Upcoming Regulatory Milestones in the Electronics Supply Chain

As the electronics industry makes plans to sell products into the European market in 2013 and beyond, companies will be faced with a much tougher regulatory environment that requires strict adherence to new guidelines that build on the European Union's Restriction of Hazardous Substances (RoHS) directive, first adopted in 2003.

The updated version, known as RoHS 2 or RoHS Recast (2011/65/EU), became effective Jan. 2, 2013, and adds new electrical and electronic equipment (EEE) product categories that require restrictions on substances such as lead, mercury, cadmium, hexavalent chromium, and some polybrominated flame retardants.

Under the new provisions, companies that manufacture medical equipment such as General Electric Company, Siemens AG, and Royal Philips Electronics, must prepare their products to meet the July 22, 2014, date when substance restrictions will apply to medical devices, as well as monitoring and control instruments.

Save the dates
Other significant dates when substance restrictions will be enforced on new product categories include:

• July 22, 2016, for in-vitro diagnostic medical devices;
• July 22, 2017, for industrial monitoring and control instruments;
• July 23, 2019, for all EEE products except those explicitly excluded in the law. An example of products excluded from RoHS 2 is equipment specifically designed solely for the purpose of research and development.

In an effort to define EEE products under RoHS 2, the European Commission noted that:

All equipment that has at least one intended function which is dependent on electric current or electromagnetic fields, or that generates or transfers or measures such currents and fields is [considered to be] EEE. Even if the electric function is only a minor element of the equipment, the definition still applies.

Under this broad definition, the commission explained that products such as a gas cooker with an electrical clock, a singing teddy bear, sport shoes with lights, and petrol-powered equipment with an electric spark for ignition (lawnmowers, for example), are all considered EEE. This means that the electronics industry will have to vigilantly monitor the manufacture of a wider range of products across global supply chains as it prepares these items for sale in the European market.

Additionally, finished EEE products, such as some graphic cards or semiconductor development kits, are required to be CE-marked. They must also have a Declaration of Conformity (DoC) document, which indicates that the product is in compliance with the substance restrictions in RoHS 2.

A CE mark and a DoC also apply to subassemblies, except for subassemblies that are supplied by manufacturers or integrators for further incorporation into EEE, in which case no separate CE marking or DoC is required since they are already covered by the DoC of the EEE.

Extension potential
A gradual extension of the requirements to all EEE products, as well as cables and spare parts by July 22, 2019, will have widespread implications for electronic manufacturers and their supply chains as they seek to meet their obligations under the law or else face stiff penalties or have their products withdrawn from sale in the European Market.

One example that reflects the impact of RoHS 2 on companies and their supply chains comes from Jackie Adams, IBM global chair for product environmental compliance, who outlined several changes to IBM's processes that support its environmental quality management system. Adams said:

The Commercial Supplier Performance Evaluation scorecards will be changed to include new scoring questions that will evaluate suppliers' ability to meet our environmental compliance requirements. This requirement will be initiated by year-end and used in the 2012 review cycle. Beginning in 2013, IBM's Environmental Compliance team will also participate in selected engineering audits to strengthen the environmental compliance review process. Findings from these audits will be part of the Supplier Performance Evaluation and will be used in conjunction with the existing criteria to evaluate overall supplier performance.

The electronics industry is also confronting a world that has aligned itself with the goals and objectives of the European Union's RoHS law, with countries such as China, India, Japan, South Korea, Taiwan, and India, as well as the State of California all enacting laws similar to RoHS.

RoHS 2 comes at a time when electronics manufacturers in the US are also facing more restrictive policies and regulations that have widespread implications for their supply chains. For example, on Aug. 22, 2012, the Securities and Exchange Commission (SEC) approved a final rule that imposes new disclosure requirements on publicly traded companies that use "conflict minerals" in electronics production. The requirements were established under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in July 2010, but did not take effect until the SEC had finished its rulemaking process.

Conflict minerals reporting
Conflict minerals are defined as those mined in locations where armed conflict and human rights abuses occur, most notably in the Democratic Republic of Congo (DRC) -- a major supplier of these minerals. The conflict minerals include items such as tin, tantalum, tungsten, and gold, and all are used in a variety of components across the electronics supply chain.

Under the SEC ruling, electronics companies will be saddled with the daunting task of disclosing not only whether they use conflict minerals in their products, but companies must also explain their efforts to ensure that their use of these raw materials has not contributed to human rights violations in the DRC and neighboring countries.

The first disclosures under the conflict minerals rule are due by May 31, 2014, for calendar year 2013, but recently released figures by IHS Inc. reveal that of the electronics companies evaluated, about 90 percent have not produced the data, declarations or documentation needed to complete the regulatory requirements to identify whether conflict minerals exist in their supply chain.

The numbers reflect the complexity that the SEC ruling will have on 5,994 companies that file reports to the SEC, as well as the hundreds of thousands of their suppliers.

Said Rory King, director, supply chain product marketing at IHS:

Large electronic original equipment manufacturers use tens of thousands of parts that must be examined to determine their conflict mineral content. [There is very little time to] communicate, collect, analyze and prepare information on mineral sources across a globally diverse, multi-tier value chain, in order to determine conflict minerals content and develop reports that comply with the SEC rule.

Added burdens on the supply chain will also arise from adherence to the US National Defense Authorization Act (NDAA), which includes provisions regulating counterfeit part detection and avoidance. The NDAA, which was signed by President Obama on Dec. 31, 2011, will force companies in the electronics industry that sell products used in the Defense Department supply chain to be mindful of the guidelines that the defense supply chain is required to implement, including establishing counterfeit risk-mitigation procedures. In an overview that looks at how the NDAA will affect companies that supply electronics parts to the Defense Department, IHS listed several key points on how the act will affect the electronics supply chain. These include:

• Contractors are now responsible for detecting and avoiding the use or inclusion of counterfeit electronic parts or suspect counterfeit parts.
• Contractors are also responsible for any rework or corrective action that may be required to remedy the use or inclusion of such parts.
• Defense contracts will no longer allow the cost of counterfeit electronic parts and suspect counterfeit electronic parts or the cost associated with rework or corrective action to resolve the use or inclusion of such parts.
• Qualification procedures and processes must be established to use trusted suppliers and procure electronics from authorized suppliers.

In the years ahead, it will be very interesting to see how the electronics industry copes with providing detailed information, monitoring parts and handling the volumes of documentation required across a complex global supply chain to meet the new legal requirements. In the meantime, electronics manufacturers and their suppliers, contractors and distributors will be encumbered with many new regulations that will test supply chain efficiencies.

(This article originally appeared in the March Avnet-EBN Velocity Digital edition, which you can read in its entirety here.)

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