Definition of compliance: observing statutory provisions, internal company policies and ethical principles.
Sustainable growth requires integrity. Compliance management is concerned with the management of regulatory requirements (or for a better word: ‘rules‘) and business risk mitigation. Compliance helps with the management of (in no particular order):
- Product performance: vehicle performance is defined in context of multiple internal and external parameters including legislation compliance requirements – which set the expectation in terms of the safety and environmental operating context.
- Process compliance: manufacturers are mandated to comply to certain requirements and they have the tools and processes to control, track and monitors that these requirements are met; this is supported by data traceability, education, checks and balances to review any deviation to compliance and take proactive corrective measures accordingly.
- Competition: being compliant in more or less effective and efficient manner can bring competitive advantage and help enter new markets or generate new product or service revenue opportunities.
- Cost control: failing to comply can have disastrous cost impacts, especially when issues are identified late as they can impact warranty, brand image, they can damage reputation and be very costly to rectify; early investments in mitigating these risks to become issues in the first place can be proven to be very valuable.
- Ethics: compliance is not optional; it impact financial results but also potentially lives of many human beings; nowadays, most (all?) organizations adhere to corporate sustainability programs and take part of the circular economy.
- Laws: legislation requirements are enforced by local and national laws and compliance is mandatory; non-compliance equates ‘fraud’ and can be treated as a criminal offence.
The shocking news this week about Volkswagen illustrates that non-compliance is a very serious matter, especially as they are accused of (and have acknowledged) being dishonest and acting against their own core values.
The US Environmental Protection Agency (EPA) revealed that VW will be instructed to recall nearly 500,000 vehicles and face a potential £11.6 billion in fines.
The German government confirmed that VW had manipulated emissions in Europe as well as in the US.
VW will have to fix the faulty cars [and] prevent this from happening again and make things right.
Could this issue have been prevented? Probably not if it was done knowingly with the conscious intention to cheat… However, it could probably have been exposed earlier if the right measures were in place to monitor and track compliance requirements, plans and solutions to mitigate non-conformance risks and issues. While this is probably pure speculation at this stage, it is clear that something went very wrong if someone or some department was able (allowed?) to design and introduce dodgy software into vehicles to fake the CO2 emission test of some diesel engines.
As a matter of fact, data traceability, requirements and portfolio management, supplier collaboration, change management, software management, engineering / manufacturing and service Bills of Materials management, material management and compliance tracking are core components of Product Live-cycle Management (PLM):
- Integrated material management allowing to manage material grades, optimize products for greater performance and profitability throughout their life-cycle.
- Requirements management including “green” requirements and environmental compliance.
- Supplier material disclosure process automation to get a more complete view of the products, in line with industry global standards and directives, validating that the requirements are met and maintained; but also validating how they are tracked, controlled and technically tested by third parties, allowing for the required independent certification and accreditation.
- Compliance grading and reporting to manage changes, track and report on alignment or deviation, bridge information silos, etc. providing ‘single source of truth‘ up-to-date / live audit trails and required due diligence for customers and government authorities; early visibility helps to reduce risks.
- Integrated change management allows to perform impact analyses throughout the product development and manufacture, with a view to avoid late changes and issues, and lower cost by bringing ‘compliance into the product design‘.
Will this kill VW as a brand? Probably not as it is a leading manufacturer in Europe and in the world, and Germany will not allow it to disappear. Nothing is certain, and most certainly much is yet to be seen on what will happen next and if / how VW will recover from it.
What are your thoughts?
This post was originally published on LinkedIn on 26 September 2015.
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