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3. SUPPLY CHAIN PRESSURES FOR ENVIRONMENTAL PROTECTION

This section presents the latest trends towards supply chain pressure and requirements for environmental protection.  Information has been collected by extensive literature reviews and internet research (with information sources listed in Appendix A), plus consultations with relevant trade associations and interviews with major client companies^[1].

Global electrical and electronic clients on the whole have a diverse product spectrum with suppliers originating from various trades.  Table 3.1a below presents a matrix of the global clients included in the review and the MIGs with which they have extensive interfaces.

Table 3.1a      Supply Chain Interfaces Between Major Global Clients and MIGs

Details of the requirements made by these organisations are given in Appendix D.  These are found to fall broadly into six categories, each further discussed separately in the remainder of this section:

	Compliance with legal requirements
	EMS and ISO 14001 certification related requirements
	Cleaner production requirements
	Eco-Design or "Design for Environment" (DfE) requirements
	Other client-specific environmental requirements
	Other corporate responsibility requirements (social accountability, health & safety, etc)

3.1 Compliance with Legislation

Clearly a key supply chain pressure facing in all electrical and electronic related companies no matter their size is compliance with legislative and regulatory environmental requirements.  Companies have financial reasons for avoiding environmental convictions.  A list of current ordinances and regulations is provided in Appendix E^[2].  These consist of:

	environmental ordinances and regulations - the Air Pollution Control Ordinance (APCO), Ozone Layer Protection Ordinance (OLPO), Noise Control Ordinance (NCO), Water Pollution Control Ordinance (WPCO), Waste Disposal Ordinance (WDO), Environmental Impact Assessment Ordinance (EIAO); and
	environmentally-related ordinances and regulations - the Factories and Industrial Undertakings Ordinance, Occupational Safety and Health Ordinance, Dangerous Goods Ordinance, Antiquities and Monuments Ordinance, Public Health and Municipal Services Ordinance, and others.

Compliance with environmental legislation within the region in which the manufacturing facility is located has been the foundation of doing business in the electrical and electronic sector. However, more and more environmental legislation now addresses not only the pollution generated from manufacturing processes, but also the potential impacts from the rest of the product life cycle (e.g. during operation or disposal). The environmental requirements and legislations from the user country have become more important to the products and linked closely with its manufacturing processes.

Most companies require compliance with both local and global environmental legislation.  Companies like Philips, Sony, Toshiba require suppliers to make earlier response to the new trend of legislation and initiatives that extend across borders, such as the EC directives on the Restriction of Hazardous Substances in Electrical and Electronic Equipment (ROHS) and Waste Electrical and Electronic Equipment (WEEE), both discussed further in Section 4.

Requirements vary from client to client.  Some, like Philips, require suppliers to take steps in changing their existing design and production methodologies in order to cater for future needs in the mass production of lead-free "Green" products.  Others (e.g. Nokia) even require suppliers to supply evidence of compliance with such regulations. Some well-established global manufacturers of electronic & electrical consumer product (such as Philips & Electrolux) realize and accept their responsibility to ensure recycling or proper disposal of their products at the end of their life.  They are working closely with their component suppliers to seek competitive advantages through design-for-recycling programs and investments in efficient handling systems for waste appliances.

3.2 EMS and ISO 14001 Certification

Derived from the growing trend of global environmental legislation, a common way for manufacturers to demonstrate their commitment to environmental protection, fulfilment of legislations and good environmental performance has been the implementation of EMS or certification to ISO14001. Certification helps manufacturers gain recognition and provide assurance of good environmental performance. Most of these "environmentally-conscious" electrical and electronic sector manufacturers gain direct benefits from the adoption of ISO 14001 EMS and seek to propagate the requirements to their whole supply chain.

Amongst the corporations with environmental requirements for suppliers reviewed, all but one (Electrolux) require the implementation of an EMS to some degree.  Three corporations (Philips, Matsushita/Panasonic and GM) make ISO 14001 certification a must (for direct product suppliers only) whilst one other (Toshiba) gives explicit priority to suppliers with certification.  Others require or "expect" suppliers to implement an EMS or some EMS elements (such as environmental policy) but without explicit requirements for formal certification (e.g. Philips, Sony, Toshiba, HP, Nokia).

Some companies also introduce solid time-frame to their supplier in achieving ISO 14001 certification for their major production facilities as one of the critical criteria in developing long-term partnerships.  In the extreme (e.g. Philips), these time-frame linked requirements have also been extended to reach tier-two suppliers (the suppliers of the first tier supplier). Sony also explicitly requires suppliers to control the environmental performance (often implemented through EMS development & certification) of their own suppliers through implementing "upstream management".

3.3 Eco-Design or "Design for Environment"

Eco-design or Design for Environment (DfE) is an engineering perspective of the design process focusing on pollution prevention and resource conservation.  DfE is closely linked to life cycle analysis and involves design procedures that minimise material and energy use whilst maximizing reuse and recycling.  DfE seeks to discover product innovations that will meet cost and performance objectives while reducing pollution and waste throughout the life cycle.  DfE is also considered an umbrella term describing techniques used to incorporate an environmental component into products and services before they enter the production phase.  In the electrical and electronic sector, eco-design or DfE requirements most frequently address (i) the control or non-use hazardous substances, (ii) reusability, recyclability, durability and ease of disposal, and (iii) energy efficiency.

Virtually all companies with eco-design requirements require control or non-use of hazardous chemical substances.  Most of these (e.g. Sony, Philips, Matsushita, GM) have lists of restricted substances (mostly those listed in the EU Restriction of Hazardous Substances, with lead soldering being of much concern) and require disclosure of levels of these substances in the products supplied.

Resource efficiency and waste disposal are required by companies including Nokia, HP, Matsushita, Toshiba and GM, with conditions for reusability, recyclability, durability or recycled content.  Suppliers are also required to supply relevant information including recommendations for end-of-life treatment.  HP sets out requirements for product labelling for recycling and disposal, which may be derived from legislation or HP's own requirement.  Though some companies such as Toshiba only states to "give priority" to items that meet their eco-design criteria (mostly concerned with control or non-use of hazardous substances), related information should be disclosed to prove the items' eco-design merit.  Similarly, Nokia does not specify its lists of restricted substances but may require suppliers to declare the raw material contents of their supplies.

Some suppliers (e.g. Sony and Nokia) even have higher expectation in their suppliers' eco-design capacity.  Sony requires its Green Partners (i.e. Sony's certified suppliers) to have the technological skills needed to create the new technologies and parts that Sony requires (which probably include eco-design); Nokia requires all supplies to consider design-for-environment in all phases of product development and make all reasonable attempts to eliminate hazardous constituents and pursue the use of recyclable materials.

3.4 Cleaner Production

Cleaner Production (CP) is the continuous application of an integrated preventive environmental strategy to processes, products, and services to increase overall efficiency, and reduce risks to humans and the environment.  CP can be applied to the processes used in any industry.  For typical production processes, cleaner production results from one or a combination of conserving raw materials, water and energy; eliminating toxic and dangerous raw materials; and reducing the quantity and toxicity of all emissions and wastes at source during the production process.  The CP concept has been accepted and implemented by most developed countries such as US, UK and Germany and particularly in the chemical and chemical related manufacturing sectors. However, due to the increasing awareness of manufacturers, the growth of green consumerism and the demand of green products, CP has spread to the electrical and electronic and automobile sectors, propagating to various tiers of the supply chain.  DfE is different from CP in that CP focuses only on the manufacturing processes, while DfE focuses on product design to reduce environmental impacts during both manufacturing and operation phases.

CP is a preventive strategy to minimize the impact of production and products on the environment by applying cleaner technologies and organizational measures. It reduces the impact of industrial plants on their environment by tracking their waste and emissions to their respective sources in the processes and defining measures to eliminate the problems there. Most companies (e.g. Philips, Sony, GM, HP, Nokia) require suppliers to manage pollutions from their manufacturing processes and substitute the raw and auxiliary materials by less harmful ones or ones that can be used more efficiently or recycled.

GM requires its tier 1 suppliers to provide information about materials input and process emissions (an "input/output inventory") of their manufacturing process; whilst the others restrict the use of certain hazardous substances such as (cadmium, lead and other heavy metals) in the manufacturing process. Philips and Nokia also encourage the suppliers to minimize the use of packaging materials and implementation of the supplier "take-back" system to enable cyclic use of the packaging materials. Companies like GM and Philips have made great strides in reducing the toxicity of their products and processes. Some have pledged to eliminate polyvinyl chloride (PVC) in some products with the cooperation of suppliers. Other CP requirements include: good housekeeping; training of employees, better logistics; data availability and communication; production and process modifications to minimize waste and emissions; and introduction of waste into recycling networks, etc.

3.5 Other Environmental Requirements

Most of the "environmentally-conscious" companies impose specific and unique environmental and other requirements to their suppliers, with examples including:

	Require their suppliers to submit environmental performance data (e.g. Philips, Matsushita, Toshiba, HP) or an environmental report (e.g. Sony);
	Require their suppliers to carry out environmental audit by themselves or third party for verification (e.g. Philips, Nokia);
	Require suppliers to evaluate their suppliers (second tier) environmental performance and set environmental improvement targets (e.g. Nokia);
	Require suppliers to complete environmental performance questionnaires (e.g. HP);
	Encourage suppliers to participate their environmental trainings, workshops or seminars and other education programs (e.g. Philips, Sony and HP);
	Demonstrate environmental performance through participation in local / global benchmarking or competition program (e.g. Philips, GM, Nokia); and
	Conduct environmental audit to their suppliers and technical visit to suppliers' manufacturing facilities (e.g. Philips, Sony and HP).

3.6 Other Non-Environmental Requirements

Some leading corporates (e.g. Philips, General Motors, and Electrolux) have recently begun to incorporate requirements extra to the environment (e.g. health & safety, social accountability and sustainable consumption), towards sustainable development as an overall mission to their major suppliers. Sustainable development in a short is to meet the needs of the future by balancing social, economic, and environmental objectives, needs and consideration while business is making decisions today. These newly developed sustainable development requirements applicable to the E&E sector include:

	Require suppliers to achieve sustainability compliance including social accountability elements (e.g. Philips);
	Require suppliers to comply strictly with laws (labour, safety and health), regulations and social standards (e.g. Sony, Electrolux, Samsung & HP);
	Require suppliers to follow the customers' code of conduct, which covers occupational health and safety considerations (e.g. Electrolux);
	Conducts safety inspections on to suppliers and their manufacturing facilities;
	Require suppliers to complete occupational health and safety performance review questionnaire (e.g. HP)