Bearing the burden of risk management, compliance and repercussions in today’s super regulated environment
June 19, 2017
Managing risk and compliance is no easy task. As products, partnerships, and supply chains become more complex and multi-tiered, the regulation issues also become more complex. Repercussions, too, become greater. Manufacturers need to proceed with caution. As today’s optimistic manufacturers invest in digital and disruptive technologies, they should also invest in tools to help them track, control, comply and report on the various legal mandates they face. Software solutions can prevent financial catastrophe from product recalls, government fines, or damages collected from class action cases.
The tangled web of legal mandates
Manufacturers must fully understand the landscape in which they operate. This means the local as well as the national and international environment. Ignorance of the law is never an acceptable defense. Whether you are a well-established enterprise with legal counsel or a family owned start-up operating out of a garage, you have the same responsibility to understand and abide by the applicable laws. Small companies with fewer resources may find mastering the tangle of overseeing agencies to be a major challenge. Mandates full of industry jargon, legal-ese, and government-speak can read like a foreign language to the novice.
Manufacturers can protect themselves from potential landmines by conducting thorough research. With the power of modern search engines, few topics are out of reach of a determined researcher—armed with no more than a computer and mouse. Dedicating time and resources to this precursor is often the biggest challenge as product designers often want to rush to market with time-sensitive innovations. Rushing to production without thorough research on legal parameters, though, can be disastrous.
Research can also identify resources that can provide valuable support, such as trade associations, consultants, or advising groups. When stake are high, turning to trusted advisors for support can be a wise decision. Manufacturers should remember that experts can come in many sizes and forms—and don’t have to come with hefty price tags.
Multiple types of risk
Manufacturers must understand that risk is inevitable. The question, then, is what level of risk is tolerable to the stakeholders? This evaluation cannot be done once and forgotten. It requires a system which will continually monitor conditions and spot likelihood of noncompliance or “incidents” falling outside of prescribed parameters. An at-risk-incident can be can be as singular as a late delivery to one customer or as far reaching as contaminated waste water spilling into the environment.
Quality control systems are meant to identify most forms of product noncompliance. Continuous monitoring of the production process—at multiple stages in the manufacturing and assembly process—can spot variations to specifications—such as dimensions, density or weight outside of parameters. Sensors today can monitor such conditions to incredibly minute deviations. If you quality control system is relying on one final check performed by humans as they put units in boxes or pallets, you are likely experiences considerable waste that can be avoided. You also risk one faulty component escaping detection. Will that one defective piece result in a class action suit costing you millions of dollars?
More than money at stake
In addition to financial ramifications, risk-incidents can jeopardize the brand, credibility or confidence of investors. Risks can also endanger people or places. Some of these issues are hard to define or quantify and, therefore, difficult to assign algorithms and use numerical metrics to signal unacceptable risk levels. Even “soft” assets, such as brand integrity, need to be protected. Turn to experts to help project ramifications to the company’s cash flow health, bottom line profitability, and impact on sales, if your stakeholders make decisions primarily on fiscal results.
In some industries—such a flight, medicine, and security—failure is simply not an option—no matter the financial details. When stakes are high, multiple layers of safeguards are often the best form of defense. Systems of checks and balances and independent cross-checks provide added confidence. Here, too, software solutions, smart sensors, and robotic engineering can add a digital guarantee of objectivity and precision.
Look beyond your own products
Legal responsibility is far reaching in today’s highly litigious society. Civil law suits tend to name as many companies as possible--no matter how remotely connected to the primary incident. An injured customer may name the manufacturer, the distributor, truck driver, retail store, and the clerk who put the disputed item on the store shelf. Although illogical correlations can be thrown out in court, legal hassles—and fees-- can still be extensive. How can you protect yourself from being caught in a wide net? Your best protection is to know your supply chain partners well. Choosing to work with highly reliable companies that share your perspectives on product quality, service to the customer, and community responsibility is an important first-step.
As the “barriers to entry” seem to diminish, more start-ups, angel-backed entrepreneurs, and crowd-sourced partnerships dot the trade landscape. While these innovative companies often bring a fresh perspective, they can also complicate trade. It is harder to know the integrity of every new start-up. “Newness” doesn’t always mean unreliable, but it does bring uncertainty and risk to the supply chain. Caution is still the best advice for manufacturers who are forming new alliances and building extended supply chains. Supply chain visibility is an important feature that modern ERP solutions and Supply Chain Management solutions (SCM) can provide for manufacturers. Today’s advanced SCM solutions help manage the relationships, tracking location of deliveries, and identifying trends. Data help you make well informed decisions about partners.
When working with supplier partners, traceability is always important for manufacturers who may face recalls or need to track parts and components. This is another area where software tools are extremely valuable. Traceability down to the part level or ingredient level is a challenge--if you are relying on spreadsheets or manual systems. Recalls can be devastating to the bottom line and the brand. Often, speed of response helps lessen the blow. You need to be able to quickly determine which units and customer orders contain the recalled components.
Tracking components is also important in certain industries, such as Aerospace and Defense, when the manufacturer must track flight hours or as serviced history. Again, software makes this complex task easier. Advanced solutions track parts, versions, warranty, and service regulations or mandates, such as maximum flight hours.
Protecting intellectual property, collaboration, and data
Protecting intellectual property is another important—but complex—aspect of risk management in manufacturing today. As collaboration and manufacturing partnerships between fabricators and specialized vendors increase, clear ownership of ideas can become blurred. Collaboration poses risks which must be weighed against the benefits. Product lifecycle management (PLM) solutions help manage the innovation process, tracking design principles as they are proposed, providing a reliable trail of development. Integrated social tools also help track communication with partners, protecting the history of shared projects in case there is later dispute.
Ownership also occasionally becomes an issue in online portals that invite customers to design their own personalized variations of a product. Does the customer own the design? Or, does the manufacturer retain rights? These gray areas can cause confusion and conflict, unless the solution makes terms clear and helps to manage the process. When using well established product configuration tools, you can be certain that such issues have been addressed and your interests are protected.
Ownership of data generated from Internet of Things technologies is another example of new issues manufacturers must manage. When a smart car generates data about driving habits and the car’s performance, that data provides insights of value to numerous different parties, from tire dealers to gas stations and insurance companies. Some early legal cases have sided with car owners, saying the data generated from the car belongs to the car owner, not the car manufacturer. This area of rights and ownership is likely to see evolving legal positions. No matter how the law defines the issue, software solutions will play a key role in the management of data and protecting the chain of ownership.
As disruptive technologies evolve in manufacturing, other ownership, liability, risk and compliance issues are likely to arise too. No one can possibly predict all of the unfolding nuances of law and risk assessment, but we can predict that software solutions will play a valuable role in managing, tracking, and understanding the data-rich details. Manufacturers should exercise caution in their partnerships and expansions into new markets—as well take advantage of the functionality that modern software solutions offers.
To learn more about software supporting manufacturers in their efforts to manage regulation compliance, attend the webinar June 22, "Navigating the World of Regulations and Compliance" featuring a panel of three experts, Erik Glavich from the National Association of Manufactures (NAM), Giovanni Martini, CFO of Auricchio, and Infor's Product and Strategy Director, Mike Edgett.