“Compliance” and “Value Proposition” are rarely spoken in the same sentence. These days, they should be.
As one automotive executive stated it to me recently: “First we spent a lot of money complying with ELV. Now we’re doing it with REACH, Conflict Minerals, and who knows how many other laws are coming. We need a way to leverage all the knowledge, skill, and data we’ve collected…and to make a profit from it.”
Today, turning compliance activities into profits is a realistic possibility. A surprising portfolio of financial opportunities is emerging. Collectively, they comprise what we call the “Compliance Value Proposition (CVP). The CVP includes using the enhanced compliance data to:
- Reduce supply chain resource and energy consumption, leading to lower costs
- Manage critical minerals supply risks
- Integrate into sales and marketing efforts to gain market share
- Identify when product take-backs can begin generating revenue
The purpose of this article is to explore the CVP, in particular, a few key obstacles and solutions that our industry must address.
Enhanced Data and the CVP
Extended producer responsibility directives like ELV and REACH target toxicity, waste, and other environmental parameters. While Conflict Minerals, Human Slavery, and similar laws address sourcing and social issues, other emerging regulations address greenhouse gasses, water consumption, energy usage, and other data sets related to negative environmental and social impacts.
Collectively, “enhanced data sets” refers to the full body of data sets that automotive companies must provide today or will be required to provide in the near future. The breadth of laws seems overwhelming. But, if we take a high-level view of their commonalities, we can manage their requirements. Even better, we can leverage our activities to meet those requirements and to capitalize on the emerging CVP opportunities.
Certain commonalities run through all the different anticipated regulatory data sets. For example:
- Although it may not be documented, the data already exists, or is available and not captured in our active or extended supply chains.
- Virtually all of the legislative (and customer) data requests can be addressed with information regarding six questions:
- What are the substances used in my products?
- What is the substance’s concentration in the materials?
- How are the substances used in my products?
- Where did they come from?
- How were they processed?
- Where were they processed?
This commonality is what will allow the integration of this data into the data collection and reporting process.
Achieving the CVP
The key to achieving the CVP is integrating all the environmental and social data sets that companies have separately been collecting. This is the most critical step, because the more integrated the data is, the more actionable the data is. As OEMs and suppliers evolve this integration capability, they can meet their regulatory requirements more easily, and they can use the integrated data to proactively make better sourcing, design, manufacturing process, and risk-reduction decisions. These decisions allow supply chains to increase their margins and reduce their supply chain risks while optimizing resource efficiencies.
Achieving the above CVP goal will not be easy. It will take industry associations and companies working together to develop broad, workable solutions. Key to those broader solutions is identifying the key obstacles that must be overcome. These obstacles must be addressed on an integrated basis, as all must be resolved to achieve the CVP.
- Consolidation of Data Silos. The current trend is for separate collection systems for the various regulatory requirements, creating multiple “data silos.” IMDS is a viable solution for collecting substance data; the system itself has been a trusted platform whose overall performance has clearly improved over time. The system (or future system) will need to evolve to allow the “enhanced data sets” to be integrated into its reporting process. Supply chains will then have actionable data — without needing expensive software systems to do the integration — to implement the CVP opportunities.
- Educational Issues. To get the maximum value out of collecting the enhanced data as an integrated set, we must address the educational issues; in particular, each level of the supply chain must understand how to collect, use, and report this wealth of data in order to make design and business decisions that will make a positive impact on their bottom lines, while reducing the many risks that burden our supply chains.
Achieving those educational benefits will require integrating a set of activities and processes that include:
- Common, low-cost or no-cost education and data-collection training for all of the thousands of companies within our supply chains
- A learning management system integrated to data collection that allows customers to track supplier progress with trainings
- Data Quality Processes. We wouldn’t consider buying products from suppliers without manufacturing quality processes in place, yet for compliance data, we take whatever is provided. To take advantage of the CVP, we will need to establish the appropriate standards for data quality processes for our supply chains to implement. These may be new standards, or additions to ISO9001, or new TS standards. Unless the data collection process is integrated into our routine business processes, it will become an overwhelming burden on our supply chains.
Achieving the benefits of the new data quality process standards will include:
- Development of the standards that are cross-industry.
- Training of the standards and how to implement them in our supply chains.
- A viable method for certifying that suppliers have implemented data-collection processes based on the training they have received.
- Integration of the suppliers’ certification to the data being provided.
- Better management of data collection costs.
Rather than viewing “compliance” as a high-cost/low-value “have-to” set of activities, forward-thinking companies are already leveraging their compliance activities to achieve lower costs, reduce supply chain and product compliance risks, increase sales, and enhance profitability, while conserving financial and human resources.
The financial benefits of achieving Compliance Value Proposition opportunities can be very large, but the obstacles to making it a reality are equally large. The sooner we address these opportunities and obstacles with an industry-wide integrated approach that combines data silo integration, education, and business processes along with developing new data metrics, tools. and incentives, the sooner we can reap the rewards of the Compliance Value Proposition.
Michael Wurzman is president of RSJ Technical Consulting.