While firmly endorsing the adoption of environmentally and socially responsible supply management practices, Supply Excellence has never said going green would be easy. The latest proof: a new Purchasing magazine article reports that the European Union’s Restriction of Hazardous Substances (RoHS) has triggered shortages for both compliant and non-compliant electronic components.

The law, which went into effect July 1, prohibits the use of parts that contain lead, mercury chromium, and other hazardous substances. The timing could not have been worse.

Demand for electronic components has been climbining steadily in 2006, thanks to a resurgence in consumer electronics, medical, industrical control, and communications production.

In anticipation of RoHS most electronic component manufacturers have transitioned to making almost entirely compliant parts. However, the unexpected jump in demand and complications in converting some components to compliancy has resulted in insufficient supply. Scarcity has been exacerbated by hoarding of compliant components by paranoid supply managers looking to hedge against the risk of part outages.

Making matters worse is unexpected the stockpiling of non-compliant parts by both supply mangers and distributors. In fact, supply managers quoted in the article report an even bigger challenge securing non-compliant parts. “We continue to deal with customers who are in market segments that are not subject to legislation and we have active demand for non-compliant parts,” said the VP of supply chain for electronics manufacturing services (EMS) giant Celestica. “As suppliers convert their production over to producing compliant parts, it will become more difficult to get non-compliant parts in the future.”

To be fair, some of the demand for non-compliant parts is rational, fueled by supply managers in certain industries, such as networking infrastructure and medical equipment, that have been exempted from RoHS rules. But industry watchers predict that the scramble for non-compliant components will only get worse as production of these parts continues to dwindle.

The biggest beneficiaries from the new compliance rules could ultimately wind up being gray market…er…independent electronics distributors. Tightening supply is already boosting prices for non-compliant parts. Case in point: prices have jumped 50% of more for some non-compliant parts, such as NOR flash memory, according to the article.

It seems that RoHS has sent supply markets into a tizzy and has caused many supply managers to lose their grip on sound supply management practices. Unfortunately, this madness will likely get worse before it gets better.

Other federal and state municipalities have or plan to impose similar environmental regulations against hazardous materials in electronics equipment, including China, Korea, Japan, Argentina, and the states of California, Maine, Maryland, and Washington. And new environmental regulations are being extended to other industries, such as chemicals, automobiles, and wood-based packaging.

Faced with this inevitable tsunami of environmental regulations, supply managers would be wise to start preparing today. Here are a few tactics to put into your compliance toolkit:

• Become your company’s resident expert on pending environmental regs and assessing their potential impact on supply markets. (The above links offer a good primer on what’s coming down the pike.)
• Build cross-functional product compliance teams — consisting of design engineers, commodity managers, manufacturing, marketing, and aftermarket service managers – to embrace a “design for the environment” approach to ensure compliance for future products. Be sure to incorporate recycling, reuse, and disposal factors into your design plans. And consider ways to turn environmentally sound products into marketing boons that yield both higher prices and profits. (Hey, this strategy has been working for Starbucks and organic farmers.)
• Enhance demand- and supply-planning capabilities to ensure supply strategies support your company’s compliance goals.
• Nuture long-term relationships with critical component suppliers to ensure supply of critical compliant and non-compliant parts.