Simplified harmonized distribution activities on the way?
Logistics and Distribution - A global business with global regulatory challenges
From Production To Purchase - Distribution generally refers to all processes that take place between producers and dealers, right up to the final purchaser in the sales channel, according to Gabler Dictionary of Finance. Logistics activities relate to the transportation, storage, supply, purchasing and distribution of goods, people, money, information and energy, and their management, controlling and optimization.
Logistics is also defined as the integrated planning (logistics planning), organization, management, handling and controlling of the entire flow of goods and materials and the associated flows of information. The process starts with sales planning/marketing, development and production and extends via the (company's own) stages of operational value creation (e.g., stages of production or distribution), purchasing and product delivery through to waste disposal, recycling and consideration of company goals. Until a few years ago, it was still possible to define this chain based on the following equation:
Value creation/profit = sales (sales price) - purchasing (purchase price) - transport/storage (transport/storage costs) - administration (invoicing, sales, marketing)
Over the last few years, the cost of regulatory compliance has had to be added to these costs. This involves costs as well as the fundamental issue of whether there is any option for the marketing, transportation, storage or export/import of the goods. Regulatory compliance is a question of cost as well as involving significant time aspects. Therefore the issue of regulatory compliance needs to be addressed at the beginning of the process in addition to the financial issues.
The first question should be the question of marketability. Can I manufacture, import, export or market a product in line with regulatory requirements?
This applies to the product itself as well as all of the product's ingredients. The correct classification of the product in terms of its use, industry or market sector presents a serious challenge. Different product groups are often subject to very different legal regulations, which may overlap or be mutually exclusive. Different legal requirements may need to be covered. A product in Europe may be subject to cosmetics legislation but in other countries may only have to meet food or commodity regulations. Products may fall simultaneously under biocide, electronics or REACH (Registration, Evaluation, Authorization and Restriction of Chemicals) legislation.
Regulations specific to the customer, industry or sector may also have to be respected. Many cosmetics and consumer goods companies have their own lists of prohibited ingredients covering mixtures or products. It is also important not to overlook issues relating to import/export regulations, dual-use goods and weapons of war. (See example in fig. 1.)
Manufacturing And Storage
Even if questions about potential global or regional marketability are answered positively, companies must clarify whether the product can be manufactured and stored at the planned site. Approval and reporting requirements may be relevant to the production or operation processes. Failure to meet these prerequisites can quickly spell the end for a production site or product.
Following these regulatory issues, technical issues relating to production feasibility may arise. Apparatus-related issues in particular need to be a priority. Questions concerning adherence to workplace threshold limit values, work safety, environmental pollution caused by the production process and waste management play a key role here. For some time, the extended safety data sheet and exposure scenarios have served as key tools for testing applications in line with occupational safety and environmental and consumer protection.
Distribution is often equated with "distribution and transport." Over the last few years, requirements in the transport sector have increased significantly because of new legal regulations (e.g., regulations governing the securing of high consequence dangerous goods). Additional data relating to hazardous properties of products or their ingredients (keyword: REACH) has led to an increase in the proportion of dangerous goods being transported, among other things.
The supply chain has also become increasingly globalized. While 10 years ago medium-sized companies transported goods by road only, these days many importers and manufacturers require up-to-date knowledge about the global transportation of hazardous goods. The packaging, documentation and labeling of dangerous goods must be in line with the law because errors in this sector can quickly lead to fines and costly amendments (changing labeling, repackaging) and can trigger significant delivery delays as a result.
Regulations governing different means of transport have been largely harmonized, but different technical conditions and risks mean that each means of transport needs to take account of specific issues across the supply chain. Road transport involves a tunnel directive, which regulates the transportation of specific hazard categories through tunnels. Stringent safety specifications must be adhered to in air and sea transport to avoid terror attacks, and these must be taken into account when preparing for transportation (keyword: known consignor in air transport).
Progress has been made in the form of harmonization with the hazardous substances act, via the Globally Harmonized System (GHS). The harmonization of classification criteria has led to an eradication of labeling issues, which were a frequent source of irritation.
Classification And Labeling
The regulatory specifications are generally based on the classification of products or their ingredients. As part of this process, the chemical, physical, toxicological and eco-toxicological properties are used in order to allocate substances to a specific hazard category.
The classes and categories identified determine whether specific authorizations may be required, whether and how a product must be labeled and packaged, and whether and how the dangerous good can be transported and with which means of transport. However, this classification also has a significant influence on the market success of the product.
The Globally Harmonized System (GHS) was introduced more than 20 years ago to reduce market obstacles and facilitate global free trade. The foundations for introducing the system have been laid in many countries along with a mandatory commitment to apply the system from mid-2015 (for an overview of the current situation, see fig. 2).
Introduction of the system does not automatically mean 100% harmonization. The time at which the system comes into effect or the GHS version implemented may differ. It is also possible that specifications beyond the GHS may be implemented to ensure that the existing level of protection in the country does not deteriorate.
GHS is a first step toward simplifying distribution activities. Based on experiences of introducing harmonized regulations governing dangerous goods (UN Model Regulations), it can be estimated that 90% harmonization will take 20 years. However, there is hope that this will halt uncontrolled growth in relation to the classification, labeling and packing of hazardous materials and substances. Large economies such as China and Brazil have implemented GHS rather than having their own systems, which are not based on GHS. This would not have been possible without GHS.
Overall, complexity in the regulatory compliance field will not decrease in the next few years because there will be more and more detailed specifications in terms of the required data and risk assessments. Many countries that did not have regulations in this field have formulated and implemented appropriate legal regulations in the last few years and continue to do so in order to protect the local population and environment.
KFT Chemieservice GmbH
Im Leuschnerpark 3