amber road navigating the world of tougher product safety white paper pdf

White Paper

Navigating the World of Tougher Product Safety and Compliance Requirements

2


Table of Contents

Sourcing Shifts ..................................................................................................................3

Changes to Regulatory Compliance.................................................................................4

International Regulations..............................................................................................4

U.S. Federal and State Consumer Product Safety Laws ...............................................4

Product Safety and Compliance in Today’s Global Environment .....................................5

Improving Product Safety and Compliance with Technology...........................................6

Product Design and Development ...............................................................................6

Production Operations .................................................................................................7

Post Production ............................................................................................................7

Key Steps for Maximizing Product Safety and Compliance .............................................7

3


Global organizations are operating their supply chains in an environment of increasing complexity and ever-changing regulatory constraints. The product safety and compliance risks involved are persistent and costly. Most companies realize that supply chain excellence in the areas of product safety and compliance is a journey with many obstacles to address and overcome. In order to properly navigate the product safety and quality requirements for your supply stream, you need to utilize technology tools and best practices that create an efficient program for all parties involved.

This paper reviews how global sourcing shifts influence product safety and compliance, the growing regulatory pressures from nearly every level of government, and provides approaches to help manage the increasing regulatory requirements and streamline product safety and compliance initiatives.

Sourcing ShiftsGlobal companies have traversed the globe in search of the prime source for low manufacturing costs while maintaining product quality. Outsourcing began in the 1960s when many U.S. companies moved production to Mexico. When China opened its doors to international trade a few decades ago, many countries saw their local manufacturing output drop significantly as China became the largest exporter in the world with more than 35% of the market share in apparel alone. Over time, China has built the infrastructure to fully support this monumental manufacturing effort and remain a global manufacturing leader because of low production costs and clear access to raw materials.

While China remains a manufacturing powerhouse, there are signs that an inevitable decline is taking place. As China’s emerging middle class has caused a retail boom and the growth of consumer outlets in its own country, factory capacity for outsourced production has declined, raw material costs have increased and wages are on the rise. All of these factors result in companies reconsidering their current supply base and identifying any needs for additional supplier diversification, but this isn’t as easy as it seems.

“As the sourcing landscape changes, more companies are chasing the last penny by trying to find new partners or countries to which to move production. But the problem is that all the new countries already have been found, and U.S. companies are struggling with global labor-force changes and raw-material price volatility. Some now wonder whether the answer is to avoid the problems of international sourcing altogether and move production back (or at least closer) to the United States.”i

The geographic shifts to new countries aren’t just a cost issue; they affect product safety and compliance. As an example, compared to many other countries, factories in China have extensive experience in getting new production sites operational and compliant, relatively quickly. Although, previous experience and product safety knowledge doesn’t mean these factories get it right every time. Even for experienced operators, it can be difficult to fully meet product safety and compliance requirements due to the fluidity of these regulations. The need for geographic diversification simply adds one more level of complexity as new factories and vendors need to be fully trained on all of the regulations to meet the requirements.

i Srikanth, et al. 2011.

As the sourcing landscape changes, more companies are chasing the last penny by trying to find new partners or countries to which to move production.

4


Changes to Regulatory ComplianceManaging global trade regulations is complex, especially when a number of countries are involved in the sourcing, production and distribution operations. With each new country of origin and destination added to an organization’s portfolio, a slew of new regulations and compliance requirements must be met (e.g., Restricted Substance List, item-specific trade data, Customs-Trade Partnership Against Terrorism [C-TPAT]). Compliance program inefficiencies lead to shipment delays or possible retention of items at Customs, resulting in extra time and cost considerations.

International Regulations

Global organizations are taking advantage of the evolving economies around the globe and beginning to sell more in growing international markets. This expansion means additional issues to address regarding the matters of product safety and compliance. As companies expand the number of countries they operate within, they have to be fully cognizant of the country specific laws and regulations. For example, consumer protection issues now occupy the forefront of thinking in many areas of the apparel world.

One such example is the comprehensive REACH (Registration, Evaluation and Authorization of Chemicals) program the European Union initiated in 2012. The regulations are “key to ensuring that European consumers have confidence that the products they are buying are safe. It is a system which allows EU Member State market surveillance authorities and the European Commission to share information about dangerous products found on the European market quickly and efficiently and to inform consumers about potential risks to their health and safety.”ii Participating companies and consumers utilize the Rapid Alert System for dangerous non-food products (RAPEX), the EU’s alert system that facilitates the rapid exchange of information between Member States and the Commission on measures taken to prevent or restrict the marketing or use of products posing a serious risk to the health and safety of consumers –with the exception of food, pharmaceutical and medical devices, which are covered by other mechanisms. In 2011 alone, RAPEX handled 423 notifications from consumers about apparel, textile and fashion products accounting for 27% of the total notifications logged.

Canada serves as another example where their Consumer Product Safety Act was introduced in 2009 and increased the capabilities of Heath Canada in several aspects, including the ability to:

� Order recall and other corrective measures

� Require record-keeping to allow traceability in the event of a recall

� Require mandatory reporting by industry of “incidents” related to their products

� Require tests and studies to verify compliance or prevent non-compliance

� Share/disclose information to international governments

� Levy increased fines and penalties

“This legislation raises the bar for apparel companies, especially those that operate in sensitive product areas such as children’s wear. Recent product recalls in Canada and the United States have provided an incentive for governments to focus on children’s products. This special scrutiny extends to toys, jewelry, and apparel. As a result, there is going to be a higher regulatory threshold, going forward, for companies that import or produce children’s products for sale in the North American marketplace.”iii

U.S. Federal and State Consumer Product Safety Laws

Since the 2008 enactment of the Consumer Product Safety Improvement Act (CPSIA), manufacturers, distributors, importers, and retailers have noticed more aggressive enforcement of Consumer Product Safety Commission (CPSC) regulations. In 2011-2012, for example, companies faced intensified scrutiny and increased penalties for allegedly

ii European Commission 2012.iii Canadian Apparel Federation 2012.

5


failing to timely report product defects under this act. Now, more than ever, global organizations need to understand the law and develop strong CPSC compliance programs.

In addition, some individual states maintain their own product safety regulations. Many of these regulations are more stringent than the standards set at the federal level, adding to the complexity of product safety rules and regulations. Following are three examples of localized product and safety legal enactments:

� Washington State Children’s Safe Products Act: The Washington Children’s Safe Product Act requires that the Department of Ecology evaluate and prioritize chemicals for which companies will have to report the presence in their products. The reporting rule for this legislation was finalized in July 2011. Reporting dates are dependent on the type of product and the size of the company.

� California Prop 65: Proposition 65, the Safe Drinking Water and Toxic Enforcement Act of 1986, was enacted as a ballot initiative in November 1986. Proposition 65 is a California law that requires “warning labels” on ALL products (not just children’s products) sold in California that contain lead, phthalates, cadmium and any one of 850 other chemicals that the State of California believes could cause cancer or reproductive toxicity. Prop 65 allows so-called “citizen enforcers” to enforce the law. Non- Government Organizations, other groups and even private Californian citizens can sue in California courts and collect part of the fines.

� California Green Chemistry: AB 1789 requires that California agencies evaluate and prioritize chemicals which should be removed from consumer products in California. The intent of the law is to require companies with chemicals that have been identified, to evaluate potential alternatives to the chemicals in question and then replace them in their supply chain. These alternative assessments and the surrounding regulations are often referred to collectively as “green chemistry.”

To assist with this daunting task, the American Apparel & Footwear Association (AAFA) has published and maintains a Restricted Substance List (RSL). “The list covers chemicals and other substances whose presence in a product is restricted through a government regulation or law. The list identifies the most restrictive iteration of that regulation worldwide.”iv

Product Safety and Compliance in Today’s Global EnvironmentIn a recent Supply Chain Digest article, Editor Dan Gilmore made a statement that global supply chains are getting more complex year-after-year. He goes on to say that our total society is no longer simplistic, so as a microcosm of this environment it only follows suit that this complexity is compounded.

Today, global manufacturers, distributors and retailers have to make sourcing decisions in an environment where they don’t know all of the factors. Globalized sourcing operations increase the likelihood of risk or disruption at every turn. Fierce competition and tight cost margins can further magnify the impact of a supply chain failure on a business.

Clearly product safety and compliance is a major concern and it’s vital to find trustworthy parties with the right capabilities to ensure you don’t expose your company to brand damage. However, this can be a difficult task when many parts of the supply network are outsourced to different parties yet you are responsible for the actions of all involved. Through a robust supplier risk management program that incorporates a holistic approach to sourcing and production, you can guarantee quality and compliance as an excellent strategy to mitigate risk against costly fines, product recalls or lost market share.

iv American Apparel & Footwear Association, Restricted Substance List, 2012.

Now, more than ever, global organizations need to understand the law and develop strong CPSC compliance programs.

6


Improving Product Safety and Compliance with TechnologyThe combination of obstacles and concerns has made compliance more critical for global operations. A coordinated supply chain solution that connects all levels of the trading partner community, with product data and order information in a unified application, can help you achieve better results. A holistic manufacturing and supply chain approach can provide a number of direct benefits that include:

� The ability to take preventative measures through improved visibility and reporting.

� Anticipate and respond promptly to issues by managing risks that can be controlled.

� A focus on uncertainties rather than certainties; in other words point you to the problems that need attention when a reactive measure is necessary.

Furthermore, product safety and compliance functions aren’t just between compliance teams and factories. Every key group in your supply chain, internal and external, is a stakeholder in this area. Analysts clearly state that to differentiate in today’s global business environment, companies need to develop and manufacture anywhere in the world if they expect to win in the marketplace.

A globally distributed supply chain brings with it greater need to control product safety and compliance during every step in the product lifecycle. Safety, environmental, and regulatory practices must be enforced. Let’s take a closer look at how collaboration can affect the success of your compliance initiatives.

Product Design and Development

Collaboration needs to start early in the product lifecycle – as soon as designers sketch out the line or engineers develop the initial product concept. To support the business needs for the “design anywhere, manufacture anywhere, sell everywhere” concept, organizations need to implement a solution for bill of materials (BOM) management and traceability in order to stay aligned with compliance rules. This provides globally dispersed manufacturing organizations access to bill of materials and other information related to product development activities, and facilitates real-time collaboration across the distributed teams. This level of cross-functional BOM management facilitates global compliance before, during and after production.

By utilizing collaborative product development capabilities during the product and technical design processes, companies can reduce the risk of blocked sales, the need for product redesigns and other costs. Designers will only select raw materials and components that meet the standards and maintain brand image. Before adopting these components into the tech pack, testing can be conducted and this information can be stored for future reference.

This level of visibility and control ensures product development, procurement and production is in-line with compliance and provides a preventative means of managing compliance risk. An April 2015 Aberdeen Group report, Strategic Sourcing and Segmentation: Prescriptive Control Tower Approach, supports this concept by identifying “Best-in-Class companies are 1.7 times as likely to use prescriptive segmentation and optimization supply risk management. This helps to ensure what is produced meets international regulatory testing and trade requirements, brand specifications, and social compliance standards with comprehensive functionality to manage component and product testing, auditing, and finished goods quality inspections.”

Compliance program inefficiencies lead to shipment delays or possible retention of items at Customs, resulting in extra time and cost considerations.

7


Production Operations

Item quality and safety, in addition to supplier social responsibility standards and regulatory practices, must be enforced to protect brand integrity and reduce the risk of costly product recalls. This applies equally across all phases of the product lifecycle. Collaboration with external suppliers is required to maintain ethical and regulatory standards. During the production, packaging and shipment processes, finished goods can deviate from “in compliance” components to a “non-compliant” item. Examples might include packaging of a children’s item that is not within government standards to avoid suffocation risk or the addition of embellishments that were not considered during the design process but contain unsafe material composition.

To proactively manage quality and safety, companies should fully monitor and manage product and component inspections with third-party inspection companies or internal teams. Online inspection forms can be utilized for these requests, providing the inspector with the detailed inspection requirements. When complete, these forms can be printed and shared electronically for the tracking of production quality and compliance results. This level of collaboration enforces consistent standards and gives the companies the ability to lock-down activity with non-compliant suppliers. Key performance indicator scorecards, based on supplier performance and product quality, provides an effective solution to spot any trends that need to be addressed. These are all examples of proactive measures that allow for corrective action in the future, resulting in lower costs and risks.

Post Production

What happens when your product is recalled or held up at the port? You need to have the ability to trace every order back to the supplier (and the supplier’s supplier in most cases). In these situations, we are talking about tracing where the product was manufactured, what materials went into the finished good, and where these materials are used in current or completed orders. This level of visibility and control means companies can react to problems quickly with the data necessary to respond cost effectively.

With supplier collaboration and reporting capabilities, supply chain managers can visualize their primary supply and feeder streams. Based on the data unified from product, factory and raw material orders, companies can achieve comprehensive traceability. Compliance managers can identify areas where compliance risk is most prevalent based on historical data – where has the supply chain failed – and alter the course to alleviate future failures.

More importantly, when a recall or safety issues occur, you are able to trace it to the origination point. Action can then be taken to minimize the current breakdown and verify which products have been affected.

Key Steps for Maximizing Product Safety and ComplianceTo reach this level of “all-encompassing” product safety and compliance, integration between the technology solutions you already utilize is crucial. This means implementing both technology and best practice process changes. Here are some recommended steps global organizations should consider:

� Be well informed about all federal, state and international Product Safety laws such as the United States’ CPSIA, California’s Prop 65 and other state laws, AAFA’s RSL and Europe’s REACH programs.

� Improve product quality by testing raw materials and components early in the product lifecycle, in addition to first-run samples.

� Create a material library of “approved” items for your tech design team and suppliers to select from, protecting your company against use of non-compliant items.

� Test finished goods as another level of protection.

� Utilize a web-based portal to collaborate with suppliers, vendors and compliance teams and fully share test results.

� Associate testing results with product and raw material records. Then link these with each supplier, purchase order and shipment record for traceability.

8


By unifying PDM, PLM, and supply chain management tasks, your company and users (including internal sourcing, quality assurance and legal teams, overseas buying offices, suppliers, agents, external inspectors, and others) gain a better understanding of the critical interdependencies involved in product and safety compliance. The results translate into your organization’s ability to mitigate corporate risks and lower the associated costs.

To learn more about managing product and safety requirements, reducing supply chain risks and our global trade management and supply chain solutions, contact Amber Road at [email protected].

About Amber RoadAmber Road’s (NYSE: AMBR) mission is to dramatically improve the way companies manage their international supply chains and conduct global trade. As a leading provider of cloud-based global trade management (GTM) solutions, we automate and optimize the supply chain functions required to import and export goods. This includes collaborating with foreign suppliers on design and quality assurance; executing import and export compliance checks and generating international shipping documentation; booking international carriers and tracking goods as they move around the world; and minimizing the associated duties through preferential trade agreements and foreign trade zones. Our solution combines enterprise-class software, trade content sourced from government agencies and transportation providers in 145 countries, and a global supply chain network and collaboration platform connecting our customers with their trading partners, including suppliers, freight forwarders, customs brokers and transportation carriers. We deliver our GTM solution using a Software-as-a-Service (SaaS) model and leverage a highly flexible technology framework to quickly and efficiently meet our customers’ unique requirements around the world.

One Meadowlands Plaza · East Rutherford, NJ 07073 · (T) 201 935 8588 · (F) 201 935 5187 · [email protected] · www.AmberRoad.com

© 2015 Amber Road, Inc. All rights reserved.

Reference ListAmerican Apparel & Footwear Association. On the Issues. https://www.wewear.org/aafa-on-the- issues/category/?CategoryId=80 (accessed May 24, 2012).

American Apparel & Footwear Association. Restricted Substance List. Vers. 10. American Apparel & Footwear Association. March 2012. https://www.wewear.org/industry-resources/restricted-substances-list/.

Canadian Apparel Federation. Previous Legislation. 2012. http://www.apparel.ca/Product_Safety_Legislation.html. D&B Country Risk Services and D&B Supply Management Solutions. Mitigating Supply Chain Risks. Special Report, Dun & Bradstreet Limited, 2011.

Deb, Sopan. Made in America: Trend against outsourcing brings jobs back from China. January 4, 2012. http://rockcenter.msnbc.msn.com/_news/2012/01/14/10156162-made-in-america-trend-against-outsourcing-brings- jobs-back-from-china?lite.

European Commission. Keeping European Consumers Safe; 2011 Annual Report on the operation of the Rapid Alert

System for non-food dangerous products. Annual Report, Luxembourg: European Commission, 2012. Gilmore, Dan. First Thoughts. May 24, 2012. http://www.scdigest.com/assets/News/12-05-24.htm#FT.

Srikanth, Sanjay, Esteban Bowles, Chris Callieri, and Deepa Neary. Stop The Roller Coaster. AT Kearney - Publications. 2011. http://www.atkearney.com/index.php/Publications/stop-the-roller-coaster.html.

amber road navigating the world of tougher product safety white paper pdf

Documents