When regulatory compliance and risk management come to mind, they usually evoke feelings of fear, uncertainty, and doubt as to how well an organization is prepared for government scrutiny or any worst-case business scenario. Questions arise, such as: Have we developed the proper procedures to ensure product compliance? How can we measure and actually know if we are within the regulatory guidelines? Do we have “proof of absence” or are we at risk from “absence of proof” by market and regulation? Do our systems help or hinder us?
The consumer recalls in 2007 are prime examples of how compliance and risk management go well beyond internal operations to span the entire supply chain. A comprehensive strategy includes three dimensions:
- An internal dimension comprising variables manufacturers can control
- An external dimension, which includes factors outside manufacturers’ control
- A customer dimension, encompassing supply-chain factors that manufacturers can influence
While it’s common for companies to firefight internally to meet compliance mandates, it’s critical to involve and consider all constituents as part of the compliance strategy. Equally important is to recognize that compliance and risk management aren’t projects, but rather are processes that must be monitored and adjusted on an ongoing basis. To meet emerging corporate responsibility and compliance mandates, companies can no longer afford the cost and risk of being reactive and the increased risk associated with “absence of proof” strategies. They must incrementally move to an active, and eventually proactive, compliance plan that is built into all processes and products, and ensures the “proof of absence” to regulatory exposure.
The compliance mandate
Over the past few decades, the pace of introducing new government regulations and compliance guidelines has accelerated significantly and is unlikely to slow down. Partially as a result of consumer demand for economic, environmental, and social responsibility, the burden of safety is shifting from governments to manufacturers. Additionally, mounting pressure driven by special interest groups has led to the creation of many new laws that put tighter restrictions on manufacturers. These new restrictions and laws have increased costs and have mandated changes at all levels, requiring that companies retool at the plant floor level, reevaluate materials and suppliers, and reexamine how products are introduced and marketed. Companies often respond in an ad hoc manner. The proliferation of compliance and risk management concerns requires that companies build a strategy encompassing the three primary influences—internal, external, and customer dimensions.
