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Environmental compliance: The next Sarbanes-Oxley?

The rules are still evolving, but RiverOne CEO Chris Smith says tech companies will need a more nuanced approach.

    At first blush, the various global "green" initiatives that will regulate how manufacturers must build and dispose of their products seem comparable to the corporate and IT mayhem caused by the Year 2000 bug and the Sarbanes-Oxley Act.

    Existing restrictions on hazardous substances and waste from electrical and electronic equipment alone will force companies in the high-technology sector in particular to spend collectively between $10 billion and $20 billion. And like Y2K or Sarbanes-Oxley, the costs of noncompliance may involve criminal allegations, jail time and large monetary fines.

    A single component or process that jeopardizes compliance will negatively impact every company that helped bring that product to market.

    That's in addition to sales bans, product recalls and potentially damaged brand reputations resulting in millions of dollars in lost sales and lost market share.

    But unlike its predecessors, environmental compliance is not solved by crossing a well-defined finish line. The rules are still evolving and may be interpreted or enforced differently in various global regions. Nor is it a challenge whose solution is fully within the resource of a single company to solve.

    So many high-volume consumer technology brands have embraced outsourced business models that strategic functions such as design, procurement, manufacturing, logistics and reporting wind up beyond a company's direct control. AMR Research revealed, for example, that many original equipment manufacturers found nearly half of their supplier certification information to be incorrect. No matter: The OEM is still on the legal hook for compliance.

    On top of this, compliance requirements extend far beyond governmental regulation. Brand owners such as Nokia have adopted manufacturing policies that are far more rigid and extensive than those being adopted by governmental agencies. All that is forcing their suppliers to deal with a massive set of variables that vary from manufacturer to manufacturer, product line to product line and region to region.

    What does all this mean this from an information systems standpoint? The challenge centers on the notion of flexibility. Companies need to view compliance through the lens of a continuous challenge with multiple stages of maturity. They must develop an infrastructure and set of shared business processes that are adaptable enough to meet the needs of today and tomorrow. They need to do this without wreaking havoc on their business partners' current processes and information solutions.

    Brand owners like Hewlett-Packard and Dell will be on the hook for an audit trail that stretches all the way back into raw materials.

    Manufacturers will have to find ways to reach into even their smallest partner or supplier to make it painless and speedy for them to communicate information about design, parts content and origination, manufacturing techniques and other factors to guarantee--not just guess--a product's compliance.

    This kind of controlled collaboration within a multi-enterprise environment is imperative. Brand owners like Hewlett-Packard and Dell will be on the hook for an audit trail that stretches all the way back into raw materials.

    A silver lining?
    A single component or process that jeopardizes compliance will negatively impact every company that helped bring that product to market. But there is a silver lining.

    Companies moving toward creating common business processes and standards--ones that involve and ultimately benefit all of their partners--will find themselves at an advantage. Because of the diverse nature of today's supply chain participants, this goes far beyond "exposing" information such as customer orders, demand forecasts or bill of materials. It means creating true partnerships that optimize processes for every supply chain participant. It means sharing a process, not just information.

    Once executed well enough to guarantee green compliance even in fast-moving and highly outsourced industries such as electronics, organizations will have laid the foundation for exceptional manufacturing and operational control, which previously was associated with the days of vertically integrated manufacturing.

    These companies will be living examples of "the best supply chain wins," and the multi-enterprise operational improvements will be felt across the board.