The Bottom Line: The electronics industry as a whole is still far from complying, with collecting and managing the data efficiently still remaining as the biggest hurdles.  On July 1, 2006, electronics brand owners and distributors selling into the European Union became responsible for minimizing six hazardous substances from products: lead, mercury, cadmium, hex chromium, PBBs, and PDBEs. Over the past few years, these companies have been orchestrating product and process changes to adhere to the Restriction on Use of Certain Hazardous Substances (RoHS) directive. Among the most formidable tasks for the manufacturers are collecting and disseminating the information from their supply chains, from supplier and component selection to spare parts management.
Through detailed discussions with these companies, AMR Research has found that the industry as a whole is still far from complying, with collecting and managing the data efficiently still remaining as the biggest hurdles. In fact, companies such as Apple, IBM, and Palm publicly stated that a lack of preparedness caused revenue shortfalls (see sidebar). So what’s the problem? Complying is old-fashioned hard work. Part lists need to be rationalized, bills of materials (BOMs) need to be cleansed, and parts need to be validated. It’s a cumbersome process that may soak up some of your best talent, but compliance is necessary. Takeaways
- Collecting and managing component data are proving to be the stumbling blocks for large manufacturers.
- IPC1752, which many hoped would become the standard for information collection, has suffered from slow adoption.
- Product lifecycle management (PLM) and content collection vendors should be used to facilitate this difficult process.
The difficulty in obtaining information Companies that actively pursue a RoHS compliance strategy must balance their tolerance for risk versus the preparation necessary to become compliant. The rough flow for collecting this information is highlighted in Figure 1. 
About a year ago, we highlighted the difficulties OEMs are facing in collecting this data in “The Ghoulish Problem of Content Collection: A Compliance Nightmare.” Interestingly, the situation is largely the same for many other companies. OEMs are forcing downstream suppliers to tell them if components are compliant with upcoming regulations. In the absence of standard forms or technology to use, OEMs create their own and tell suppliers to fill them out. These overwhelmed suppliers are struggling to keep up with the paperwork. In a rush to keep their customers happy, they answer the questions, but too frequently with incorrect (and possibly fraudulent) responses. This is such a problem that several OEMs say they are finding mistakes and inconsistencies in about 50% of supplier responses. Some of the OEMs' biggest problems with collecting content are:
- There is difficulty in finding and verifying data for thousands of parts from suppliers across the world.
- Component information changes rapidly, hindering the validity of static content.
- Compliance data is not readily accessible to multiple groups.
- Reporting to various states, countries, and legislative bodies requires multiple languages and formats.
- Vague directives leave no clear insight on the depth of information needed to acceptably mitigate risk.
State of IPC1752 Checking each and every component is a laborious process and takes specialized knowledge, meticulous detail, and tools. One such tool was released to create a standard for information exchange: IPC1752. The hope behind IPC1752 was that it would create a consistent format to transfer detailed specifications between the members of the global electronics supply chain. Leveraging Adobe’s Acrobat technology, many industry members hoped that it would proliferate and become a standard. While several have adopted 1752 as their key platform to exchange information, it is a stretch to state that the initiative has been a success. In fact, less than 100 companies publicly support the standard, many of which are vendors that offer products to aid 1752 as opposed to OEMs that are actively using it. There is lack of adoption for several reasons:
- It was too late—The deadline for compliance was July 1, 2006, yet the form was officially released on March 9, 2006. Most OEMs had already started down the data collection path using their own self-defined forms and processes. Suppliers, which needed the form years ago, saw 1752 as simply another document they need to fill out, and most chose not to.
- Little industry pressure—Even though it was late, many major OEMs that could have adopted the standard and forced its use decided to use their own proprietary forms. While several of the 100 companies that support it are major OEMs, few actively enforce the use of the form.
- Technology hiccups—Several technology problems after release, such as forms expiring, caused many to lose confidence and look for alternatives.
- Functionality is still a concern—The form still does not offer the flexibility needed by some OEMs. Large files sizes, the inability to utilize graphic digital signatures, and the need to send out a form for each and every component, rather than by product or supplier, are issues that aggravate members in the supply chain.
With all the problems around 1752 obstructing RoHS compliance, a standard is needed. Without it, the use of proprietary forms creates the opportunity for error; in several cases, clients complained of error rates as high as 40% to 50%. Additionally this transfer of data is simply a cost, with no increased utility in the product. The automotive industry provides an example of a standard for information exchange that has helped companies maintain compliance. Several years ago, it faced the End-of-Life Vehicles (ELV) directive. A component of the regulation is similar to RoHS in that brand owners are responsible for hazardous material in their products. Unlike the electronics industry, though, automakers made use of IMDS, an automotive industry standard database that tracks product information, allowing the entire supply chain to provide and access information. Along with relatively simple tools, companies were able to manage the difficult task of collecting and disseminating information with partners. Automotive purchasing groups started tracking suppliers’ compliance activities, from cutover plans to product phaseouts. To manage the reporting of the extremely complex supply base, companies pushed IMDS entry information to suppliers. Even though IMDS presents a model for the electronics industry to follow, it has its flaws. For example, while 90% of the suppliers will use IMDS, the last 10% can take up an inequitable amount of time. There are also concerns about the accuracy of the data, complexity of the form, and cost to enter data. Vendors in the collection effort There are large end-user clients that address product compliance reasonably well, and most utilize a mix of products and services. Most leverage their product data management (PDM) system to capture and manage all data, augmenting the data collection effort with content providers. Vendors with the most traction include the following:
- PLM vendors—Agile, Arena, Dassault/MatrixOne, Oracle, PTC, SAP, and UGS
- Content providers— IHS, Partminer, PCN Alert, Silicon Expert, and Total Parts Plus
Most OEMs are currently using their PDM systems to store component information. However, the full arsenal of PLM competencies, such as the following, will be necessary for appropriate compliance in the future:
- Product portfolio management—Business managers need real-time knowledge about the status of a product’s compliance posture. Systems now do this by using a red-, yellow-, or green-light approach to assess if a product or portfolio is ready to be delivered. In the future, managers will need greater insight into the risk of shipping noncompliant product and financial and brand exposure so that they can direct action as needed.
- Customer needs management—Compliance mandates are simply a new customer need that engineers must understand and interpret into their products. Each country or customer needs its own set of requirements. In discrete manufacturing, most companies make a single product, sell it all over the world, and change only the packaging. Companies will need more stringent analysis to see if they should make multiple products to accommodate the different markets.
- Direct materials sourcing—Obtaining compliant parts is critical, but because of inaccuracies, many companies are learning that product specification sheets cannot be used alone. Vendors are creating tools to facilitate content sharing with suppliers as well as to rank them based on multiple layers of criteria.
- Collaborative product design—Distributed design environments can create a process problem in which critical information, such as compliance concerns, is disregarded. Collaborative product design improves compliance to specification by sharing accurate design information with partners and team members.
- Product data management—Storing and accessing component information are the most fundamental needs for compliance. An information repository, which contains the BOM and can capture material disclosures, provides the first step to assess compliance and prove due diligence.
The content vendors that are getting the most traction include Partminer, IHS, Silicon Expert, PCN Alert, and Total Parts Plus. 
The following information is a sampling of the questions companies ask when choosing content management providers:
- If a part is not in your database, will you work with the supplier to collect the necessary information? Some companies are simply accessing a database, not actually providing the valued research services necessary.
- Are replacements recommended by a database or by component engineers? Particular components may need validation by engineers.
- Do you provide redesign or testing services? Some companies are equipped to provide additional services beyond only BOM certification.
- Does the system have legally defensible processes and controls? If there is a problem, the system must be able to show that you have conducted appropriate due diligence.
- Do you accept any responsibility for failed products or liability for noncompliant parts you certify? While we don’t expect any service to accept outright responsibility, you must know the limits of your exposure.
- How will this part information integrate with my existing PDM system? The information must be able to be used throughout the product lifecycle process, including reporting and auditing.
- Does your service provide for periodic reassessment of supplier information? The component may be compliant today, but that does not mean it will be compliant tomorrow. This substantiation process must become repeatable to ensure long-term compliance.
- Do you verify component parts through lab analysis? While suppliers may say they are compliant, only through lab analysis will you know for sure. The problems with these tests are the sample size and the substantial costs. Some companies manage this by utilizing spot checks for components of concern.
- Will my parts information be shared with my competitors if they are also a client of yours? To make the service sustainable, vendors are putting information into shared databases. While your BOM will not and must not be available to competitors, the information you pay for may yield benefits to other companies.
For those companies that do not standardize on one PDM system, professional services firms, along with niche applications, are often utilized to specifically address compliance. The vendors with the most traction include the following:
- RoHS niche applications— E2open, MDSMap, RiverOne (acquired by i2), RoHS-WEEE.net, and Synapsis
- Professional services—Accenture, Design Chain Associates, EDS, The GoodBye Chain Group, IBM, Linx/AS, PRTM, and Wipro
The benefits of compliance While content collection for RoHS is the focus of this Report, compliance can be treated as a competitive advantage rather than simply a cost of doing business. Many companies are finding opportunities to make this transition:
- Branding—GE, with its $1.5B spending on Ecomagination, is addressing its questionable past and transforming itself into an environmental player.
- New service offerings—IBM’s multibillion-dollar GARS unit collects 20,000 end-of-lease machines each week and then resells, refurbishes, and dismantles them, contributing less than 2% to landfill.
- Product redesign—Sun’s new CoolThreads technology increases the performance of its servers fivefold while reducing energy consumption, thus creating ROI for its customers.
- Enhancing relationships—Fujitsu Transaction Systems uses environmental regulations as an opportunity to educate and solidify relationships with its customer base, effectively turning it into a trusted advisor rather than simply a supplier.
- Lobbying—A large electronics manufacturer is keenly aware of the impact of some of the nuances of regulations, such as spending money on lobbying to protect its interests.
- Internal infrastructure—In preparation for ELV, a Tier 1 automotive supplier significantly updated its processes and enabling technology. Spending for RoHS regulations is less than 1% revenue, where companies of similar size are spending between 2% and 4%.
Conclusion A plethora of additional compliance mandates are affecting companies in the electronics supply chain worldwide. Understanding the regulations and tracking the differences add complexity, and those that assess processes and make the correct investments up front can create long-term competitive advantages. Acronyms and initialisms BOM—Bill of materials ELV—End-of-life vehicle OEM—Original equipment manufacturer PDM—Product data management PLM—Product lifecycle management RoHS—Restriction on Use of Certain Hazardous Substances ROI—Return on investment
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