Regulations Mandate a Change in Your Product. Do You Have an Action Plan?
Earlier this year, the U.S. Dept. of Health and Human Services (HHS) and the Food and Drug Administration (FDA) announced that the federal government will ban the use of petroleum-based synthetic dyes in food. These dyes, which are suspected of causing health problems in children and adults, will be phased out and must be replaced with non-toxic color additives made from natural sources.
No one could argue against a step that is intended to make our food supply healthier and safer. In fact, many food manufacturers and industry associations quickly pledged to remove petroleum-based dyes from their products within the next two years. (Seizing the political moment, Walmart announced that it would eliminate 30 additional ingredients from its private-label products.)
For food manufacturers, this mandated change raises a host of supply chain questions policy makers in Washington may or may not have considered. For example, what could replace the banned ingredients, and who can supply them? How will eliminating those ingredients and substituting others affect material and transportation costs, lead times, on-shelf prices, and supplier relationships? Will production processes and machinery have to be modified? We are talking about enormous volumes of grocery items; will there be enough FDA-approved substitutes available when they are needed to fulfill demand, or is there a risk that production could be constrained by material shortages? Will consumers accept the reformulated product—and if not, will manufacturers be stuck with costly, unsellable overstock? You can probably think of more.
The hunt is on for replacements that will comply with the new standards while still meeting consumers’ expectations and preferences. This will not be easy. In May, the FDA approved several substitute food dyes made from natural sources. Two of them—one made from red algae and the other from the dried flowers of a particular plant species—suggest that new suppliers will not be found on every street corner. As a food manufacturer executive attending a recent MIT Center for Transportation & Logistics roundtable observed, “We will look for a new food dye supplier, but so will all our competitors.”
Regulatory changes that affect product design, production, and costs are not limited to food products, of course. Manufacturers must be ready to respond when any product, component, or material that is regulated for consumer safety—pharmaceuticals, toys, and children’s furniture, among others—is deemed unsafe. By “ready,” I mean having an action plan in place before a new regulation is announced. Ask yourself questions, like those I posed earlier, about your own products.
Do you have the information you need to answer them, and, more importantly, do you know what to do once you have the answers? Creating a playbook that anticipates the likely impact of change throughout a product’s lifecycle may be a worthwhile investment. This plan should set out decision-making authorities and offer “if/then” guidelines for every supply chain function that would be affected: planning, sourcing, manufacturing, inventory management, logistics, and so on.
I would argue, though, that for regulated products, the possibility of mandated change should be planned for even earlier, during a product’s design and formulation stage.
As I note in my book The Resilient Enterprise, standardization, modular design, alternative sourcing, and collaborative relationships with suppliers are among the effective strategies that support manufacturing resilience. Product development, production engineering, and sourcing and procurement should take the lead here.
