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Tracing the Supply Chain: How to Navigate Ethical and Social Compliance Complexities

The extraordinary growth of global supply chains in the last century has led to an interconnected world, creating truly international products and offering lower prices for consumers. But this unchecked growth has proven to have some unintended consequences–massive, complex supply chains unintentionally obscure the origins of some goods, leaving brands and consumers in the dark about who and how goods are produced.

The end result of this scenario has caused unfortunate headlines about forced and child labor, unsafe working conditions, industrial pollution, climate disruption and deforestation, which have become the rallying cry of NGOs and concerned consumers around the world. As a result, sustainability, ethical sourcing and social compliance has become one of the hallmarks of 21st century supply chains, as companies recognize their roles as stewards of both human welfare and the environment.

And while sourcing and supply chain responsibility has made huge inroads over the past few decades, the news in 2018 continues to underline the importance of transparency and traceability in the supply chain.

The five-year anniversary of the Rana Plaza tragedy in Bangladesh, concerns over exploitation of Syrian refugees in Europe, and the continuing fight against deforestation by cattle ranchers in the Amazon (even after years of awareness campaigns and NGO opposition) are just a handful of the stories making the headlines this year.

For every organization, when it comes to ethical and social compliance, the question is no longer, ‘should we do this?’, rather, ‘how deep do we go?’

Measuring transparency

Sustainable and socially responsible supply chains are a necessity in today’s interconnected world. Not only can compliance improve a company’s consumer clout and investor attention, but the benefits of full transparency can be realized through improved efficiencies and cost-savings. Reducing risk is the biggest benefit to full transparency, though getting there can be easier said than done.

Every company needs to know not only who their finished goods suppliers are, but also the sub-tiers–the suppliers of the supplier’s suppliers. This can get complicated, but if a determined activist or intrepid journalist can trace a product that far, a company has to take the time to do so first.

Identifying and preventing negative impacts of those “hidden” suppliers is integral to having a fully transparent supply chain. When considering how well your current responsibility programs are working, make sure you can answer these questions:

  • Are you able to track every order back to the trading partner community (factory, vendor, mill, tannery, farm) that produced each item for your company?
  • Can you ensure that 100 percent of every supplier’s facilities are compliant with all applicable laws and regulations?
  • Do you have visibility into the compliance review processes?

Supply chain mapping is one technology that helps shine a light on the many levels of suppliers and inputs that go into an item. Just knowing which suppliers are linked is a huge part of the puzzle. Digital management of supplier data, with audit and compliance information available at the click of a button, makes this overwhelming task a breeze. Then, the ability to quickly identify risks to the supply chain will help improve both reaction time and contingency planning, allowing a company to continue rolling if an incident does occur.

Increased enforcement

While reputational risk remains a big threat for companies that don’t have full visibility into their supply chains, regulatory risk carries the potential for huge fines. In addition, regulatory risk can quickly morph into reputational risk, as headlines about seizures and violations can kill stock prices and scare off consumers.

The passage of the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) gave additional enforcement teeth to U.S. Customs and Border Protection (CBP), and they aren’t shying away from using it. The regulation closed the “consumptive demand” exemption that allowed imports of goods suspected to be made by forced or slave labor if those products weren’t made in sufficient quantity in the U.S., to meet total U.S. demand.

So far this year, CBP has issued two Withhold Release Orders (WRO) on imports, one in March for toy imports from a specific company in China suspected to be made by forced labor, and one in April for cotton products from Turkmenistan. The latter WRO was issued following a petition by the Cotton Campaign alleging that cotton products from Turkmenistan are manufactured “wholly or in part” with cotton harvested by forced labor.

Companies that can prove that their goods were not made by forced labor can obtain release with proper documentation, including a certificate of origin and a detailed statement showing evidence that forced labor was not involved, such as a supply chain audit report. The ability to quickly trace a product to its source via an automated global trade management system is key in these circumstances.

And it’s not just TFTEA that companies have to comply with. Multiple government agencies have the power to bring your supply chain to a halt thanks to various regulations, such as the Food Safety Modernization Act (FSMA), California SB 657 (California Transparency in Supply Chains Act) and UN sanctions against North Korean labor in supply chains.

‘I didn’t know’ won’t hold up as an acceptable defense for ill-prepared companies. On one hand, consumers will reconsider buying from them, and on the other, ignorance of a situation won’t help companies out of a legal bind.

The complexities of global supply chains can’t be understated, but that doesn’t mean social and ethical compliance is impossible. Companies that implement a consolidate global trade management solution that connects the trading partner community with product data and retailers’ orders in a consolidated platform can achieve better results. Technology and process solutions can provide myriad direct benefits in meeting the array of compliance demands, including: the ability to anticipate and respond promptly to issues; a focus on uncertainties rather than certainties (in other words pointing you to the problems that need attention); and a competitive edge by managing risks that can be controlled.

To reach this level of “all-encompassing” product safety and compliance, integration between the technology solutions already in use is crucial. Having a technology solution working for you will help companies navigate this new era of social and ethical compliance.

 

Gary is responsible for developing strategic product marketing direction and presenting the Amber Road brand and solutions worldwide. As the platform evangelist, Gary develops and launches customer insights, go-to-market plans, product messaging and content, and field marketing tactics which establish Amber Road’s solutions as a standard in the Global Trade Management space.

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