Regulations - Compliance in the chemical industry has gained a tremendous amount of significance over the last several years. Reach in Europe and the Toxic Substances Control Act in the U.S. are not the only regulations setting the standards for compliance; many other countries are coming up with regulations of their own as well. Also, gaps in supply-chain communication can sometimes lead to a supplier being inadvertently non-compliant.

Brandi Schuster caught up with SAP's Product Owner for Product Compliance Process Industry Berndt Stürznickel at the company's Chemicals Compliance Customer Conference on Oct. 19 in Königstein, Germany.

"If you have a distribution company between the producer and the customer, it is very possible that the original supplier doesn't know what the end consumer has done with the product," he said.

How important is compliance in the chemical industry?

Bernd Stürznickel: Chemical compliance is nothing new for the industry. Based on the customer interviews I've conducted, compliance and related issues, such as sustainability, have absolutely the highest priority - even higher than making revenue. I've talked to companies who have recalled products that were still in the early development phase because of concerns regarding compliance and other issues that had to be solved before the product could be sold.

What are the consequences of non-compliance?

Bernd Stürznickel: Entire batches of a product can end up being recalled. This could cost a company millions of euros and also might damage the brand. It could also be that the product itself is compliant, but not compliant in terms of what the customer wants to do with it. For example, if a company supplies substance to a customer and they want to incorporate it into a cosmetic product, the supplier might be violating purity standards.

How clear does usage intent have to be when supplying a product to a customer?

Bernd Stürznickel: This is something that sometimes means the supply chain can be disrupted. At the end of the day, what the customer wants to do with a product isn't always clear to the supplier. If you have a distribution company between the producer and the customer, it is very possible that the original supplier doesn't know what the end consumer has done with the product. It's not that anything has been done incorrectly, but the supplier simply doesn't have the full scope of what the customer wants to do with it. That is a problem.

Back in 2002, SAP did a case study for the first version of Reach. Four supply chains were observed, and in one finding, the original producer of a substance was absolutely surprised about what one end consumer did with it. And this was a simple supply chain with only a few steps. This can play a significant role when it comes to different compliance situations, such as Reach, cosmetics, bioscience, etc.

What can companies do in terms of supply-chain communication in order to cut out these cases of inadvertent non-compliance?

Bernd Stürznickel: The Reach legislation defined the first benchmark, so supply chain communication is really key for most companies. Also, the further one goes down the supply chain, the more important communication becomes. For article producers and consumer-product manufacturers, supply-chain communication is critical - not only in terms of Reach, but also when it comes to exposures in areas and user protection.

Also, it is important to know what the customer's purpose and intention is when incorporating a substance into a product. That is of utmost importance. Yet, this is one of the biggest hurdles within the chemical industry and its customers.

Who has the most responsibility when it comes to communicating in a supply chain?

Bernd Stürznickel: Everyone has the same responsibility.

What about in terms of being aware of that burden of responsibility?

Bernd Stürznickel: if we talk about the process industry itself, most people are aware of the responsibility they carry; in the regions in the world with a long-lasting history of compliance, that is. The real problem isn't being unaware of responsibility; it's more of being unable to bring supply chain communication to a proper level. For example, maybe the problem is something as simple as missing contacts. This can unravel very quickly: I don't know who to communicate with; I don't know the counterpart in the company; they use different tools than we do; I don't have the proper IT tools in order to execute communication, etc.

There are plenty of different reasons when the communications process doesn't work the way it should. However, most companies are aware that supply chain communication and the process of exchanging information are important for them - especially because a large number of regulations similar to Reach will come into force in many countries around the world

You said in countries with a long-lasting history of compliance. What about countries where sometimes compliance issues can be a problem? The usual example here is, of course, Asian countries.

Bernd Stürznickel: First of all, Asian companies are interested in selling to Europe. They know that compliance is vital for them. Without compliance, there are no sales. So that is clear. The point for them is we have such a vast amount of regulation - Reach; the Regulation on Classification, Labeling and Packaging of Substances and Mixtures (CLP); Globally Harmonized Systems (GHS); etc. This leads to confusion on the side of these Asian companies. It's not that they are lacking the willingness to comply; rather they are lacking the knowledge as to how to comply.

But this isn't necessarily an Asian problem.

Bernd Stürznickel: It is more or less a general one. The same problem can affect small and medium-sized companies in Europe. From a regulatory perspective, the Asian Pacific region is the most dynamic region when it comes to product compliance regulation. This is where we see a lot of the "Reach-like" regulation popping up.

Which just complicates matters further, particularly for multinational companies who find themselves having to comply with different regulations all over the world, such as the TSCA in the U.S. and Reach in Europe.

Bernd Stürznickel: This means those companies must have an intensive supply chain communication process. Those companies must also bear in mind the compliance situation of the supply chain connection. For example, let's say I want to produce product A in country B, and I have a list of three suppliers. When it comes to international shipments, it can vary between compliance and non-compliance, depending on which supplier I choose. Tracking the supply chain combination is very important for companies.

Many companies are defining substances that can be used in a production process that is globally available at the same quality level and has global compliance coverage. And oftentimes, these decisions are coming from the top.

Is it becoming more common that supply chain communication is becoming more of a board priority?

Bernd Stürznickel: It is getting more and more to this level. It is becoming clearer that compliance isn't just about Reach. In order to deal with that, many companies have begun to define a corporate-wide approach with support from the C level.

How has the compliance situation changed over the last couple of decades in the chemical industry?

Bernd Stürznickel: In the past, a compliance document was simply something that was created at the end of a process and was assigned to a logistics shipment. Back then, the availability of the safety data sheet was checked. Sometimes shipments would go out and the safety data sheet would be provided two weeks later. Sales were key.

Now the situation is much more complex. First the registration must be checked by customs, not by a chemical enforcement agency within the country. So, the pre-registration, registration and existence on the existing chemical substance list must be shown. If there is a problem with any of these items, the shipment gets held up at customs, which can affect the sale.

Also, as I mentioned earlier, there are more and more Reach-like regulations popping up. Also, more consumer product regulations are cropping up, so I think in 2011 it is easy to say that more than 20 countries released new consumer product regulations, and in each country at least one new regulation. So we can easily count between, let's say, 20 and 50 new consumer targeting, product targeting regulations. In the end, companies have to do more checks and as a consequence, it becomes clear that it creates a compliance and logistical challenge for companies.

SAP supports its customers not only with proven-in-use software solutions like SAP EHS Management or SAP ReachCompliance, but also offers regulatory content - the key to staying compliant.