Caught in a regulatory cross fire

Here's a bit of advice for those of you planning IT budgets. For the next five to 10 years, set aside 10 percent to comply with new government regulations, both from the United States and from other governments in your major markets.

In fact, some industry experts are predicting that three regulations due to go into effect during the next 21 months will cost IT exactly that much. From the Food and Drug Administration comes the Food Allergen Labeling and Consumer Protection Act (FALCPA), with a deadline of January 2006. From the European Union, the Restrictions on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS) Directive goes into effect July 2006 and the Waste Electrical and Electronic Equipment (WEEE) Directive starts August 2005. And similar regulations are expected from China and California.

RoHS, in particular, will have a dramatic affect on the computer industry. It will prohibit the sale in the European Union of electronics products that contain more than 0.01 percent of eight hazardous materials, one of which is lead.

Lead-based solder has been used in the electronics industry for close to seven decades, says Scott O'Connell, an environmental engineer at Dell. For Dell and other electronics manufacturers, switching from tin-lead alloy to tin-silver-copper alloy -- or some other formula -- is just as much an informational challenge as is it is a manufacturing one.

On the manufacturing side, companies must retool their reflow ovens to handle this tin-silver-copper solder, the melting temperature of which is 30 degrees to 40 degrees higher than that of tin-lead alloy.

On the IT side, imagine every part number that must be changed. Also, consider that every part must come with a declaration from the supplier that the part is lead-free, and that declaration must travel with the product from design to the day it ships.

To compensate, Dell must integrate new workflows into its existing BOM (bill of materials) infrastructure for product development, in addition to acquiring PLM (product lifecycle management) software from the likes of Agile. Also needed is a software tool that can automatically send a request to each supplier to certify its regulatory compliance and then verify that certification on Dell's side before the product is released. On top of that, Dell must now not only train its own internal staff on the new business processes but train its suppliers as well.

Dell would not quantify the total expense, but O'Connell admits there are "significant resource costs around managing the transition."

For other industries, FALCPA will also mean major changes. FALCPA requires food processing and manufacturing companies to list on their labels the eight most common food allergens that may be contained in the finished product. Steve Phelan, founder and senior vice president at Formation Systems, a PLM vendor, says companies will need to include ingredient tracking not only for themselves but for their suppliers -- all the way down to the raw-materials level -- as well.

And WEEE, a waste disposal and recycling regulation, will make manufacturers responsible for what happens to goods at the end of their product lifecycles. According to Chris Wong, chief product officer at Agile, this means that product design will need to factor in product disposal.

If you think reserving 10 percent of your IT budget for regulatory compliance tools is too drastic, consider this final thought. According to Bruce Richardson at AMR Research, one manufacturer estimates that compliance with RoHS alone will cost it anywhere from 1 percent to 2 percent of its revenue. That company's revenue is $400 million; you do the math.