In regulated industries, which regulatory approach is best for supply chain management?
- Should all new products be permitted for manufacture and distribution until later proven by a regulator to be harmful?
- Should all new products be forbidden from manufacture or distribution until first proven by a regulator to be harmless?
Most industrial regulation falls somewhere in the middle of these extremes and seeks to strike a balance between innovation, knowledge and safety, and (ideally) using well-established frameworks and transparent evaluation criteria. However, when regulators switch approaches, the result is disruptive regulatory change that flows across supply chains.
Take the US chemical industry and the 2016 amendment to the US Environmental Protection Agency (EPA) 1976 Toxic Substances Control Act (TSCA). Among other things, the amendment also known as the “Frank R. Lautenberg Chemical Safety for the 21st Century Act” shifts the US new chemical regulatory model closer to forbidding new products until they are proven not to be harmful.
Because chemicals are essential upstream components of countless industries and supply chains, this change could have widespread ripple effects. And the performance of the chemical supply chain and its many customers may have a direct bearing on how new chemical regulation occurs in the US.
First, some background is in order. For the past few years, Congress has been worried about the risks new chemicals might pose to people and the environment. Under the 1976 TSCA, the EPA had to first document that a new chemical might pose a risk before it could deny production of the chemical. But if the EPA lacked this initial documentation, it could simply abandon further review and permit production of the chemical to commence. Congress feared that this approach could allow the manufacture of risky chemicals. So, under the 2016 amendment, the EPA must first comprehensively review every new chemical substance. Only those that pass this review can move into production or be imported into the US.
The US chemical industry spent $93 billion in research and development in 2015. Inventing new chemicals is strategically essential in order to avoid producing low-margin chemical commodities. With more than 10,000 US chemical firms producing 70,000 products and 2015 sales exceeding $800 billion, the US chemical industry is one of the nation’s largest manufacturers. Its output accounts for about 15% of all global chemical shipments. This production in turn supports trillions of dollars of downstream manufactured goods and services in nearly every industry.
Given the size of the industry and the scope of the new regulation, a backlog of un-reviewed new chemical substances—along with their manufacturers’ Pre-Manufacture Notices, or PMNs—is growing at the EPA. Chemical & Engineering News reports:
“Since the TSCA amendment was signed into law, only 33 of the 308 new chemicals under review have been allowed to enter the US market. While chemical manufacturers’ trade group, the American Chemistry Council, supported the reformed law when it passed Congress, at a public meeting on Dec. 14 in Washington, DC, the ACC questioned the EPA’s approach.”
Some attribute the delays to simple regulatory growing pains. Others foresee a more permanent innovation bottleneck, given that the new amendment requires the EPA “to consider all ‘reasonably foreseen’ uses of a chemical” when estimating its risk. Complying with such a requirement could force the EPA to consider extensive numbers of hypothetical uses for new chemicals that might never materialize.
To address this concern, the EPA held meetings with stakeholders in December 2016 on how to implement the new regulations more efficiently. One option discussed was for the EPA to issue Consent Orders or Significant New Use Rules (SNUR), for existing chemicals that carefully restrict the use of new chemicals or the use of existing chemicals in new ways.
In October 2016, Chemical Watch reported:
“If consent orders become the new normal…submitters could be looking at up to 90 days or more for review of their new substances. Timely access to market is very important, especially for batch manufacturers who make chemicals on demand.’”
These potential delays could have significant impact on the chemical supply chain and its many customers. Chemical Watch further points out:
“The EPA says there are several areas in Lautenberg that can mean more chemicals become subject to (consent) orders. Such orders can contain toxicity testing; distribution, release and use restrictions; workplace safety measures like personal protective equipment or exposure limits; hazard communication requirements; and record keeping requirements.”
These areas are also in the domain of numerous new chemical-consuming supply chains. Businesses that benefit from new chemical products may be wise to discuss elevating their supply chain performance now, particularly in the areas of new chemical risk, safe application, record keeping, and communication.
Enhancing supply chain performance is core to the mission of APICS. With high R&D spending in most regulated industries, regulators may increasingly come to consider the supply chain of new products as an inherent element of risk and public acceptability—perhaps even at every point of the SCOR model: Plan, Source, Make, Deliver, Return, and Enable. In disruptive times, striving for ever-greater supply chain excellence is more important than ever.