Now that the RoHS directive's deadline is upon us - best 7 options for getting economic value from non-compliant parts

According to Technology Forecasters Inc. benchmarking studies comprising electronic-product companies and their suppliers, we anticipate that millions of non-compliant components will be stuck without products needing them. 

Likewise, hundreds of electronics companies with products not covered by hazardous-substance restrictions will face non-compliant-component shortages, delays, and increased prices.  The Restrictions of Hazardous Substances Directive (RoHS) deadline was July 1st, and now the lion's share of electronic and electrical products headed for the European market for sale should have no more than the maximum allowable percentage of six substances: lead, cadmium, mercury, hexavalent chromium, PBB (polybrominated biphenyl), and PBDE (polybrominated diphenyl ether).

Jim Smith, senior vice president of worldwide warehouse and distribution for major component distributor Avnet, said, "In some cases, sure you'll see a glut of product.  You'll see people suddenly switch from non‑compliant to compliant and there will be a glut of that component."[i]

Toshiba America Executive Vice President Stephen Marlow said, "To quantify the magnitude of this issue (managing dual parts-compliant and non), US semiconductor consumption is approximately US$10 billion per quarter.  A 10% miss in inventory planning related to RoHS transition, $1 billion of capital per quarter could be tied up in non-performing assets.  Without absolutely clear, brilliant channels of communication, we run the risk of having too much of the wrong product at the wrong place at the wrong time."[ii]

What are companies going to do with the excess inventory?  Throwing these components into land fill would be antithetical to the global intention for reducing electronic waste.  It's not only the European Union that thinks that "land-filling" hazardous substances runs counter to human, environmental, and economic sustainability.  Individual global companies (Nokia, Motorola, Sony, and more) as well as governments in widespread regions (several Canadian provinces and US states, China, Korea, Australia, and Argentina) soon will restrict these six and additional substances.  Besides, since when has throwing away otherwise valuable assets been a good idea business-wise?

Wait - Don't Pitch those Parts!
Below are some options for electronic-product companies to (A) minimize purchases of excess non‑compliant parts, (B) access the non‑compliant parts they need and cannot find, and (C) deal with the remaining excesses in an economically and environmentally sound ways.

1. Discontinue less profitable / less competitive products.
Mitigate unnecessary work to convert products and shift to new components. RoHS and the upcoming EuP Directive are good prompts for companies to do what they should do every couple of years:  analyze product lines and "rationalize" them with good business strategy in mind.

 
2. Coordinate tightly with purchasing organizations both within the company and with distributors and contract manufacturers.
Minimize your purchases of what will become excess, non-compliant inventory.

3. Project requirements for spare parts to go into product already in Europe; set aside these non-compliant components.
Maximize use of non-compliant component you already own, and order any additional components needed before shortages, delays, and/or price hikes.

4. Convert* as many "wrong" components as economically and technically viable.
Make usuable your Pb (lead) components if you need Pb-free versions.  And/or buy Pb-free components for backward conversion - if your suppliers have discontinued or allocated the Pb versions (or have significantly increased the price!).  Use an ethical source. 

5. Consign* what you cannot convert, for sale to markets that do not yet restrict hazardous substances and/or product categories current exempt.
Earn back as much of your purchase price as possible.  Either physically send the excess inventory or keep it at your warehouse if preferred.  Money transfers after the third-party makes a sale.

6. Donate** what doesn't sell.
Take the tax write off.  Note:  Donations are covered by RoHS, so donations should not occur in the European Union.

7. Recycle*** whatever is left.
Revenue is available in some cases.  And avoid bad publicity by an increasingly educated population about putting hazardous materials into landfill.

 
* Try www.E-Certa.com, a Quarterly Forum member.  Contact E-Certa@E-Certa.com.

** Earth for Humanities is an example of a not-for-profit organization accepting excess components.  Contact http://www.earth4humanity.com/. 

***For example, try AER Worldwide, a Quarterly Forum member.  Contact salim@aerworldwide.com .

The Most Strategic Solution
Of course, the best solution of all is for electronic product companies' management never again to redesign products or processes in an emergency fashion because of increasing environmental requirements by customers and regulators.  Dedicate someone internally or leverage an external resource to know ahead of time what global regulations are brewing (e.g., TFI's extended team includes an environmental attorney), and to have plenty of notice when a corporate customer is about to tighten environmental requirements (our research team identifies these new and potential supplier rules).

Find the most complete set of environmental design rules that exist for electronic product companies, and have your engineers follow these rules for all new products.  In our experience, 90% of them also minimize processing costs, reduce the cost of materials, increase product reliability, enhance customer features (e.g., most markets now want smaller, more efficient products), allow for economically-advantageous upgrade/refurbishment, and maximize value at the end of the product's last life.  We have trained close to 50 companies in design‑for-environment rules through our workshops and checklists.  Fortunately for both the environmental and business, it's catching on! 

Be ahead, such that new regulations become old news for your company.

For a copy of Lean and Green, information about TFI's Design-for-Environment Workshops, and sample case study of leading our clients to faster and more successful RoHS and WEEE compliance, contact Jennifer Read at JRead@TechForecasters.com.

[i] As quoted in EETimes.
[ii] Toshiba RoHS report, January 27, 2006.