Newsfront: Reaching for a Solution

June 15, 2008 | By Joy LePree

The chemical process industries (CPI) are subjected to countless environmental, health and safety (EH&S) regulations affecting the production, distribution and general use of chemical products. To add to the existing burden, new global initiatives related to product stewardship — most notably REACH and GHS (see box, Regulations 101, below) — are joining the regulatory fray.

"REACH and GHS are product-stewardship initiatives, which means regulatory activity has moved from just managing chemicals at the point of generation to overseeing the product lifecycle of associated hazards as well," says Marc Dillon, senior product manager with ESS (Tempe, Ariz.). "This creates a situation where environmental health and safety are an integral part of everything from the design to manufacturing to marketing, distribution, use, recycling, disposal and so on down the line."

Because product stewardship initiatives, including REACH, GHS and others from the global community cover so many aspects of a mind-numbing number of substances, being in compliance creates multiple challenges. Experts suggest chemical processors and manufacturers will find it difficult to manage the necessary information and data, communicate internally and externally, find a business strategy and simply keep up with the regulations as they develop. But, as luck would have it, a solution exists for every situation and dilemma.

Data Management

"The biggest challenge in this new, global regulatory environment will be an informational one," says Dillon. "In order to be in compliance, chemical manufacturers will need to have all their information readily available in a single location that is auditable and verifiable. If it’s not accessible and available, what good is all that information?"

The first step in managing this aspect of the challenge is to simply identify what information is actually needed. Experts suggest working with stakeholders in the organization to identify sources of information, gather up that data, evaluate the completeness and then try to fill in any existing holes. But maintaining and managing all this information can create its own set of challenges unless you know what to do with it.

Dillon recommends storing the information in a single database that allows users to query the information in multiple ways, view the information and then create the necessary reports. For example, with REACH you need to have information available for submission to the European Chemical Agency’s (Helsinki) IUCLID-5 application (this is the International Uniform Chemical Information Database, which serves as a common format to submit pre-registrations and registrations). "With ESS’s Essential Suite, which is a multiple-use system, users can export information out of their own database and put it into a format that is accepted by IUCLID-5," says Dillon. "This is a time and, more importantly, error saver when compared to the alternative of going to the agency’s website and filling out forms manually."

The advantage of a multiple-use system like Essential Suite, says Dillon, is that the information is available and can be accessed for other needs, as well. The same system and information can be used to do things like generate labels and MSDSs for chemicals that are stored and tracked in the system in order to comply with GHS or other product stewardship initiatives.

"Aside from the obvious benefit serving as a data repository, Essential Suite and other multi-use systems can be used for multiple EH&S needs such as crisis management, risk management and compliance because the required information for associated reports is simply an output of the system."

Communication Challenges

REACH, GHS and other product stewardship initiatives are also creating challenges related to what one expert refers to as the "communications circle," or information sharing between external and internal business partners.

"For example, we don’t see REACH only as a compliance topic, but also as a supply chain issue," says Frank Kochendoerfer, director of Industry Business Unit – Chemicals, with SAP (Newtown Square, Pa.). "The entire supply chain is affected by REACH, and everyone in that supply chain has to be in the know and in compliance for it to work." For instance, REACH requires suppliers to notify customers of their compliance status, which necessitates collaboration that permits information sharing in all directions, he says.

Russ McCann, president of Actio (Portsmouth, N.H.) agrees. "REACH poses a significant supply chain risk for companies selling products and raw materials into and within the EU," he says. "If a company is unaware of the registration status of their raw materials, they could face manufacturing disruption or worse, prohibition."

To combat the problem, Actio, in partnership with Atrion International (Quebec, Canada), has released REACHTracker, a solution for managing supply chain communication and substance inventory for pre-registration and registration obligations under REACH. The solution enables companies to initiate supply chain cooperation by leveraging structured e-mail communications and secure on-line questionnaires that facilitate the otherwise complex process of gathering and managing supplier substance registration intentions. "The solution eliminates risk of disruption or prohibition by providing a collaborative environment to capture substance data and REACH intentions on an ongoing basis throughout the supply chain," notes McCann.

In addition to supply chain communications, Kochendoerfer says there are internal needs as well. Purchasing is affected because users need to know if their supplier is REACH compliant and, if not currently in compliance, the time frame for compliance. This in turn creates a situation where internal process management becomes necessary because you will need to follow the supplier’s time frame for registration and make sure the supplier is registered. If not, it will interrupt the supply of raw materials to your business.

Material management and production are also heavily impacted, says Kochendoerfer. "If there’s a raw material that’s no longer available or isn’t yet registered, you may need to alter your production schedules accordingly," he explains. Or, this situation could lead to ramifications in R&D. "Let’s say you are putting certain substances into recipes that aren’t yet registered or aren’t financially worth registering, then you will need to find a substitute."

Kochendoerfer says sales are also touched by REACH because substances are registered according to threshold levels. "If a substance is imported or manufactured at a certain tonnage, this is the known and registered threshold level. If you go above your permissible threshold level, you are required to re-register that substance at the new threshold level."

For this reason, he says, the sales department needs to be in the loop so it can be notified upon reaching certain threshold levels.

Other communication challenges are related to information exchanges, which include both the obvious submittal of reports to regulatory agencies and exchanging information with outside parties in Substance Information Exchange Forums (SIEFs), which are meeting rooms where parties who are testing the same substances can submit data in an effort to share the burden. "This has major implications for businesses and creates challenges because you need to communicate with other companies in a way that doesn’t affect your own intellectual property," says Kochendoerfer. "You are telling competitors that you need to register certain substances and why, so there’s definite intellectual property problems involved."

Because communicating with so many external and internal parties is necessary, Kochendoerfer says software solutions that are deeply integrated are essential. "What’s key in all these situations is integrated processes and a system that can provide one version of the truth," he says. "What this means is that you have a repository where all the information resides and a system that is capable of calculating this and sending notifications that you are reaching thresholds and also generating background documents. If you don’t automate all these communication functions, you are dead in the water. You simply can’t function in this business anymore."

To help chemical processors keep their heads above water, SAP has recently released its REACH 1.0 Composite. The system sits on top of other SAP applications for sales, supply chain, manufacturing and EHS and pulls and writes data back to these other components.

The solution is being developed in stages that will follow the development of the REACH legislation. SAP started with Substance Volume Tracking (SVT) to follow sales and calculate substance volumes so users can see, historically, how much of a certain substance is sold and to which customers and markets, which provides assistance for management decisions regarding which substances are worth registering.

"Substance Volume Tracking was our first step and is part of our EHS application, the layer that resides directly under the REACH Composite," explains Kochendoerfer. "We recommend to our clients that they use this and REACH 1.0 for pre-registration because it is something they can do now to prepare, and then as registration starts, they can move onto the next REACH component as the law and the solution evolve together."

Finding a Business Strategy

REACH and other product stewardship initiatives are expected to be very expensive. Large chemical manufacturers suggest that over the course of the next 11 years they may each spend upwards of $500 million on REACH compliance because of the sheer number of substances they will need to register. Therefore, it is necessary for processors to decide if the expense is worthwhile. "You need to determine whether the revenue generated from the market being served warrants the cost of full registration under REACH," says Paul Beatley with global compliance consulting firm Enhesa (Kensington, Md.).

With cost in mind, many firms are struggling to determine whether they should register certain substances, shift to using suppliers that produce in Europe or stop exporting finished goods to Europe all together. "Such decisions are difficult because making them requires an intimate knowledge of REACH regulations," says Jytte Syska, president of Ariel Operations with 3E Co. (Carlsbad, Calif.) and managing director of 3E Co. in Europe.

Syska suggests that companies begin creating different business case scenarios to help evaluate their options. "Creating and running through the various strategies that are possible for your company will help unearth the pros and cons associated with each strategy," says Syska. "That is the first step in trying to determine which strategy will work for you when dealing with REACH and other global legislation."

In these stages, it is often helpful to rely on a solution that manages regulatory data and can quickly provide access to regulatory information. "With regulations changing rapidly, you have to make rapid decisions that will still meet the timelines of your own product development," says Syska.

Another solution that processors may find helpful, says Syska, is one that increases the understanding of the regulatory impact of changes in the product line and inventory of your firm. "You need to quickly run reports or analysis that determine, for each change in a regulation, what facets of the business — think what products, what plants, and so on — will be impacted," explains Syska. "This is something that can’t be managed in someone’s head."

For this reason, 3E Co. offers products and services that give companies instant access to regulatory data, which is referred to as the Ariel Regulatory Content Business. "Our clients can subscribe to the service and get regulatory data from countries around the world," says Jeffrey Starr, vice president of marketing. "It can be used simply as a reference tool or they can take the data and put it into their ERP system which will provide the necessary integration for making business decisions around regulatory affairs."

Selecting the Tools

With so many options available, it can be difficult to decide what type of solution will work best for your firm. Mark Vagasky, a principal with the Redstone Group (Dublin, Ohio) suggests that when making a selection, companies decide which regulations will have the highest impact on their business and the number of substances that will be impacted by these regulations.

Some firms will have thousands of compounds to deal with and some will only have a handful to worry about. He says, larger firms will need something that is deeply integrated and smaller firms may be able to manage with a simple database system as long as they have other disciplines in place to keep up to date with changes in their production and the legislation.

"Whatever you select, it is important to be sure that it will cut across various business operations and have the ability to look at the lifecycle of the product and the developments of the regulations and can be applied as changes occur," says Vagasky. "No solution can be applied just once if you expect it to work for the long haul."

Turning Chaos into Opportunity

While new global regulations seem to be fraught with challenges and confusion, when properly managed with the right solution for your business, it is possible to not only demonstrate compliance, but actually to turn it into a business opportunity, as well.

According to Price Waterhouse Cooper’s 2007 Global Chemicals Survey, which provides a comprehensive and independent look at company reactions to REACH legislation based on interviews with 241 senior executives across six industries in 29 countries, awareness of REACH is quite low in North America. "Based on our survey, many companies appear to view REACH as an environmental initiative rather than a regulation with enterprise-wide implications including, but not limited to, supply chain management, sales, IT and financial and non-financial reporting," according to the report.

According to SAP’s Kochendoerfer, while this lack of knowledge is shocking, large U.S.-based chemical firms think it will be a boon to their business. "They tell us they like REACH despite the challenges and costs because they will pick up business because they are ready and the others are not," he says. "While this a bold statement, it is true that if you are not registered, you will not do business in the EU and those who are ready are willing and able to pick up the slack."

Regulations 101

While there are several global regulations regarding product stewardship coming down the pike, the EU’s REACH and the UN’s GHS are the two grabbing the most attention because of their current deadlines, with REACH’s various deadlines falling between 2007 and 2018 and GHS coming into play this year.

REACH, the Regulation on Restriction, Evaluation, Authorization and Restriction of Chemicals, entered into force on June 1, 2007, and will impact all manufacturers and importers of chemicals into the EU. (For more information on REACH and its related deadlines for pre-registration and registration, see CE, March, pp. 38 – 47).

GHS, or the UN’s Globally Harmonized Systems of Classification and Labeling of Chemicals, is a system for standardizing and harmonizing the classification and labeling of chemicals. It is a comprehensive approach to defining health, physical and environmental hazards of chemicals, creating classification processes that use available data on chemicals for comparison with the defined hazard criteria and communications hazard information, as well as protective measures, on labels and safety data sheets (SDS).

Many countries already have regulatory systems in place for these requirements. The systems may be similar in content and approach, but their differences are significant enough to require multiple classifications, labels and SDSs for the same product when marketed in different countries, or even in the same country when parts of the lifecycle are covered by different regulatory authorities. This leads to inconsistent protection for those potentially exposed to chemicals, as well as creating extensive regulatory burdens on companies producing chemicals.

While GHS is technically not a regulation or standard, the document establishes agreed-upon hazard classification and communication provisions with explanatory information on how to apply the system. The elements in the GHS supply a mechanism to meet the basic requirements of any hazard communications, which is to decide if the chemical product produced and/or supplied is hazardous and to prepare a label and SDS as appropriate. Regulatory authorities in countries adopting the GHS will take the criteria and provisions and implement them through their own regulatory process and procedures rather than simply incorporating the text of the GHS into their national requirements.

In this way, the document should provide countries with the regulatory building blocks to develop or modify existing national programs that address classification of hazards and transmittal of information about those hazards and associated protective measures. This is intended to help ensure the safe use of chemicals as they move through the product lifecycle.