Early compliance could result in market share gain, improved
supply chain processes and product line optimization
On June 8, 2011, RoHS recast was adopted by the
EU and it repealed the original RoHS directive which was in effect since June,
2006. This new directive now includes category 8 equipment (medical device) and
category 9 equipment (monitoring and control instruments). Medical device companies have until July 22,
2014 for compliance and July 22, 2016 for “in vitro” medical devices. The
overall impact to medical device companies is still being identified. This
compliance directive goes in effect right after the Affordable Care Act
implementation in the US which imposes 2.3% excise tax on medical device
companies.
In 2006, the Hi-tech industry implemented
necessary process changes & tools to comply with the RoHS directive. The
Consumer Electronics Association (CEA) commissioned a study in 2008 to analyze
the economic impact of this directive on the electronics industry. In this
report, CEA estimated the cost of RoHS compliance at 1.5% to 2.5% of electronics
companies’ cost of goods sold (COGS); this is roughly equivalent to the 1.1% of
revenue costs. The medical device industry can use
these findings as a baseline for cost estimates. However, medical device is a
highly regulated industry and can potentially incur higher cost of RoHS
compliance due to requirements/regulations imposed by various regulatory bodies
globally. The CEA reports few very interesting findings related to compliance
costs:
*Total weighted average cost (weighted by company revenue) was
$5.94M for the initial compliance, and $1.44M for annual maintenance.
*Total median cost was $721,000 for initial compliance,
$118,000 for annual maintenance
*Contract Manufacturers(CM)/ EMS spent the most effort on
business process and system updates
*Component manufacturers and OEMs spent the most effort on BOM reviews and product
redesign
RoHS Compliance: The
Challenge
RoHS 2.0, the new directive restricts the use of six hazardous materials in
the manufacture of various types of electronic and electrical equipment. It is
closely linked with the Waste Electrical and Electronic Equipment Directive
(WEEE) which sets collection, recycling and recovery targets for electrical
goods. The new directive added a new Module “A” which outlines the requirements
for medical device companies to be RoHS compliant:
“Manufacturers must demonstrate compliance by maintaining technical
documentation, citing relevant harmonized standards, implementing internal
production controls, and keeping a register of nonconforming products”
So, to be compliant, companies will have to 1) Identify products
that require design modifications, 2) Invest R&D dollars to change design,
test, and get approvals from regulatory authorities, 3) make production and
sourcing process changes for product commercialization, 3) post-market
surveillance and support process changes. In addition, companies must create,
and maintain all necessary documentations, DHF, DMR, etc. for traceability and
audits for RoHS compliance. Non-compliance by July 2014 can potentially result in
product revenue loss. CEA reported an average
loss of $1.84M for non compliance by
the Hi-tech industry.
RoHS Compliance: The
Opportunity
The new directive for compliance can be
leveraged strategically by medical device companies to analyze their current product
portfolio and weed out any low /negative margin, or commodity type products. Since,
RoHS compliance will require substantial capital investments, the European
Impact Assessment for medical device companies has indicated that for some
complex products, the RoHS compliance costs could be as high as 7-10% of
revenue (new products) or 1-10% of revenue (for existing products). So, it is very
critical that companies should leverage IT tools, such as Product Lifecycle Management
(PLM) / Product Information Management (PIM), to deliver an effective, automated and repeatable RoHS compliance
process at a lower cost. A PLM/PIM platform will allow companies to demonstrate
compliance by linking product records to technical documentations and hazardous
substances data, enforcing automated stage-gate process for visibility, approval,
and enforcement. The following PLM/PIM capabilities
are required for a best-in-class RoHS compliance process:
Single Product Repository: The ability to manage and control a single
product data repository across the enterprise with linkage to hazardous
substance data.
Supplier Collaboration: The ability to securely collaborate and exchange
restricted
substance and maximum concentration values with suppliers electronically
Global RoHS compliance process: The ability to enforce and monitor a global but
flexible RoHS compliance process to support “design anywhere build anywhere” model
Real-time synchronization of Compliance Data: The ability to quickly and cost-effectively synchronize
“as designed” and “as built” Bill-of-Materials to make sure that finished good
products are RoHS compliant.
Medical device companies will have to invest and
comply with this new EU directive,
however, companies can leverage this
opportunity to potentially capture larger market share from competitors by
compiling early and also improving product profitability, & supply-chain processes.
