Electronics Industry Girds For New Rules

With a 2006 deadline looming for compliance with new European Union regulations, electronics manufacturers are just starting to get systems in place that can track and manage hazardous materials in the components they use in their products.

To prove a product complies with environmental directives such as the EU's Restriction of Hazardous Substances and Waste Electrical and Electronic Equipment, a company must have IT systems, as well as audit and reporting tools, to track every part number and the quantity of chemicals each part contains. Electronics manufacturers are redesigning processes, building databases, and enhancing IT infrastructures to create systems that will facilitate compliance.

The major issues are the availability of parts that comply with environmental requirements being introduced in Europe, the United States, and Asia, and the lack of IT infrastructure and data to support the reporting such legislation requires, says Thilo Sack, principal engineer focused on compliance with EU hazardous-substances and electrical-wastes directives at Celestica Inc., an electronics-manufacturing-services company. "Component suppliers are having trouble providing their customers with the chemical-breakdown information they'll need to produce materials-declaration reports and generate certificates of compliance," Sack says.

Environmental directives require information on raw materials in finished products and ban products with high levels of hazardous materials. Companies preparing to comply with these rules seek software tools to identify these compounds and provide adequate analysis and reporting structures to comply with legislation, as well as to meet demands of environmentally conscious customers around the world.

The EU's Restriction of Hazardous Substances directive kicks in July 1, 2006, restricting the use of certain hazardous substances in electrical and electronic equipment and banning the use of others. The Waste Electrical and Electronic Equipment directive, which takes effect Dec. 31, 2006, mandates reuse and recycling of electrical and electronic equipment and will require manufacturers to report to the EU Council products' material content. The materials affected are found in semiconductors, lead finishes, cables, relays, plastic housings, hardware such as screws and bolts, printed circuit boards, switches, solder, and more.

In the United States, legislation is being implemented at the state level. For instance, Maine, Massachusetts, and Minnesota have passed laws in the past year that ban throwing computer monitors out with everyday refuse. California is preparing to implement the Electronic Waste Recycling Act of 2003. Beginning July 1, consumers will pay an E-waste recycling fee on electronic devices sold in the state that contain cadmium, lead, and phosphor. The fee, ranging from $6 to $10 per item and collected by retailers, depends on the device. It also applies to purchases made on the Internet.

As the magnitude of these requirements becomes apparent, companies are taking steps to ensure compliance. Hewlett-Packard is working with its suppliers to develop systems and processes for easy and complete access to materials and compliance information on its 36,000 products. HP has embarked on an ambitious project to create a data store that identifies materials in all its products, down to raw materials. Having to monitor electronic waste through its supply chain also has meant changes to HP's cost structure, business model, and relationships with customers, suppliers, and retailers.

Regulatory directives and legislation will dramatically change business models in the IT and electronics industry, says Renee St. Denis, HP's director of product take-back and recycling in the Americas. "The responsibility to reduce product toxicity is on the manufacturer, and we're spending hundreds of thousands, if not millions, of dollars monthly trying to deal with legislation," St. Denis says. "The money spent on research and development to comply with customer environmental requests and government legislation will eventually go into the price of the products." Dell and other companies are working to standardize processes that include how suppliers transfer information, submit substance declarations, and report these declarations. Each OEM that procures parts has its own method for getting information from suppliers to prove compliance, says Mark Newton, Dell's manager of worldwide environmental affairs. "This is an extremely complex issue, and the industry must standardize."

A cottage industry has sprouted to assist in reporting. Earlier this month, i2 Technologies Inc. unveiled its Green Initiative, which features a database containing detailed information on electronics parts to help identify hazardous materials already recognized in the United States and Europe, and targeted by legislation being introduced in China and other Asian countries. So far, the Hazardous Material Management Database holds data on less than 1 million of the 12 million parts numbers i2 maintains. The company is working with suppliers to complete the list. I2 transmits the information electronically in updates to customers on a subscription basis.

Lucent Technologies Inc. maintains its own component-parts database and has been working with i2 to add fields linked to the parts numbers that will hold information related to hazardous materials, says Jeffrey Davis, director of supply-chain networks and program manager for the EU's hazardous-substances and electrical-wastes initiatives. "Adding between 20 and 40 fields of information to each supplier's component description will significantly multiply the data required for compliance," he says. Lucent's goal is to comply with the hazardous-substances directive before July 1, 2006, by working with suppliers and electronics-manufacturing-services companies to certify that chemicals violating the directive aren't introduced into Lucent's finished products, Davis says.

Other software and services companies provide compliance assistance. Design Chain Associates LLC launched its BOM Transition Service last month to help manufacturers identify components containing any of the six substances banned by the European Union and find suitable alternatives. Agile Software Corp. in November unveiled Agile Environmental Compliance to help design engineers and procurement departments identify hazardous substances in components and materials they may use to build finished goods. Hitachi Ltd. has built a database containing 1 million parts, including pricing, suppliers, and a list of chemicals used in the manufacturing process.

AMR Research estimates the average cost of IT to support compliance with environmental directives will range from $2 million to $3 million and consume as much as 6% of a company's IT development budget in the next three years. "The biggest problem is gaining access to the information," AMR analyst Kevin O'Marsh says. "It may seem like the same old content-management problem, but it's not. It's magnified. Instead of just having to know about a part's parameters such as the supplier and the date code, companies need to know what potentially regulated materials are embedded in the device. Companies can't decide to address these matters at the last minute."

Compliance strategies at some companies are lagging, putting them at risk for missing the 2006 deadline. O'Marsh's advice to them: Assess IT systems to determine how supplier and component data is stored, how information is gathered, and what reports are generated from those systems; then determine the accuracy of bill-of-materials systems and whether they will require enhancements and new functionality to support legislation and directives. O'Marsh also recommends a risk-mitigation strategy. The bottom line is that noncompliance can result in shipments stopping and penalties. Says O'Marsh, "Even having a 1% failure rate in data integrity associated with component information means you can't ship product to Europe."