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Compliance Control
By: Lisa Horn, CAS
Issue: 2010apr
As an industry, we must take control over the products distributed to the public. End users’ safety is top-priority, and our very existence as a viable marketing tool depends on our industry’s ability to deliver safe products.
Think about it. Every time the media reports on a lunch bag printed with lead-based inks or a teddy bear that is defective because the eyes can be removed thus becoming a choking hazard, the credibility of our industry diminishes. If buyers question the safety of promotional products, their marketing dollars may shift elsewhere. This is certainly something no industry practitioner wants to see, especially after last year’s recessionary spending cuts.
Therefore, compliance is no longer optional. It has become a requirement for doing business. But what does compliance entail? Product safety and quality are tops on the list, but there more to it. Social and environmental issues play a role, too. And with the changing regulatory environment that governs these issues, it’s no wonder there’s much confusion.
To gain insight into the critical issues surrounding compliance, PPB talked with four promotional products business owners who have much experience dealing with the complexities of developing comprehensive compliance programs:
• Jay Deutsch, CEO of Woodinville, Washington-based Bensussen Deutsch & Associates, Inc. (BDA) (UPIC: BENS0002)
• Trevor Gnesin, president of Tustin, California-based Logomark, Inc. (UPIC: logomark)
• Jonathan Isaacson, CEO of Lawrence, Massachusetts-based Gemline (UPIC: GEMLINE)
• David Nicholson, president of Polyconcept North America, parent company of New Kensington, Pennsylvania-based Leed’s (UPIC: LEEDS)
These owners and their respective companies have recently completed the certification process through Quality Certification Alliance (QCA), an independent accreditation organization. QCA Accreditation is granted to companies that complete an independent third-party audit and comply with stringent, comprehensive standards based upon a combination of state and national laws, international standards and industry-accepted best practices. Here’s what they had to say.
PPB: The changing regulatory environment is on everyone’s mind, yet there is much confusion in the marketplace when it comes to compliance. What are some common misconceptions the promotional products industry has about compliance?
Nicholson: “The biggest misconception is that compliance is solely focused on CPSIA because it gets so much media coverage. In reality, a successful compliance program covers not only CPSIA regulations but also other federal agency standards such as the FDA and FCC as well as overall quality management, social and environmental compliance.”
Deutsch: “Because compliance covers all the issues David mentions, on the surface it might appear that compliance programs require extra work, which results in extra costs. If you institute the right processes, however, you can save money in the long run by avoiding mistakes, recalls and lawsuits.”
Isaacson: “Agreed, but ultimately it takes time that most people don’t have. For suppliers, it’s clearly mission critical. It is essential that someone in the organization is responsible for dealing with issues around compliance and education. For distributors, they must educate themselves in addition to relying on their supplier network. Both suppliers and distributors must have systems and processes in place as well as have an understanding of the legislative and regulatory landscape so they can address these issues as they continue to unfold.”
PPB: Product safety is the basis of much of the legislation today. What have you heard about how end buyers’ expectations have changed because of increased product safety regulations?
Nicholson: “I am seeing a greater awareness of product safety overall and increasing requests for formal documentation around compliance. The days of distributors and end buyers accepting a supplier’s word that the company is meeting compliance requirements are gone.”
Gnesin: “That’s true. Clients who have million-dollar brands to protect certainly aren’t taking anyone’s assurances that products are safe, and they now look at compliance testing as a standard requirement for doing business. They want to know what standards are in place and what tests have been done.
“Here’s an example: We have had many Fortune 500 companies come to us through their distributor partners to learn about our compliance program in order to approve us as a vendor. The tables have turned, and end buyers now have a say in what suppliers their distributor partners use.”
Isaacson: “I agree, but it also seems many distributors think the issue of product safety only affects major consumer products corporations—and that’s not the case. There are many companies with a lot of brand equity, a hospital or charity for example, where being compliant with regulations is of great importance.
“Ultimately, whether or not end buyers are asking about compliance, we as an industry must provide a solution because it is the law. Thus, the issue really becomes who initiates this drive: Are end buyers forcing the conversation and essentially setting the agenda, or are we going in knowledgeably and with expertise to show what we have done to deal with this particular set of issues.”
PPB: In dealing with this particular set of issues, a.k.a. compliance, what changes have you implemented to meet the new demands and requirements in the marketplace?
Isaacson: “The changes have been quite substantial, including having dedicated staff responsible for understanding the laws. We put together a team to examine our products to determine which items are affected under CPSIA as well as other legislation that has come along. In addition to alterations in the product line, we have also gone back into our supply chain to ensure compliance with the changes we instituted. Ultimately, the changes were made to achieve a desired outcome in terms of meeting the standards set in legislation.”
Gnesin: “We have also made significant changes. Even though Logomark is renowned for quality, we turned the company upside down to vastly improve what we deliver. This has been one of the worst years economically, yet it has also been one of the most expensive years for Logomark because of what we have changed. We estimate that the costs associated with testing, inspections and training has added about five percent on to our cost of goods sold. We’re talking hundreds of thousands of dollars. Why do it? Because, for example, the fine for a CPSIA product violation is up to $15 million per incident. The ramifications are too great not to take compliance seriously and start doing business accordingly.”
Deutsch: “Agreed, and suppliers aren’t the only ones making substantial changes. BDA has undergone a dramatic expansion of safety and compliance efforts in the last 24 months by mandating comprehensive audits of all factories through both internal staff (based upon Fortune 100 client requirements) and third-party verification.
“We’ve also implemented a number of other procedures to drive a level of compliance even higher than what is required by the law. Some of these include:
• Lot and batch control and testing procedures
• Strict requirements on ink and coating management
• XRF technology above and beyond lot and batch testing
• Increased certificates of conformity and testing requirements on all drinkware and food-related products
• Licensed custom broker on staff in corporate compliance officer role
“The bottom line is that we have an obligation to keep unsafe products out of the hands of end users. Companies can no longer hide behind the false security blanket of indemnification.”
PPB: You mention third-party verification, a topic of much discussion—and confusion—in the industry. Why are self-compliance statements insufficient and, conversely, what is the importance of third-party verification?
Isaacson: “Business owners may believe they are doing the right things and say their products are compliant. But it is essential, especially when dealing with knowledgeable end buyers, to have a disinterested third party that can confirm companies are actually doing what they claim in terms of compliance.
“It’s like having a financial audit done. I can tell you that my books are clean, but we complete an audit every year. Having someone else confirm we are doing things according to the standards that are set provides an additional level of credibility.”
Deutsch: “Using the financial audit process is a great example. Accepting company-produced financials, a form of self-certification, is like saying, ‘I accept Bernie Madoff’s financials.’ If he was audited by one of the Big 4 accounting firms and subjected to gold-standard audits, there would have been no Madoff. Self-certification is a disaster waiting to happen, and it only causes marketplace confusion and unnecessary exposure to risk for the entire industry.
“Have you heard the phrase, ‘People do what you inspect, not what you expect?’ On one end of the spectrum, there are companies that may intentionally stretch the truth to self-certify in order to create a competitive advantage. On the other end of the spectrum, there are the well-intentioned companies who honestly believe they are doing the right thing but miss updates or misinterpret complicated rulings.
“For years, the industry has debated the end-user risk and consistency of self-compliance and determined it’s not enough for companies to merely claim they’re offering products that are safe. Without systematic third-party accreditation, bad products will continue to enter the marketplace undetected. End buyers want to purchase with confidence and know our industry can control its supply chain. They need hard proof that the promotional products they buy won’t land their companies on the six o’clock news.”
PPB: Compliance encompasses many aspects, from federal and state legislation to environmental and social concerns. What questions should distributors ask and what documentation should they request from suppliers so they can accurately inform their end-buyer clients about the products they purchase?
Nicholson: “Compliance standards, particularly when it comes to social and environmental areas, can vary greatly. Many companies, especially larger Fortune 500 firms, have established standards that cover these areas. So, the first thing distributors should ask is whether the end-buyer client has a policy already in place. If so, the process is much easier as the policy will provide guidelines for both the distributor and supplier. If the client doesn’t have an existing policy, distributors should ask their suppliers for written documentation of their compliance standards as well as specific testing/audit information for product(s) of interest to verify the standards are being met.”
Gnesin: “When inquiring about the specific testing/auditing information, distributors should also ask how often products are being tested, if every shipment is tested and, most important, if the test results are on file. Regarding social issues, it is important to ask how often factories are inspected and if audits are done on the factories used.”
Deutsch: “These are all good questions, but keep in mind that suppliers are going to trumpet their strengths. It’s human nature. One may have a good understanding of CPSIA testing while another may tout its FLA membership and claim to be socially compliant with labor. With this in mind, distributors should ask suppliers how they know they are compliant in the areas that are not in the forefront. Good suppliers will be able to address and provide appropriate documentation related to product quality and safety, social compliance, eco-consciousness and safety against terrorism.
“It is important to note how quickly documentation is presented, as it should be easily accessible if it is part of suppliers’ regular operations. If the request is delayed or fumbled, this may be a sign of a reaction to your request rather than a regular part of the product procurement process. The documents should be current and traceable to the product at hand—a test from 1996 doesn’t say much about your current order.”
PPB: It’s clear the issues surrounding compliance will continue to impact the promotional products industry as the regulatory environment evolves. Given where we are today, what do you feel are the most important points all industry practitioners must understand?
Gnesin: “Compliancy is part of both federal and state legislation, and suppliers have taken the lead in addressing the issues. However, it is also important that distributors start understanding the requirements and subsequently choosing the right partners who are committed to delivering safe products.”
Deutsch: “It is also important to know two things: First, that the compliance information provided by the supplier is an accurate representation of the compliance related to the distributor’s specific order. Second, that the supplier’s process is designed to always provide compliant product, not just generate documents upon request. It’s not about the documents; it’s about the safety and compliance of the product.”
Nicholson: “Compliance is a shared responsibility for both distributors and suppliers. Suppliers certainly maintain the primary role in establishing standards, procedures and testing to ensure their products are compliant. But given the increased visibility and risks associated with non-compliance, distributors must also take an active role on behalf of their clients.
“Distributors can no longer assume suppliers are doing their part, nor can they simply take ‘Yes, we are compliant’ as acceptable verification. Distributors must educate themselves and their clients on the current requirements and the range of options available. In addition to asking suppliers for documentation and proof, they must also be willing to move business away from suppliers who can’t ensure their products are safe.”
Isaacson: “To sum it all up, compliance is an issue that all of us must address moving forward. It is not a fad, nor is it something that will go away. Therefore, all industry practitioners must educate themselves so that they can speak confidently about the issues. But given that it is unlikely that anyone in the industry can be an expert in all categories, it is essential for distributors to choose suppliers that have policies and procedures in place to detect and deter quality and compliance related issues. It’s the only way to reduce risk and deliver what the marketplace demands.”
Lisa Horn, CAS, is president of Irving, Texas-based Spark!, a boutique strategic communications agency that helps suppliers, distributors and other promotional products organizations, such as QCA, build their brands, position themselves in the marketplace and get the publicity they desire. A 15-year industry veteran and former editor of PPB, she is a frequent contributor to PPB and Promotional Consultant. Contact her at lisa_k_horn@hotmail.com or 214-674-8400.
Take Compliance To The Bank
Compliance issues may affect your business in ways you haven’t considered. This was the case for Trevor Gnesin, president of Tustin, California-based Logomark, Inc. (UPIC: logomark), when he recently had a conversation with his banker regarding the company’s credit line.
“My banker was evaluating whether or not I’m a credit risk,” he says. “I told him I’m one of the best credit risks because my company’s practices have been accredited as assuring the manufacture of safe and compliant product. There may be other companies with a strong balance sheet, but they aren’t doing anything to provide safe, high-quality, socially compliant and environmentally conscientious products. You can give them all the credit in the world, but if the company gets fined $15 million for a CPSIA violation, it will likely go bankrupt and the bank won’t get its money. The guy looked at me like he’d never considered this. Financial institutions will continue stringently evaluating their client base in terms of risk, and compliancy is a big part of risk management.” —LH
Tap Into PPAI Resources
PPAI provides members with a wealth of resources regarding the Consumer Product Safety Improvement Act (CPSIA) and all are available from the PPAI website:
• Product Safety, Social And Environmental Standards FAQ
• Guide To Navigating The Consumer Safety Improvement Act (pdf file)
• Guide To Managing Responsibility For Product Safety, Social And Environmental Standards In The Promotional Products Industry (pdf file)
• Product Safety brochure (pdf file)
• Company’s Commitment To Ethical And Responsible Conduct
• Product Safety And Social Responsibility Presentation (PowerPoint file)
• CPSIA Tracking Label links
Visit the Product Safety Page under Members/Business Management at www.ppai.org to find more articles, webinars, news and other resources to help you determine your best course of action to meet product safety requirements.
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