Crisis Management Compliance
By Kami Blake
When dealing with supply chain material compliance (SCMC), choosing the best of bad options is a default position that companies often attempt to avoid. Wide-ranging regulations touched by SCMC cover product safety, social responsibility, global chemical and materials regulations, and downstream customer expectations imposed upon manufacturers, distributors, importers, and exporters of regulated materials.
Increasingly, organizations dedicate significant expense to data, resources, and tools to augment rapid, accurate, and complete responses to emerging regulatory requirements, social responsibility pressures, and an expanding appetite for information driven by the downstream. Unfortunately, the return on this SCMC investment often falls short of targeted levels of safety and optimized, demonstrable compliance. Before we posit cause, effect, and corrective measures, let’s set the historical landscape.
The Industrial Revolution was a period of significant manufacturing and economic advances offset, in many respects, by the price paid by workers, communities, and environmental health. Business needs and benefits outweighed human safety and environmental protections, and corporate social responsibility was no competition for market dominance and profits, resulting in an alarming lack of balance.
Highly productive machines replaced manual labor, while posing physical risks to machine operators. Many workplace conditions defied basic standards of humanity. Toxic chemicals, devoid of appropriate controls, were deployed to optimize production efficiencies. One tragic historical reminder involves the devastating effects of mercury-based solutions used to increase pliability of animal fur to manufacture fashionable hats. Those who worked with chemical softening agents developed neurological disorders. Behavioral changes included severe anxiety, acute paranoia, and constant irritability, while physically, tremors in the hands, eyelids, and tongue grew from mild to convulsive. The label “Mad (as a) Hatter” did not originate with Lewis Carroll’s classic Alice in Wonderland.
The prominence of worker and community safety was slowly built on the backs of those who suffered due to a lack of it. Though 1970 saw the genesis of the Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA), both contributed to the unintended consequence of pushing industry far beyond North American boundaries into more “economically viable” global regions not adequately prepared to ensure safety or prevent and manage adverse hazardous material events.
A new paradigm
For centuries, safety and environmental protection methodologies demanded evidence of sufficient and prolonged adverse impacts to trigger necessary change. The last three decades have seen profound transformation in the opposite direction. Though a bit of an oversimplification, the pattern and progression of this material and chemical safety transition can be outlined as follows:
- Use until proven unsafe.
- Use, restrict, or ban based on a checklist of considerations and requirements completed prior to a use decision.
- Unsafe until proven otherwise.
- Expand the scope of compliance beyond safe use.
With Stage 1 fully in the rearview mirror, the compliance framework takes the shape of a building block design that incorporates elements from Stages 2 through 4, with Stage 3 being more of a goal than objective. In the last decade, this paradigm shift, specifically Stage 4, has taken on a life of its own. It now demands a mind-numbing amount of information to qualify your upstream supply chain to meet baseline regulations, align with industry standards, consistently achieve corporate social responsibility (CSR) norms and policies, satisfy non-governmental organizations’ (NGOs) expectations, and fulfill customer mandates.
In prolific fashion, buyers are asking sellers to declare and certify information that is not readily known or available. SCMC exhaustive surveys and questionnaires, dozens of pages in length, seek to ascertain compliance determinations, solicit supporting documentation, and require hundreds of specific data elements, oftentimes as a condition of sale. Each compliance topic or obligation generally calls for determinations based on different criteria that can vary by global market and jurisdiction. Additionally, there is no standard format or content for SCMC surveys or the requested disclosures and certifications.
The organizational approaches, after the head-in-the-sand method proved to be a nonstarter, generally include the best of some not-so-great options. Three common scenarios emerge: 1) Minimize the importance of SCMC to shoestring the budget and limit necessary resources; 2) find a turnkey solution that offers an all-encompassing SCMC data reservoir integrated with every existing and emerging regulation, industry standard, and associated CSR policy that meets or exceeds the informational demands of clients; and 3) throw everything but the kitchen sink at the beast in an attempt to tame it.
Scenario 1 is being repeated frequently with limited positive outcomes. The second does not exist, but the request for proposals (RFPs) keep coming. The third turns a challenging situation into a cultural nightmare fraught with frustration and finger-pointing and, worse, irritated customers.
Managing the seismic shift from product and chemical safety to accounting for the expansive demands of SCMC calls for more than quick fixes, third-party miracles, or massive unstructured and uncoordinated efforts. The road map below is one strategy designed to neutralize, if not eliminate, this crisis management approach to SCMC in favor of a more proactive strategy.
- Assemble stakeholders and decision makers who are directly or indirectly affected by SCMC.
- Conduct a SCMC policy roundtable to draft critical policies, processes, decision points, and so forth, complete with departmental roles, responsibilities, and interdependencies.
- Revise vendor management procedures to support SCMC.
- Establish governing parameters to create and maintain an approved materials list (AML).
- Establish and document decision-making methodologies that result in material and product compliance determinations.
- Create and maintain a knowledge base of required SCMC data and documents.
- Design auditable distribution methods to push critical compliance data and documents to downstream customers, when applicable, to limit product liability.
- Develop a SCMC management of change (MOC) framework to quickly and adequately analyze impactful changes and implement necessary modifications to established procedures and practices.
- Implement version- and date-controlled due diligence and record-keeping practices in alignment with and support of SCMC policies and practices that will undergird any agency, legal, or customer inquiry.
There are no shortcuts. Developing a holistic framework from which to achieve the desired SCMC outcomes of today and account for the inevitable changing requirements of tomorrow requires thoughtful, comprehensive, and systematic planning and execution.
Kami Blake is a senior solutions engineer at Verisk 3E, a Verisk (Nasdaq:VRSK) business.