

About Cincom

Cincom Systems delivers innovative software and services to simplify complex business processes. For nearly 40 years we have enabled thousands of clients worldwide to increase revenue, control cost, minimize risk and achieve rapid ROI.

For more information about Cincom, call 1-800-2CINCOM (USA only), send an e-mail to info@cincom.com, or visit the company’s website at www.cincom.com.