Governments around the world are adopting supply chain legislation to ensure that businesses can’t turn a blind eye to complicated matters in their supply chains. This will increase workloads on due diligence and transparency, but businesses may ultimately find this a win-win situation: greater supply chain clarity could attract more customers making ethical and sustainable purchases.
We sat down with Everstream’s resident supply chain legislation experts, Ulf Venne (Leader, Centre of Excellence) and Jon Bovit (Head of Everstream Discover) to learn about how emerging supply chain legislation is forcing better operational changes for all businesses.
Q: Why the sudden flood of governments adopting supply chain legislation?
Jon: There’s greater visibility into supply chains now, due to advanced technology and analytics, meaning that governments and businesses alike can see how ethical and sustainable – or morally ambiguous – their supply chains are. For example, people around the world have become increasingly aware of working conditions in China, and no longer want to be a part of that supply chain.
Ulf: In Germany, which was an early adopter of supply chain legislation, official polling revealed that nearly 75% of the German population supported this legislation. Governments are responding to the ethical desires of consumers – and making sure that companies are incentivized to follow suit.
Q: What are these laws asking businesses to do?
Ulf: There are a few examples of supply chain legislation in action around the world, most of which have similar remits.
California’s Transparency in Supply Chains Act, which was passed over a decade ago, requires retailers and manufacturers of a certain size in California to publicly release the steps they are taking to remove any slavery and human trafficking from their supply chains.
Meanwhile, Germany’s Supply Chain Due Diligence Act requires any company registered in Germany with over 1,000 employees to ensure that their suppliers aren’t ignoring or engaging in environmentally or ethically poor practices. This covers a wide range of issues, from child labor to environmental damage to worker’s rights.
And, the Uyghur Forced Labor Prevention Act, passed in the U.S. in December 2021, prohibits the import of goods that have been made with any forced labor. This is in direct response to the revelations of China’s treatment of the Uyghur population, which caused many consumers to reconsider the purchase of goods from China.
Jon: The Uyghur Act creates a rebuttable presumption that “any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China” (or by an entity included on a list required by the Act) is prohibited from importation into the US under 19 U.S.C. §1307. So a key point is that materials coming from specific areas of China are assumed to be the product of forced labor unless your company can prove otherwise.
Ulf: The EU will also introduce a due diligence law which is expected to impose even further responsibilities on companies above a certain size, requiring them to detect, mitigate, and prevent risks in their supply chains. This will place a large regulatory burden on these companies, necessitating an ongoing view into their supply chains.
Q: What’s the business case for supply chain legislation?
Jon: There are several reasons why companies will benefit from complying with supply chain legislation, though the initial reporting and regulatory burden may seem heavy, our solution can ease that for customers tremendously.
Increased visibility into a company’s supply chain can help them make better business decisions and react to adverse events more quickly. For example, the microchip shortage during the pandemic caused car manufacturers to panic – they had no insight into the way the pandemic and inclement weather would affect them, and no plan in place to handle the consequences.
Ulf: Companies will also have to be more proactive about their decision making. With the acceptance of wider supply chain legislation, companies will be required to understand potential issues and have a corresponding mitigation plan. If companies don’t take these steps, they will not only be fined, but their brand reputation will also be damaged, harming consumer trust. But there is also opportunity and not only risk. As we see in the clothing industry, people are more and more willing to pay more for sustainable supply chain made products. We also see a similar trend already in green steel and there will be more and more industries leveraging a sustainable supply chain to differentiate themselves in the market.
Q: How can companies maintain ongoing visibility into their supply chains?
Jon: As supply chain legislations continue to be advanced, the burden of understanding exactly how a supply chain runs will become more complex. For example, a business may be familiar with their suppliers, their products, and where their products are manufactured. However, they may not know where the raw materials are sourced from or understand the political or legal implications of the supplier’s connections and asking the suppliers to reveal that just does not work. AI is the key cornerstone of understanding sub-tiers.
Using technological advances will become the cornerstone of tracking and understanding supply chain risk. Previously, this kind of regulatory burden meant a lot of manual due diligence, often ineffective questionnaires, and guesswork. But now, with advanced analytics and automation, solutions such as Everstream’s Discover Network provides an ongoing and comprehensive view into the entire extended supply chain.
Let’s look at an example that was well publicized last year: the solar panel industry. A critical material in the production of solar panels is polysilicon. It turns out that a good deal of polysilicon is manufactured in the Xinjiang region.
We’re now more globally connected than ever – but being across the globe is no longer an excuse for supply chain negligence. The faster that businesses adopt digital solutions to address the demands of supply chain legislations, the faster they will discover the benefits to their own bottom lines.