Supply Excellence — The EU’s REACH Regulations: More mud in the water

The EU’s REACH Regulations: More mud in the water

March 24th, 2008 · by Justin Sullivan · No Comments · LCCS and trade, best practices, enviro/social sustainability

Last week, Industry Week highlighted the fact that 2/3rds of North American organizations have limited knowledge of the operational impacts of REACH (Registration, Evaluation and Authorization of CHemicals). REACH is European Union legislation that aims to put more responsibility on industry to manage the health and environmental risks of industrial chemicals.

I can’t comment on my personal readiness for REACH. But I do know that the 1st decade of the 21st century may be remembered for a tightening regulatory environment that has increased the complexity of doing business for multi-national organizations, creating plenty of SG&A jobs, as well as opportunities for consultants, auditors and quite frankly, spend management software and service providers. Whether you believe these regulations to be altruistic or onerous, one can’t deny that keeping abreast of and compliant with the rules of play in the global economy is a major challenge.

In 2002, the United States responded to the Enron and Worldcom corporate governance scandals by enacting Sarbanes Oxley, which essentially requires companies to demonstrate that they have control over their expenditures, and holds certain corporate officers criminally liable for the accuracy of financial statements. “SOX” quickly spawned numerous copycats including Canada, Japan, France, Italy and others in just about every corner of the globe.

Accompanying SOX was the rise of electronic invoicing, which triggered mixed reactions, ranging from extensive new regulations to complete silence to complex requirements for continued physical storage of paper invoices. In the EU for example, companies must comply with a matrix of not only EU guidelines, but also country-by-country rules that frustrate procurement and finance departments.

A cynical person might suggest that even the current wave of “green” activity, including REACH, is not actually triggered by shared recognition of an impending environmental problem, but by an uneasy convergence of increased demand for “green” products to drive revenue growth, increased cost of waste due to competition for energy and raw materials, and the desire to avoid the expected cost of future regulation. And I should also mention recent food and product safety incidents, which have some calling for the government to protect us from poor sourcing decisions and lax supplier performance management.

The tightening regulatory environment looks like it will continue. Last week’s collapse of Bear Stearns and the Federal Reserve’s intervention seem to have some investment banks even clamoring for increased regulation. Both Democratic presidential candidates seem to be vaguely promising some sort of increased trade regulation (although I’m personally not sure how to reconcile both candidates’ promise to improve the stature of the US in the world while threatening to reduce trade). The bottom line is … spend management, finance and legal organizations, as well as their armies of advisers and consultants will have their hands full determining the impact of integrating their requirements into an increasingly complex global operational environment.

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