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The Cost of Compliance
By Suzanne Deffree -- Electronic News, 8/23/2005
Get ready to hear phrases like “RoHS-releated expenses” tossed about on quarterly calls. The costs of complying with the July 1, 2006 deadline to produce lead-free products comes with more than paper-pushing charges in a company’s financials and could have greater impact than expected at first glance.
The obvious cost is material – moving from lead to another alloy in producing product – but what might be less obvious is the second round of production runs these lead-free products cause.
“We are taking every single one of our products and converting it to RoHS/lead-free compliant version. What makes it difficult is the process we have to go through. We have a standard version and then we have to make a compliant version,” Rick Mintle, North American sales and marketing manager for EM Microelectronic, an electronic systems company of the Swatch Group, said, not wanting to leave out customers who are still working with leaded product.
“What we have to do is build some of those compliant versions, then notify the customer that this is available, then sample the customer, then they qualify it, then we switch over their orders to the complaint version. That’s a pretty detailed process.”
Distributor Newark InOne is following the same route and feeling the same pinch. “Those are some of the areas you start getting into from a monetary or cost standpoint because we are keeping two inventories,” said Jeff Shafer, Newark InOne’s senior VP of product management, noting that on top of that the company does bin checks to be absolutely certain customer orders for lead-free are lead-free.
In its case, Newark InOne has added additional employees -- at additional cost -- for the bin checks, as well as additional employees in the receiving area to double check warehouse supply. Shafer also noted additional time and money spent by Newark InOne’s legal staff, for undertakings such as ensuring the verbiage is correct on packaging and sorting out new contracts. Further, there are costs out of the marketing department to spread the word on a company’s RoHS-compliant products, which in Newark InOne does a large part of through its Web site, further calling for IT department time and effort.
“In some cases we are increasing our staff 5 [percent] to 7 percent, just to conform with some of this legislation,” Shafer said. “Really, we’re re-engineering our company as we move forward with RoHS because processes and procedures have to be changed to be better refined because of the need for quality product and information to be distributed to our customers.
“It’s million of millions of millions of dollars,” Shafer commented.
Send It Out
Staying on top of supply and the legislation itself can be a full-time job. Both Newark InOne and EM Microelectronic have specific managers tasked with coordinating their company efforts. One option, however, is to farm the work out.
The GoodBye Chain Group based in Colorado Springs specifically works with companies to provide training, software and consulting services to assist companies to comply with what it calls “extended producer responsibility laws.” While The GoodBye Chain Group’s packages come at a cost – the base package starting at about $8,000 for software and a few days of consulting and upper level programs range to well above $50,000 for a one-year contract – compared with the cost of additional employees, the difference may be minor.
Mark Myles, services director at The GoodBye Chain Group, noted no specific pattern to the firm’s business flow, instead saying demand for its services comes in “bunches and waves.”
“We did notice, for example, last fall there was a sudden increase in both RoHS and WEEE inquires, and I think it has to do with the length of the design cycle. People’s typical idea of the year ahead is in their business projections, so they were seeing WEEE was coming due, RoHS was just under a year ahead, and the pace really picked up last fall,” he said. “It’s continued. When we got a quarter ahead of WEEE that knocked up another level.”
Cost of Non-Compliance
What would be the cost of non-compliance with RoHS? “The costs are difficult to quantify and not too many people have quantified, but the penalty can be severe in that you can be excluded from a market,” Myles said. “In the case of RoHS, there’s just no question on that. If you make a non-compliant product, you will be forced out of the European market, which means you may be forced out of certain companies all together.”
Agreed Mintle at EM Microelectronic, “It would definitely be reduced business opportunities and existing business going away in favor of suppliers that did do the compliance.”
He concluded: “You’re either in or you’re out.”
