On Oct. 1, the U.S. Customs and Border Protection announced withhold release orders[1] covering five imported products from five countries. The companies, ranging from apparel producers in Asia to conflict mineral miners in Africa and Brazil, are prohibited from importing their goods into the U.S. until they can demonstrate that their goods are not produced using forced labor.
In a morning press conference, Brenda Smith, Customs and Border Protection executive assistant commissioner for trade, described the work that the agency does, which includes the enforcement of more than 500 federal laws, trade agreements and international trade regulations, and stated that forced labor is one of the most difficult challenges the agency faces.
Smith said that, although most regions of the world outlaw forced labor and human trafficking, more than 24 million people work in forced conditions “in the shadows and undetected.”
The key problem is a lack of supply chain transparency, even within supply chains that have been vetted and investigated. Achieving supply chain transparency is critical and requires constant dynamic action and evaluation.
A lack of transparency can ‘stop businesses cold’
Supply chain transparency is an increasingly critical goal for companies engaging with the modern consumer. A host of stakeholders have made transparency and sustainability key priorities and drivers of consumption. For example, food companies are facing more demand for supply chain-related information about ingredients, food fraud, animal welfare and child labor.
“When the media began covering the Amazon fires, the response from industry players was immediate,” said Sanket Mehta, corporate social responsibility analyst at Assent Compliance Inc., in a conversation. “PepsiCo[, Inc.] and Nestlé [S.A.] both halted operations and investigated, because they wanted to be sure none of their suppliers were implicated in the fires.”[2]
The quick action was not necessarily out of moral outrage or ethical duty, but quite simply a business decision.
According to an article in Harvard Business Review,[3] ”[R]esearchers at the [Massachusetts Institute of Technology] Sloan School of Management found that consumers may be willing to pay 2% to 10% more for products from companies that provide greater supply chain transparency.” The authors state, “A lack of supply chain transparency can now stop businesses cold.”
The article cited numerous studies and examples to emphasize the importance of supply chain transparency, including an MIT[4] on supply chain transparency, Patagonia’s “The Footprint Chronicles”,[5] and another MIT article on the value of achieving transparency.[6]
Methods and tools
A company can tackle supply chain transparency in many ways, but the first and most important one is making the effort to investigate. All the automated tools and cloud-based solutions in the world can’t help without input from actual data sources; i.e., human beings on the ground.
“Companies must be willing to go beyond Tier 1 suppliers,” Mehta said. “Companies must deal directly with their suppliers, engage with them, and build relationships.”
The keys are what to investigate and where to start.
Supply chain mapping is one of the first steps in an effective and responsible due diligence and risk assessment process. Mapping entails tracing the in- and outflows of products, as well as the nodes at which product flows converge and/or change hands. An apparel company, for example, will map the raw material, wool, from its origin and on through the treating and dyeing processes, continuing from there to the manufacturing facility, where the wool becomes a sweater. The mapping process ends when the sweater reaches the end-consumer. Mapping is an arduous process, especially the deeper one dives into the supply chain. The term “mapping,” however, may not be as commonly known as the term “supply chain transparency,” which is in effect the goal of any mapping effort.
Additionally, a materiality assessment can be very useful. A materiality assessment graphs the risks a company faces against external and internal stakeholder priorities and the impacts these variables have on business. A simple search can bring up free templates.[7]
The materiality assessment matrix, together with a map of the inflows and outflows of products and suppliers, can help reveal where the pain points and information gaps lie. This initial process is critical in terms of budgeting, because without this visualization and prioritization, companies can find themselves throwing resources at a problem and still failing to streamline supply chains and achieve transparency.
Out of this process of identification come actionable items, overviews of trends and processes, and insights into risks and opportunities. Companies can also learn what their suppliers are and are not doing. Something to keep in mind is the tendency for companies to rarely, if ever, move past internal and Tier 1 suppliers and processes. Only a few innovative and far-sighted companies actually go so far as to map their supply chains down to the materials (and every country of origin that implies) and then go the extra step of disclosing and sharing that information with regulators, the public, and even competitors within the industry.
The value of transparency and traceability cannot be overstated. “The ability to track and trace products is fundamental to sound supply chain management,” writes Alexis H. Bateman, [8] director of the Responsible Supply Chain Lab at MIT. “Traceability affects supply chain efficiency, product safety and security, managing deep tier risks, on-time delivery performance, troubleshooting customer issues, controlling costs, and regulatory compliance.”
Takeaways
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Supply chain mapping is the key to supply chain transparency and the first step in an effective due diligence and risk assessment process. Efficiency, safety, logistics, costs and compliance are all affected by the quality of an organization’s mapping process.
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There is no “secret sauce” to effective supply chain mapping. Organizations must be prepared to allocate resources to the investigative process and dive as deep as possible to achieve true transparency.