The key requirements and the trade-off between building a system in-house vs. purchasing an off-the-shelf application are examined, along with the critical role ERP integration plays in driving payback and competitive advantage from an environmental, health safety system investment.
As users and ERP vendors look for new ways to automate processes, managing environmental and safety data is a prime target.
The global management of chemicals represents one of the most important responsibilities of many manufacturers today. Proper execution of environmental, health and safety activities is complex, and involves not only health and safety professionals, but also production, distribution, purchasing and sales -- virtually anyone in the organization who sources, handles or sells hazardous materials. This is particularly true in managing Material Safety Data Sheets (MSDS), the second-most printed documents in the world after invoices.
With more manufacturers "going global," and more countries establishing regulatory compliance requirements, it is clear that MSDS authoring and distribution are critical to avoid product refusals, seizures, and entry denials, not to mention fines and potential worker or consumer liability. Often overlooked are the potential impacts on schedule attainment, utilization, customer fill rates and turns. In short, global MSDS management is already a "must" for risk management and operational efficiency, and is rapidly becoming an issue of competitiveness.
So how do companies make sure they are complying with and providing all the necessary information and paperwork for sourcing, producing, storing and transporting hazardous materials? This article looks at key requirements and the trade-off between building a system in-house versus purchasing an off-the-shelf application. It also explains the critical role ERP integration plays in driving payback and competitive advantage from an environmental, health and safety (EHS) system investment.
In production environments with a small or static set of products, health and safety departments can get away with basic word processing or desktop publishing software packages, or even low-end database packages to produce and manage the output of MSDS and labels. The same holds true if you produce a moderate number of products that are sold domestically, or if your product formulations are fairly simple. Authoring new documents or updating old ones are occasional tasks, and the potential impact on production, distribution and compliance risk is quite low.
For manufacturers who do not fit the profiles described above, these low-end approaches are no longer adequate. For a manufacturer with hundreds or thousands of products, complex formulations or extensive international manufacturing and distribution, producing compliant documents on-demand in dozens of regulated markets and several different languages is a major challenge.
As companies implement today's ERP systems, they are finding that regulatory compliance functionality is rudimentary and conclude that a more complete solution is needed. Most ERP vendors recognize this shortcoming and are wrestling with the issue of whether to create their own regulatory compliance management solution or partner with providers. For the manufacturer, the question is: "Which is the better solution -- building it in-house or going outside?" Meanwhile, the ERP vendor asks: "Should I build it, or find a partner?" Let's review the key requirements that impact these questions.
If your company fits the "complex manufacturer" profile above, you may find that your health and safety professionals are spending the majority of their time in mundane physical analysis, regulatory research, keystroking and data checking of new and updated documents. With so much of their time consumed with these manual tasks and the pressure to "get it out," safety sheets and labels suffer from inaccuracies that cause many downstream problems. Today's software technology allows most of this work to be automated, including physico-toxicological analysis and regulatory analysis. This allows highly trained EHS experts to focus on judgement calls, proactive regulatory management, life-cycle analysis, etc. -- any number of areas that contribute tactical or strategic value to the business.
The Need for Speed
EHS department efficiencies and costs often dominate this topic, but the impact on production, distribution and sales are often overlooked. Does raw material ever sit on the dock waiting for a valid MSDS before receiving? What happens if safety data sheets are not available for products going into production? Do you ship finished goods without a valid MSDS, or do you wait for the documents? In large volume, capital-intensive manufacturing, waiting for the paper is a costly form of down-time. How long do you wait? Hours? Days? For this discussion, the software solution must provide fast and accurate authoring capability as described above. It must also be integrated with the ERP system so events, such as new formulations, customer orders, or suppliers trigger activities in the EHS system.
For example, when a new customer order is committed, the EHS system "sees" it and automatically checks whether a valid MSDS and label exists for that customer at its location. If not, a new set of documents is automatically authored and placed in an inbox. The appropriate EHS staffer is alerted that new documents are awaiting review and approval. In this way, the health and safety expert can deal with any issues upstream, so that the documents are available on-demand downstream.
Lost in the Translation
In its September 1, 1998, Alert on Manufacturing, AMR Research states, "As manufacturers all over the world are faced with the need to monitor and control the production, storage, and movement of hazardous materials, they will be looking for help from solutions from [companies that can specialize in EHS&T software]." Another excerpt states that "One of the challenges for any application vendor with ambitions in Asia is the need to adapt products to a wide range of different languages and language character sets. Fewer than half a dozen countries in this region use the Latin character set as the basis for their language; the rest use their own character set."
Does your company do business internationally? If so, are there language differences? Companies that produce or distribute chemicals or hazardous materials must provide data sheets that comply with the regulations of each country and in the language of that country. Beyond a simple translation, safety phrases on an MSDS must match regulations exactly. Proper phraseology is necessary so production workers or consumers are clear on handling and proper response to an emergency.
Some companies use their local distributors to provide translations. However, if a problem arises, the fault lies with the manufacturer. Similarly, companies that do business globally are now finding that other countries no longer accept the U.S. MSDS format. These countries require the use of documents using the country-specific layout. Failure to comply could mean entry denials, product confiscation, and fines, plus lost sales in a market arena.
Creating and maintaining compliant formats for every document type in each country is, of course, time consuming. Worse yet, a separate MSDS and label must be available for each product for every country and language applicable. If you have 3,000 active products that are shipped to ten countries, you may need to create and maintain 30,000 MSDSs and 30,000 labels to be in compliance. Considering the labor involved plus issues of document accuracy, it is easy to see why some form of automation is required.
For the manufacturer and the ERP vendor, there is no half-way answer to this problem. If you deploy an ERP system enterprisewide and worldwide, you must do the same with your EHS system by meeting the specific layout, language and regulatory requirements of each country in which you conduct business.
Regulatory Rat Race
Regulatory bodies continually update regulations, providing information on what chemicals are regulated and to what extent. If companies fail to keep up with regulatory changes, their safety documents fall out of compliance, putting workers, consumers and the company at risk. Fines, legal action and/or civil suits could result. For example, if products are listed on California's Prop 65 list, the MSDS must contain a very specific phrase about carcinogens. Companies that sell products that are on this list within California can face a legal challenge by environmental experts that specifically look for this infraction.
Also, companies must be certain that all of the components in a chemical mixture are included in the national inventory of the country to which the products are exported. Enormous fines can ensue for companies that do not comply with this edict. Once again, with changing regulations coming from several regulatory bodies in different countries, states and provinces, added to product introductions, reformulations, new suppliers, new materials and country specific requirements, manufacturers face a constant battle just to keep up.
Customers and Suppliers
U.S. companies that buy from other companies must know what is in the products they buy in order to provide that information in regulatory reports. MSDS is the first place to search for that information. For chemical manufacturers with hundreds or thousands of chemical ingredients, effectively cross-checking those ingredients every quarter through manual means is virtually impossible. In particular, "global" formula changes -- meaning changes that ripple through many documents -- can be particularly time-consuming if the MSDS manager has to search through several documents to find the change for a particular chemical that makes up several combined mixtures. And, when a company uses a manual, paper-based system, all of those pieces of paper had to be double-checked to be sure that no entry was overlooked in any reference to the new chemical mixture and that each document matched the remaining ones. That quickly becomes a statistical nightmare.
Some manufacturers have special arrangements with customers to provide the MSDS in the customer's preferred format, which may include using the customers' logos. Of course, this custom service means setting up the documentation forms differently from those of other customers, adding time and requiring more expertise than that of routine output. Now that you know what's involved in managing regulatory compliance data and documents, let's review the alternatives.
Considerations for Developing an In-House System
Every company is specialized in its markets, structure, culture, and business processes. There's nothing like a home-grown system to make sure the functionality matches your needs. If in-house projects are commonplace in your organization, you're fairly assured of good design, execution and functionality. A first-rate packaged software vendor can deliver solid ERP integration, but tying to other corporate systems will be a bigger challenge than if you develop in-house (who knows your IT environment better that your own IT shop?).
A downside of in-house EHS systems is that building a robust solution can be extremely time consuming and expensive. Building in intelligence and automation is also tougher than it looks -- the output is frequently unsatisfactory because of missing product data, incorrect chemical analysis or outdated compliance information. While typical software maintenance is expected, companies seldom anticipate maintaining the compliance regulations in a home-grown, automated authoring capability. Keeping up with regulations in the U.S., Canada, Japan, Korea and a handful of European countries requires a large, full-time staff, plus extensive outside expertise. The result is often an expensive, hard-to-maintain system that produces non-compliant documents. The same issue -- and costs -- applies to translations.
For companies in our "complex manufacturer" profile, the cost of building and then maintaining, an intelligent, automated MSDS authoring and distribution system, plus the risks associated with non-compliance, could out-weigh the perceived savings of having your IT people produce a solution in-house.
Development Considerations for the ERP Vendor
The single-vendor solution has its advantages. Better integration, consistent technology, GUI and support, lower integration costs, we all know the story. So the question is, just how much capability must the ERP vendor provide, and does the value proposition make sense for both customer and vendor? An apt comparison may be the Advanced Planning and Scheduling or Supply Chain Management space. Considerable solver technology is used in automating physico-chemical, toxicological, regulatory analysis for document authoring. Plus, heavy domain expertise is needed for maintaining compliance with global EHS regulations.
If the user does not fit our "complex manufacturer" profile, basic functionality may be enough. This is a profile an ERP vendor can support. If most or all of the key requirements apply, a strong argument can be made for an automated authoring and document distribution approach. Real value will come only from getting skilled professionals out from under the load of mundane research and number crunching, and in a position to make smart decisions for the business. For this type of customer, the ERP vendor should seriously consider partnering with an EHS vendor that can provide a more sophisticated solution.
Having discussed the complexities of a comprehensive MSDS authoring and distribution capability, you probably have a good idea as to where this kind of system is needed. It is difficult to assess the build-or-partner economics for the ERP vendor, but there is plenty of data to compare creating an in-house system versus buying a ready-made EHS package. This example assumes our "complex manufacturer" profile, with 2,000 active products, translation needs for two languages in addition to U.S. English, and 300 new MSDSs created each year. We will assume that both alternatives feature good, "event level" ERP integration, so operational downtime is not a factor. First let's look at the costs:
In our example, we give an edge to in-house solutions for implementation and software maintenance. The packaged software vendor has a distinct advantage in compliance maintenance because it can spread those costs over several hundred customers. In reality, the cost of homegrown development and maintenance with the kind of automated capabilities described has actually been much higher. In any case, this analysis indicates that the real choice may come down to an in-house solution without automation versus a packaged solution with automation. Let's look at a labor cost comparison between these two choices.
The above table shows the approximate annual labor cost with and without automated authoring and distribution. It assumes an EHS department burden rate of $40 per hour, 2,000 total products, two language translations per product, and 300 new MSDSs created each year. Clearly, the labor savings for automation are huge. Now let's calculate the break-even for these two approaches:
The company is predicted to break even within one year when using an off-the-shelf, automated solution versus a manual homegrown system. The assumptions use real-world numbers based on comparisons of these two approaches.
The above figures and data confirm that the make-or-buy decision should be based on the level of complexity the manufacturer faces in dealing with regulatory compliance. First determine if you fit the "complex manufacturer" profile. Then plug your own costs into the analysis. An EHS system featuring intelligent or automated MSDS authoring and distribution is well worthwhile for mid-size to large companies facing the complexities of international language translations and regulations management. Given the major impact that automation can have on the costs, be sure the decision takes account of the return on investment potential of all your options. An ERP vendor contemplating EHS development may draw similar conclusions.
Do you plan on supporting a "complex manufacturer" with full capabilities? Do you provide baseline functionality and partner when intelligence and automation are needed? Our do you partner in all cases? Profiling your target markets and typical customer will dictate your strategy. But with increasing regulatory pressures on the market, and the constant need for vendors to differentiate their offerings, the time for developing and executing and EHS strategy is now.
Bruce P. Johnson is President and CEO of Atrion International (Reston, Va.), with more than 20 years experience in the technology industry, with a focus on ERP manufacturing software sector.