Regulatory Requirements

REGULATORY REQUIREMENTS

 

There are a wide range of regulations that affect business. Some are industry specific and some apply across industries. Two types are addressed here: the Sarbanes-Oxley Act and Environmental Regulations.

 

The Sarbanes-Oxley Act

 

The Sarbanes-Oxley Act (2002) is a public company accounting reform and investor protection act. Several sections of the act might impact supply management.

            Section 401a requires off-balance-sheet transactions and obligations to be listed. For supply management this might include long-term purchase agreements such as multiyear supplier-managed inventory programs, cancellation and restocking charges, and lease agreements.

 

Section 404 requires the creation and maintenance of viable internal controls that the SEC has ruled include policies, procedures, training programs, and other processes beyond financial controls. For supply management this might include insecure and unreliable communications such as e-mails used to communicate with trading partners, poor purchase commitment visibility, and inventory write-offs.

 

Section 409 requires timely reporting of material events that impact financial reporting. Supply events that might meet the threshold of materiality include late supplier deliveries, ERP system crashes that disrupt shipments, and poor inventory accuracy.

 

Environmental Regulations

 

Why are environmental issues of concern to supply mangers, especially U.S. supply managers? For one thing, the people of the United States consume approximately 25 percent of the world’s resources despite representing only 5 percent of the world’s population. China’s explosive growth has, like most industrial revolutions, come with severe environmental problems. Both business and governmental leader should consider the impact of these numbers.

 

The U.S. and Canadian governments have enacted a number of important regulations, and many of these affect the supply function. Important among these regulations in the United States are four pieces of federal legislation: (1) the Resource Conversation and Recovery Act, (2) the Toxic Substances Control Act, (3) the Clean Air Act. In Canada, the major pieces of environmental legislation are the Environmental Protection Act and the Water Resources Act.

 

Among the implications of government environmental legislation for supply is that

 

  1. 1.      Purchasers contracting for waste disposal may want to (a) ensure that a disposal supplier is component and reputable and has an EPA permit, (b) require the supplier to warrant that employees are trained in handling the specific waste, and (c) insist on the right to inspect the facility and the EPA permit.
  2. 2.      Purchasers should require suppliers to warrant that any chemical or chemical mixture they provide is listed by the EPA.
  3. 3.      Purchaser must track the amount and type of chemicals that enter and leave the plant and consult the Material Safety Data Sheets (MSDS).
  4. 4.      Purchasers can choose environmentally friendly products; establish criteria for supplier selection that limit purchases from suppliers that sell damaging products; and be alert to alternatives, substitutes, or new technology that may help their companies meet the goals of governmental legislation.

 

The U.S. government provides detail of its major environmental laws on the Environmental Protection Agency (EPA) Web site (http://www.epa.gov)

 

            Environmentally Preferable Purchasing

 

Recognizing that the U.S. government is one of the largest consumers of goods and services in the world, the EPA developed the Environmentally Preferable Purchasing (EPP) program. EPP requires all federal procurement officials to asses and give preference to products and services that are environmentally preferable. A database of environmental attribute information for a wide range of products exists. Although developed for federal agency procurement, commercial purchasers may find the information useful.

 

            Voluntary Compliance Programs

 

The EPA is developing a more comprehensive program designed to hold down the costs of environmental continuous improvement. The goals are to develop an industry-by-industry approach, coordinate rule making, simplify record keeping and reporting requirements, permit streamlining \, and review enforcement/ compliance objectives.

 

Toward those goals, the EPA has developed a wide range of voluntarily compliance programs. Detailed information is available on the EPA website. Of particular interest to supply managers is the Environmental Accounting Project, which provides accounting tools and techniques for incorporating environmental, health, and safety costs and benefits into business decision making (www.emawebsite.org)