The European Union’s REACH (Registration, Evaluation and Authorization of Chemicals) Regulation places requirements on manufacturers and importers which often can only be managed by ensuring that the manufacturer / importer’s supply chain has complied with REACH.
One method for ensuring supply chain compliance is to conduct audits of the REACH compliance programs for suppliers. This article discusses seven ‘must-do’ steps for designing and implementing an audit of the supply chain to ensure REACH compliance. These recommendations are based on precedents and lessons learned from supply chain audits for other regulatory requirements.
STEP 1: Prioritize audits by selecting the most critical suppliers first. Identifying the key suppliers who provide the most critical materials and focusing the initial audits on them provides a safeguard against REACH-related supply chain disruptions in materials that could lead to delays in delivery.
These delays could lead to interruptions in production if manufacturing is being done in Europe. A survey of materials purchasing professionals should be tasked to identify those products which would be most likely to present these types of problems. Seeking out suppliers of these materials first makes sense as the risk is highest, thus the benefit of risk mitigation is greatest.
STEP 2: Focus audits on suppliers where past problems have occurred. Suppliers with an excellent track record of environmental compliance may not present the same level of risk as suppliers who have historically presented issues. Taking the approach the purpose of audits is to reduce the risk of REACH noncompliance it makes sense to focus the searchlight of the audit toward suspected problem areas. This provides a rationalization of the effort and should lead to the best allocation of resources for auditing programs.
STEP 3: Adapt existing supplier auditing processes for REACH. Re-inventing the wheel can be costly. Many existing processes, for example, PPAP (Production Part Approval Process), can be adapted by adding in a component of the audit to cover REACH compliance. This assumes the existing process is sound and internal competence for conducting the added scope of the audit exists.
STEP 4: Budget up-front for audit costs. Steps 1 through 3 are helpful for selecting a targeted, cost-effective approach. These costs must then be accounted for, and budgeted. Allocating a particular cost per-supplier is an intelligent way of defining a scalable cost for your REACH auditing efforts.
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For example, a product launch involving 100 suppliers may need to budget for an auditing cost that would be twice the amount of a product launch involving 50 suppliers. This type of pre-defined, up-front metric allows for quick incorporation of costs into bids. Costs might also be shared proportionally between internal profit centers if a supplier overlaps business areas. This reduces inefficiencies and can mitigate internal ‘tugs-of-war’ over who pays for auditing.
STEP 5: Encourage direct suppliers to take responsibility for sub-tier suppliers. For complex assemblies, thousands of suppliers may be involved in a multi-tiered approach to manufacturing. Not having direct business relationships with most sub-tier suppliers you might exert very little influence over them. In these cases, encouraging your direct suppliers to take ownership of their supply chains extends your capacity for managing the risk posed from those upstream suppliers you will likely be unable to audit.
Of course, one action you could encourage would be that your suppliers establish their own REACH auditing program. Sharing some information about your processes may be helpful if the supplier doesn’t know where to begin.
STEP 6: Create a plan for rectifying non-conformances. As a new requirement, REACH will present ample opportunities for discovery of non-comforming suppliers. Since most of these suppliers will be non-compliant due to ignorance, filling the gaps in their knowledge will be important. Have guidance documents and correction plans ready for nonconforming suppliers to provide them resources to enable them to meet your requirements in a timely manner.
STEP 7: Select the elements of the audit most appropriate for your company. REACH is a new regulation with at least 15 unique legal requirements that did not exist before. REACH also comes with a bundle of exemptions that must be appropriately considered and applied.
There is no ‘one-size-fits-all’ approach to setting up the elements of a REACH compliance auditing program – each company will have very different business goals and legal requirements.
There are at least two dangers inherent in taking a cookie-cutter approach to your audit:
- You could be auditing for things that are completely irrelevant to your company (i.e., auditing suppliers for registration when in fact it may be possible to determine a priori that none of your suppliers will ever need to register anything, hence the effort adds no value)
- You could miss elements that are critical (i.e., your company does business in a member state where the enforcement regime is at odds with the elements you have selected for auditing)
Conduct an assessment of your company’s unique needs and design the audit to fulfill those needs otherwise you could simply be going through a costly exercise in generating non-value-added paperwork.
To sum up all of this, REACH compliance is not possible without a compliant supply chain.
Auditing most cost-efficiently ensures this goal when focused on the most critical materials, the riskiest suppliers and, when it adapts existing auditing processes to the new REACH requirements.
Budgeting for these new costs up-front provides a basis for allocating costs fairly and proportionally and eliminates the surprise factor. An effective audit pushes the supply chain to take responsibility for its own sub-tier suppliers and involves preparedness for taking corrective actions on matters of non-conformance.
Most importantly a REACH audit must address the actual REACH needs of your organization or Steps 1 through 6 will not provide the value you’re seeking. Following all these steps will secure your supply of critical materials and help ensure you will not be a victim of a weak link in your supply chain.
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