Behind closed doors, the relationship of OEMs to their suppliers is being modified, leading to a thinning of already whittled-down vendor lists. Further, procurement strategies are getting a complete makeover, while manufacturing divisions are getting sucked into design decision-making--a new development for many businesses.

Sparking these changes are two European environmental directives that, for better or worse, now dominate discussions at electronics manufacturers, heralding an unintended but massive shift in design techniques across the world. Both directives are far better known by their initials, RoHS and WEEE, than by any of the variations on their full names, roughly Restriction of Hazardous Substances and Waste Electrical and Electronic Equipment.

By July 1, the deadline for compliance with RoHS, the electronics industry will have to manage, by and large, to pluck six virtually banned substances from their products. The supply chain is also acquainted with WEEE, which took effect in August but is seeing adoption at varying rates by European member states. WEEE requires a manufacturer to establish a takeback system to recycle products.

Europe's green legislation inspired China to begin drafting its own WEEE and RoHS directives, spreading compliance activities pretty much throughout the global supply chain. No manufacturer wants to be cut out of these enormous geographic markets, and no supplier wants to lose business from OEM customers who sell into them.

But WEEE and RoHS are only the beginning. The two green directives, combined with more laws in the pipeline, market forces and Lean manufacturing goals, are triggering a change in product design methodology across the industry. Whether it's called ecodesign, design-for-environment or green design, the common denominator is an integrated strategy that aims to reduce the environmental impact of a product at the design stage.

Mike Kirschner, president of Design Chain Associates (DCA) in San Francisco, is one of several industry observers who believe WEEE and RoHS will have far broader impact than the Y2K bug, which also mobilized the industry to meet a deadline.

"These directives touch every organization that has to do with the product," Kirschner said. "RoHS and WEEE will become woven into the fabric of how companies design products."

Of course, RoHS compliance is not ecodesign. After July, "RoHS compliant" products are gadgets that comply with EU law, nothing more.

What is ecodesign?
Ecodesign is not a compliance activity, but an integrated, cross-functional strategy: R&D uses environmental impact as a platform for innovation; procurement sources green materials and components; quality assurance points out beneficial ecological enhancements; and marketing promotes the green attributes, all as standard practice.

"Ecodesign can't be done by sitting behind a monitor and coming up with nice design ideas," said Ab Stevels, professor of design for sustainability at Delft University of Technology, Netherlands, and an adviser for environmental affairs at Philips Consumer Electronics.

Stevels said ecodesign requires a proactive approach, which involves having OEMs work closely with suppliers. Philips rates suppliers on their environmental performance, Stevels said. If they meet or exceed standards, they are rewarded. If they fall short, they must come up with an improvement plan and stick to it.

With key suppliers, Philips works on common product road maps, including ecological improvements, such as specifying that successive generations of chips developed by a supplier have progressively lower energy consumption targets. "If you plan for it, you will get it in the next generation," Stevels said.

Telecom equipment maker Nokia Oyj, another company employing a proactive strategy, hands suppliers a "Nokia substance list," grouped as items Nokia wants to ban and those it monitors, said Timo Jaatinen, director of Nokia's technology platforms team in Espoo, Finland. The message to suppliers is to think about ways to phase out certain substances in the future.

Nokia, which has 100 strategic suppliers, also knows exactly what is inside the components they provide. "We ask for a full materials declaration from suppliers for every single component," Jaatinen said.

Nokia is also targeting power consumption in cell phones. Environmental concern is not the main motive. Mobile phones come under strict health and consumer-safety laws pertaining to a device that closely interacts with the human body, and power efficiency is a selling point. But ecodesign practices have close synergies with those obligations. "The key thing is the integrated approach," added Jaatinen. "Designing for the environment becomes part of the company's standards. This is not something for an environmental department."

Forging ahead
Designing green products is nothing new. They have been labeled problematic and pricey and confined to a niche market for decades. But WEEE and RoHS have provided a framework to re-examine what a green product should be. The surprise is that positive ecological attributes often lower costs over time.

Green products are increasingly eliminating toxic materials and including things like easy snap-to parts, lower weight, fewer cables and wires, smaller footprints and competitive price points. These features are far more appealing to a consumer than a box made with environmentally friendly materials.

In highly competitive markets, some observers insist, ecodesigned products could provide the needed edge to outsell conventional rivals with a similar price and features.

Companies are testing that idea. Fujitsu Siemens Computers in 2005 launched the Esprimo PC family in Europe, billed as a Green PC. Parts are RoHS-compliant and halogen-free, and the unit has virtually no screws. Upgrading and recycling involve snap-to parts.

Eliminating lead makes the bill of materials higher than a traditional PC until the new lead-free production equipment is amortized, said Corinna Kammerer, Fujitsu Siemens' product manager for the Esprimo line in Munich. Most important, the Esprimo's price in the retail shop is roughly the same as for leaded rival brands.

It's too early to fairly assess the Esprimo's market success, but Meike Escherich, PC analyst at Gartner Dataquest in London, said "green" is not yet a PC market driver. Still, Fujitsu Siemens offers an interesting test because of the price point. "Reasonable prices mean it has become easier for the salespeople to market these machines," Escherich said.

Fujitsu Siemens has so far shipped about 500,000 business-line green PCs, and this year the company expects to convert all PCs, business and consumer. In July, all PCs sold in the EU will be lead-free, so the company is already looking at a higher-efficiency power supply for the next step, Kammerer said. The design team in Augsburg, Germany, continually reviews the box to find the balance between production cost and softer environmental impact.

Environmental pioneers have also been capitalizing on other ecodesign benefits: product innovation and reduced production costs.

Philips Consumer Electronics, an early adopter of ecodesign, uses an internal competitive technique to turn out what it calls Green Flagship products. Philips challenges designers to compare the environmental aspects of current products with previous generations and competitors' offerings. The idea is to continually make the next batch greener and more cost-competitive.

Philips has hundreds of these products on the market, and they do not exceed acceptable price points. One example is a wearable MP3 player that weighs 39 percent less, uses 87 percent less energy and reduces packaging 47 percent compared with the average of its closest commercial competitors.

"Both consumers and senior managers think green products are more expensive," Stevels said. "It took [Philips] many years to demonstrate that the prejudice is false."

On the surface, ecodesign seems like a no-brainer. Using fewer parts and materials that weigh less lowers the bill of materials. Ease of assembly and disassembly makes product upgrading, repair and recycling more cost-efficient.

Ecodesign has synergies with quality assurance and just-in-time manufacturing. It dovetails with legal compliance and enhances corporate image. But strangely, in an industry known for relentless pursuit of cost reduction, a big opportunity to lower costs gets little attention.

Ecodesign hasn't caught fire, because it requires long-term investment. "You cannot throw a switch and say, 'Tomorrow we'll do it,' " Philips' Stevels said.

Additionally, standards for assessing environmentally driven cost reductions across the chain don't exist. "The supply chain can't provide the level of detailed information about those properties that would enable a company to put together a good ecological profile," said Kirschner of Design Chain Associates. "That's down the road."

On a case-by-case basis, Envirowise, a U.K. organization, has been proving the cost argument by working with small and medium-sized companies. Through its DesignTrack program, Envirowise offers free ecodesign consultation that includes breaking down a product in front of the company engineers and marketing managers and asking simple questions: Why are there four screws and not two? Why do you use this material? (See story, page 40.)

"We've found you could design out a lot of the environmental impact but maintain functionality and performance and enhance company reputation," said Stuart Ballinger, head of cleaner design at Envirowise.

The opportunity to lower costs has been neglected, an Envirowise study showed. If the U.K. electronics sector adopted ecodesign practices, the study concluded, it could collectively save about $400 million per year. More than half that savings would be derived from manufacturing and end-of-life cost reductions.

Mark Myles, services director at the Goodbye Chain Group in Colorado Springs, Colo., said a lack of systematic thinking was one reason that cost-cutting opportunities have been overlooked. "They ask, 'What is going to be the cost on this particular pcb if I have to use green components?' Look at it with a narrow perspective, and you do see it as pure cost," he said.

Technology, smarter chips and software help exploit ecodesign opportunities. "The opportunity side is poorly addressed and poorly exploited," Stevels said.

Moreover, RoHS has shown that manufacturers with integrated eco-design cultures can more easily absorb conversion costs. While some companies are racing to understand and comply with RoHS, large European and Japanese companies have been aware of materials-restriction laws for years and have spent time preparing.

Nokia, for example, has prepared for RoHS for years and now turns out phones at the same production cost as for previous, noncompliant versions. "We have not seen any direct cost impact from RoHS," platforms director Jaatinen said.

The Japanese are ahead of the rest of the world in ecodesign, in part because of the country's disappearing landfill space and limited natural resources. Pam Gordon, president of Technology Forecasters Inc., pointed out that Japanese lead-free electronic products were five years ahead of others' offerings, with no technical problems to date.

In the United States, large OEMs like Hewlett-Packard and Dell have taken the lead in compliance and in adopting ecodesign cultures, which HP calls design-for-environment. But for many other companies, just meeting the RoHS deadlines is a challenge.

Mentor Graphics, which supplies EDA software for pc-board design to customers large and small, has incorporated RoHS functionality into its software. John Isaac, director of market development for the systems design division, believes the industry is not fully prepared for compliance.

"There is some confusion as to exactly what these directives mean, what the rules are, especially in small companies that haven't had the resources to go out and study them," Isaac said.

While environmental considerations are gaining momentum in design methodology, he added, "most of that momentum is driven by specific directives and not by good citizenship. [Compliance] is a costly thing to a company."

Philips' Stevels argues that RoHS will not result in widespread cost savings, because compliance with the regulations is a defensive, reactive strategy.

"The only thing you're doing is preventing trouble with the law," he said. "Proactive ecodesign, which has nothing to do with legal compliance, combines environmental gains and benefits for companies and consumers."

The catalysts
What will be the impact of the RoHS and WEEE directives on design activities? Stevels believes WEEE will do little to stimulate ecodesign. WEEE is based on the idea that when producers are responsible for recycling costs, they will design their products in such a way that the cost of recycling becomes zero.

For many products, that won't work. "Physics obliges you to use certain materials and components," Stevels said. "You want to design out a picture tube, but you can't. Producers have in practice only a limited room to maneuver to lower recycling costs through ecodesign."

Karsten Schischke, senior engineer at the Berlin-based Fraunhofer Institute for Reliability and Microintegration (IZM), Europe's largest applied research organization, believes the WEEE directive's impact on design will depend on a company's recycling strategy.

"If waste is treated with all brands together, there is no [individual producer] incentive to make designs more easily recyclable," he said. If a company has control over its own takeback system, however, the incentive is there.

Fujitsu Siemens, for example, runs its own recycling center. The company has internal R&D workshops with product-dismantling exercises and develops "dismantle friendly" designs based on recycling feedback. Fujitsu Siemens claims a material reuse rate of 98 percent with its Esprimo PC.

The RoHS directive is different. RoHS has undeniably changed supply chain management through deeper information exchange, closer interaction between customers and suppliers and tighter control of materials lists.

The punitive effect of RoHS will also encourage a rethink of design methodology. At the beginning of 2007, EU authorities will be in a position to challenge manufacturers' compliance claims. If a product is found to contain banned substances, the probable result would be lost market share and a public relations debacle.

"This will make companies realize the impact of environmental legislation and look at ecodesign," said Schischke. He sees an uptake in ecodesign activities, possibly by the end of the year.

Stricter legislation is coming that will make WEEE and RoHS seem like training exercises. The EU's Energy-using Products (EuP) directive encompasses the entire life cycle of a product: design, manufacturing, use and disposal. It will set legal requirements for ecodesign of products, with energy use the first target.

The EuP is widely expected to have a strong impact on design. Nokia has been working with other companies in helping shape the legislation, coming into force in 2007.

"Further directives like the EuP will actually stimulate ecodesign," said Ballinger of Envirowise.

EU environmental legislation has a far-reaching impact. Manufacturers find it costly and impractical to run permanent compliant and noncompliant lines. An EU directive therefore quickly translates into a global directive. Moreover, other countries, such as China, Japan and Taiwan, and some U.S. states are drafting similar legislation, fortifying the EU's efforts.

Legislation in key countries puts too much market share at risk for companies relying on a reactive strategy. That may put proactive ecodesign on the minds of senior management and shareholders, which would give adoption of ecodesign a new urgency. "With the groundswell of legislation, business will realize what's necessary," Envirowise's Ballinger said. "There will be a cost to not doing it."

Myles of Goodbye Chain Group sees a parallel in the U.S. automobile industry a few decades ago. General Motors and Ford did quality inspections on cars after they rolled off the assembly line, but superior Japanese cars took market share. To find out why, U.S. engineers went to Tokyo and discovered the Japanese had no separate quality assurance departments; rather, quality was designed in to the car from conception.

Ecodesign can ride in on quality principles. "If a company considers a product's environmental [harm] to be a defect, it automatically puts systems in place to start dealing with environmental considerations," Myles said. "We're right on the cusp of this sort of activity."