Value Chain Visibility for the EU Supply Chain Act

The EU supply chain act proposes that the largest 1% of companies are responsible for ensuring that their entire supply network falls into compliance. In-scope companies will need to identify, monitor, and enforce due diligence obligations throughout their “value network” with respect to human rights and environmental standards.  

Watch the video to see Everstream’s experts discuss:   

• reasons behind the EU regulation 
• Understanding the extent of your “value network” 
• why preparing now is urgent to avoid financial impact 
• how to quickly gain the required sub-tier value network visibility 
• how SCRM supports compliance for the EU Supply Chain Law and other global legislation  

As details about the proposed law emerge, one thing is clear – you must be able to see and monitor your entire value chain. See how to easily visualize your network, identify your risk, and map out a comprehensive compliance plan.  

Lauren McKinley: 

Hi everyone. Thank you for joining our webinar today, Value Chain Visibility for the EU Supply Chain Act. My name is Lauren McKinley and today I’m joined by my colleagues at Everstream Analytics, Ulf Venne and Jon Bovit. Ulf leads the Center of Excellence at Everstream, partnering with our global network to standardize end-to-end best practices for company-wide supply chain risk management adoption and offer strategic advice on planning, decision making and execution. Jon leads Everstream Discover, Everstream’s solution for sub-tier discovery. Jon works with organizations to help them quickly gain visibility into extended networks to uncover hidden risk including ESG, which will be the focus of our topic today. After the presentation we will take any questions. Please add them in the Q&A box. Please note that you are muted during this session. If we don’t have any time to get to all the questions, we will make sure that we follow up with them after the conclusion. And with that, I will turn it over to Ulf. 

Ulf Venne: 

Hello everybody and warm welcome from my side. So today we want to talk about the supply chain law from the EU, especially, what is it that drives regulation, how it will impact you, what you need to do to prepare, and then obviously, a little bit on how digital solutions can help you. So we’re looking forward to this and please pose your questions and we’re happy to answer anything that we can. Always be mindful that the EU law is still work in progress. So things can change, but we will give you the status quo today. 

EU supply chain act: What’s driving regulation 

Ulf Venne: 

So when companies take a voluntary action date, focus on the first link in their supply chain while human rights and environmental harms occur AF more often further down the value chain. This is directly out of the current suggestion for the EU directive and the entire directive depends upon the interconnectedness of global supply chains. So it really relies on knowing your entire multi-tier supply chain network. But only 2% actually have visibility beyond tier two. So the huge undertaking will be to understand where are my sub tiers? 

Ulf Venne: 

Why do we need the law? First of all, companies ask for an EU wide law because they want to have a level playing field across the entire EU, instead of having each country make their own law. Consumers really ask for supply chain law because they’re looking to buy more sustainable and ecologically sourced products and they don’t want to go through a lengthy process of researching themselves, which are good products to buy. And then the third and most important topic, digital solutions make it possible to easily identify your sub tiers, these days. So it’s easier to do than it would’ve been in the past. So right now is a perfect time for the EU to establish a law like this. 

EU supply chain act: Who is impacted and how 

Ulf Venne: 

So if we go to the next slide. The EU has 99 problems, but enforcing due diligence ain’t one because that’s on the top 1%. What does it mean? The EU law hinges on the concept of if we put an onus on the top 1% to enforce the compliance, it will have a trickle-down effect to the sub tiers and it will generate a healthier environment for all players within global supply chains. So the 1%, what does it really mean? It’s around 500 employees and around 150 million involved turnover if you are a company that is reciting within the EU. There are some exceptions. If your company only makes $40 million per year, you still might be under scrutiny if you are from either the textile industry, agricultural industry or somebody related to these two types of industries. They’re called the high impact industries. 

Ulf Venne: 

So the legislation was proposed in 2022 and right now in May they’re scheduling the discussions and amendments. So what we will tell you today is essentially the state as it is right now, it’s subject to change, but there are some key elements that we think will remain the same. Sub-tier visibility, assessing risks and monitoring for anything happening at the moment is definitely something that will stay. If we move to the next slide. 

Ulf Venne: 

So here you see some of the key steps you have to do as part of the law. You can already see that some of them are very similar to the German supply chain law and a few other laws that are within the European Union. But it all starts with the concept of first you have to know your sub tiers and you have to build risk visibility. So the slides are moving forward. Once back. One more. Okay. 

EU supply chain act: Steps to prepare 

Ulf Venne: 

So obviously, as a company, you also have to, once you start building sub-tier visibility and the intelligence, you also have to deal with it. So you have to build up processes and a complete due diligence process so you have an overall risk framework that you have to establish. The good news is that you do once and then you just amend it based on situations. It’s not something you have to continuously reevaluate all the time. Maybe you do it yearly, once. You have to also look at risk, so strategic and tactical risks. You have to assess them all the time continuously, you have to monitor the situation. If there’s any strategic change in that country, maybe because the laws did change and the child labor risk is now lower because the law is more enforced or because acutely there’s something happening. For example, you hear about a child labor incident. 

Ulf Venne: 

You also have to prevent and mitigate any potential impacts, which means strategic risks that change and get worse. You have to deal with this situation and make sure that your suppliers still remain compliant. And then you have to minimize actual impact where something happened, you have to work on this and you have to work on it in a way that you don’t really necessarily need to offboard your supplier because that’s not the desired outcome. The desired outcome is that you convince your supplier that he should not use malicious practice in his supply chain. That would be the preferred way because that would overall strengthen supply chains globally. If it’s not possible, obviously, you have to end the relationship. All of that needs to be tracked and this is where we can help. We can you with various activities here, which is building sub tier visibility. 

Ulf Venne: 

We can help you with assessing risks and then in the strategic and tactical way, but then also giving you a way to monitor and document your actions you have taken. There are some other things you have to do which is establishing and maintain a complaint procedure very similar to the German law where you in an omnichannel way, you have to give various ways of providing input to you. It cannot rely on media monitoring only. You also have to listen to NGOs to your own workforce, to your supplier’s workforce. So there are various factors that you have to have different ways of them being able to address you. 

Ulf Venne: 

You have to monitor business. Obviously, that is way easier once you have built in an IT solution. If you try to do this with manual processes, monitoring effectively is not possible and overall effectiveness will be very low. And then you have to communicate this. We can help you with dashboards and give you input, but in the end you will probably have to put in your yearly report or any other means you use as a company to communicate with your stakeholders. So if we move to the next slide. 

Jon Bovit: 

Ulf, I was just going to say sorry to was that I think a lot of those steps are ones that companies are already implemented. And so they’re very consistent to cover a lot of the laws that we’re seeing already, obviously, aligning to the EU regulation. So these shouldn’t be necessarily a surprise, but they’re also moving into best covering practice. 

Ulf Venne: 

Yes. So if we now move forward, the good news is you have these nine tasks or eight tasks you saw right now. And that sounds like a lot, but as Jon already mentioned, the good news is you need that for all the supply chain laws that are out there and there are also a lot of operational benefits you get out of visibility. So essentially, doing this work will not be only for the EU supply chain law, it will help you with the German supply chain law, but it will also help you with governance initiatives that are outside of Europe and for example in the US. And now, I want to hand over to Jon who will talk a little bit more about how we create sub tier visibility because he’s the head of Everstream Discover. But also he is a great initiator when it comes to the Uyghur Forced Labor Prevention Act and other compliance initiatives. So he will give you also a little bit of examples of how we already help customers with other similar initiatives. 

EU supply chain act: due diligence how tos 

Jon Bovit: 

Yeah, thanks Ulf. Hi everybody. What we’re seeing is very, the technology and data science and artificial intelligence has advanced, especially over the last several years. It has really helped clients get better visibility. We have a solution that I head up, called Everstream Discover, which is really designed to help clients, based on their suppliers, their tier ones and what they buy, automatically discover these sub-tier connections, tier two, tier three, tier four, and so on. Now why is that important to today’s discussion? As Ulf had just kind of walked through, it’s a really a key part of the pending EU regulation as well as many of the other laws that have already passed and just a lot of clients, especially over the last few years, are very interested in understanding what’s happening in their sub-tier. Mainly because a hurricane or human rights or forced labor or some criminal behavior or data security issue could impact you through, not through your organization, not through even your tier one, your suppliers, your direct suppliers, but it could impact you in the sub tiers. 

Jon Bovit: 

We see this literally every day. And what we’re finding, when Ulf and I are working with a lot of customers globally is that in point in fact a lot of the issues that customers are seeing and feeling are actually coming from the sub tier. We see it, as Ulf mentioned, the Uyghur Forced Labor Prevention Act, or UFLPA. We’re seeing that a lot of the impacts are deep in the sub tiers. I’ll touch more on that in a moment. But even from an environmental social governance perspective, being able to understand who and what’s going on in your sub tier will make you not only the ability to support these types of laws from a compliance perspective, but also improve your overall operations and revenue protection. 

Jon Bovit: 

Next slide. So as Ulf mentioned, I’m spending a lot of time now working with clients on the Uyghur Forced Labor Prevention Act, or UFLPA. So I thought I’d give a quick update just to illustrate that this technology can really help understand the sub-tier supply chain. I think UFLPA has become a really good example of what can be done to help A, understand and comply with legal and compliance issues, but also better understand your supply chain for many other purposes. And Ulf and I, and our team overall are spending a lot of time doing this. 

Jon Bovit: 

But what we’re seeing just as a quick update around this is that there have been 1.3 billion worth of imports seized since June as part of the implementation of the law. That’s a lot. We’re seeing that it’s really moved now beyond just the initial products that we’re highly publicized in the beginning, poly silicone or solar, renewable energy components, but moving more into more base materials, raw components, especially around electronics. 

Jon Bovit: 

On the upper left-hand chart there, that bar that’s the biggest bar, might be hard to read but it’s really around electrical components. Those are the products that are being potentially impacted the most. And we’re seeing that the components, or the materials that a lot of people did not expect were around electronics, plastics, beyond, things like cotton and poly silicon as I mentioned. Now the other thing that has really, I think another big update that you hopefully have seen, but if you have not, I’ll tell you, that aluminum and aluminum based products is really impacting now due to this enforcement is particularly automotive and other industries that are very reliant on aluminum. So we’re helping clients understand, for example, where aluminum products are coming from in the sub tiers, and this has become really instrumental in helping them comply with this type of law to see where the risks are potentially. 

Jon Bovit: 

And you can just see all the charts, especially around UFLPA, are just getting more enforcement, more acknowledgement that things need to be done and thus things are really picking up. So I think this is a good example of when new laws such as the EU law start to really become enforced, these technologies can really help. 

Jon Bovit: 

And as we’ve touched on what our capability is, particularly around Everstream Discover, as Ulf and Lauren mentioned, I head up globally. But really what its job is to automatically map and see where those connections are deepen your supply chain. Now, this is a newer technology in that, we’ll call it the quote, old way, to do things was just go and ask your suppliers to do the mapping. But that takes a long time, it’s very costly. Obviously, a valuable ability to survey suppliers, get input from them. But it just wasn’t good enough. To be able to leverage data science, artificial intelligence and other advanced network graphing technologies allows us to do this in a much more scalable, much more cost-effective way that allows you to meet the obligations of these types of laws. And the key is to be able to do this not just at the supplier to supplier relationship level but at the supplier location product to location level. So at the much more granular capability that allows to pull it all together. 

Jon Bovit: 

And the other thing that you want to be able to do once you pull these things together and kind of stitch together the sub-tier connections, we also want to be able to then risk assess not only your tier ones where they’re located but also around the sub tiers that we discovered. So we want to be able to risk score them across many different dimensions. Obviously, in this case, we’re looking at things like forced labor, sustainability related risks, but you can also look at weather, environmental, natural disasters, things like that, and be able to not only understand and map them but then look at them. And so that the most risky suppliers, linked back to the sub tiers, linked back to your tier ones and your products, but be able to rate them on a scale so that you can’t fix everything in the world, it’d just be too expensive, but you can focus in on the things that sort of bubble to the surface and that’s what this technology allows you to do. 

Ulf Venne: 

Maybe to add to that real quick. So as you can imagine, we’re using Discover to find on a site level what is your supplier and also add the material to it. If you then look at risk exposure scoring, which is this year, you can then automatically derive 31 risk scores that are, because we already have the site level information, we can also give you site level specific risk scoring, telling you exactly this is in a zone for child labor. It’s an earthquake zone actually. And there are a lot of other things that we do which don’t already explain. And that helps you to very specifically and automate it on a scale, analyze strategic risks. So it’s about the long-term outlook of a certain location or material, and that will really help you to scale because it’s automated, it’s easy to use and obviously, if you had other key KPIs you want to add to that, especially for your tier ones, our scorecard is able to do that. 

Ulf Venne: 

So then I think we’re going to the next slide. Yeah, real-time insight. And this is actually something I’ll take over here and it’s a very good thing that also is core to our business and I want to explain a key concept here real quick. It’s about human validation. Obviously, a lot of people can do monitoring of media and give you alerts. But what we do is we have a team of analysts, the Intelligence Solutions Department, and they are globally spread, 20 people that look at all media feeds, look for supply chain relevance posted for you, aggregate things together. And for us, the way of using media monitoring and AI to find good news posts to you to then use humans to aggregate and value add to that is important. And the AI human interaction ripples through the entire software. So if you discover something with us, we will have experts from the chemical industry, from automotive, wherever, they will validate the graph before it gets to you. So you have a highly accurate graph. 

Ulf Venne: 

The risk scores are made together with experts on the ground and the real-time insights are made with our team. So you will get real-time alerts. If something happens, we have predictive alerts as well, more for weather and strikes and a lot of other factors not for human rights, but you will still know when there’s a human right violation once we pick up on it. And we will pick up on a lot of them because we have a very good team that is really there 24/7 for you. 

Ulf Venne: 

So before we go to questions, one last slide. Visibility is the first step. So we truly believe that the EU law is one of the many laws in the world that are responsible for driving sub tier visibility and discover, we can make a small step together with you to create sub tier visibility. But it will be a big step for your company because you not only can comply to all these laws, but it will also be able to generate a lot of operational efficiencies and drive a lot of value for your supply chain. 

Ulf Venne: 

And you should know that based on your experiences in COVID in the last two years where sub tier visibility surely would’ve been on help. So it’s not only about complying with the law, it’s about doing something that is good for you anyway and then using that to comply to a law. So we recommend you to not wait for the EU law to come into action to start building sub tier visibility, but start working on it right now because it’s so much more than just complying with one regulation or even 10 or even 15 as they are on the screen. It’s about your supply chain and the best you can do with it. And now I think we open for questions. 

EU supply chain act Q&A 

Lauren McKinley: 

Thank you Ulf. Thank you Jon. We have a lot of questions that are rolling in now. One question is learning more about the Supply Chain Act itself, the EU directive. We included a link here on this slide, so if you wanted to just pop open your phone camera, you can grab a picture. We’ll also send these resources after the event. Okay, question. Is the Discover functionality live? What is the lead time to discover sub tiers for say 10 suppliers? Could you explain a little bit more about that process? 

Jon Bovit: 

Yeah, I can take that one, Ulf, and feel free to chime in. So yes, it’s live. I think we launched it somewhere around a year and a half ago, so that timeframe. So it’s been a production offering that we’ve had for quite a while and it was in development for much longer than that. And so now based on that, you know ask around how long does it take to map suppliers. Mapping sub tier suppliers can be done very quickly now and a lot of the process now is understanding once we have done the mapping based on the source data and working with clients, it’s really around focusing in on what’s the most relevant and what’s the most useful data and call it removing the noise so that customers can get the most value out of it. So mapping can be done very quickly. What we do is, as Ulf mentioned, we have experts that can put a specific commodity and industry expertise to help the client get more and more value out of these overall connections. 

Lauren McKinley: 

Great. Do you have any results in terms of accuracy or examples of clients that you’ve worked with that you can speak to a little bit? I know with the speed and accuracy balance, we have some questions about results there. 

Jon Bovit: 

Yeah, absolutely. So with speed obviously, and because we’re data science and AI based, the more feedback and the longer that we work on this, the more accurate things get over time. But we’re seeing very good results in terms of accuracy and value leveraging this as we’ve talked about. So from a kind of speed and accuracy, it’s going very well. This is a out of the box solution and a product, so we’re always looking to improve whether it’s data sources, accuracy, quality. So that’s an ever ending process that [inaudible 00:31:49]. 

Ulf Venne: 

I think, Lauren, maybe there are some great articles from some of our customers that already talked very highly of us in the media. So we could maybe share those together with the package to boost a little bit more confidence. Something I just want to enforce this, we don’t have a repository of a fixed database that we use. But we have a repository of transactional data that we continuously update and then we will specifically, for each customer, a new query data. That means you will have a very tailored to your supply chain network graph. That itself already should provide a little bit more accuracy, this approach. And the speed obviously will be within a couple of weeks, slash two or three months, and you will have a great visibility in your supply chain. And we definitely do see an accuracy that probably will be around 70 to 80% very quickly. And from there on out, it’s more about an iterative process to improve. 

Jon Bovit: 

Thanks, Ulf. 

Lauren McKinley: 

Do you see foresee other larger nations like the US starting similar acts or taking on similar laws, proposals, like the EU Supply Chain law? 

Ulf Venne: 

I think it’s not farfetched to think the US is going to do more. First of all, they have great success with the Uyghur Forced Labor Prevention Act, and there are many more countries in the world of regions within a country in the world where you could do the same. In addition to that, the first ever supply chain law was done in California in 2010 by Kamala Harris, who’s now part of the administration. So I don’t think it’s very farfetched to think that they are going to do more. And supply chain is a big focus of this current government and a lot of nearshoring activities are also based on their activities with the 100-day plan of the Biden administration right after they took over. So it’s a big focus of them. 

Ulf Venne: 

I think they are ones that should be a first mover, but we could also see Asian countries or the classical Brits looking into that because maybe they want to have a closer collaboration between themselves and less with countries like Europe or US. And then they might try to improve similar things in a different direction with a different spin maybe. So a lot can happen. That’s my [inaudible 00:34:31]. 

Jon Bovit: 

Agreed. 

Lauren McKinley: 

Okay, we have time for just a couple more and we have lots and lots of questions pouring in. So again, if we do not have time to answer all of these, we will make sure that we reply to everyone, following the event. Okay, one more question. We have found that we’re increasingly seeing from OEMs that end tier relationship mapping is not sufficient for their resiliency surveys. They really want to know more about the parts in their subtiers and products. How can Everstream or Discover help support that level of transparency when it comes to product part material, mapping and discovery? 

Jon Bovit: 

Yeah, it’s a great question, something that’s really important. And Discover is, think I mentioned it earlier, is down mapping supplier location to the supplier location and also identifying product relationships between those locations. So if two supplier locations are one’s providing aluminum, one’s providing nuts, bolts or other electronic components, we do get down to that level. 

Jon Bovit: 

If clients are interested in understanding part specific, part to site mapping that level, that can be done via survey that there’s other ways to do that. Again, that is valuable, but it comes at a cost and speed. It depends on what your goals are for a particular client. What we’re finding is that being able to understand these connections at a much more rapid level, at the level of detail that we’re able to, again, that supplier, location, product level has really allowed them to meet the objectives that they were, whether it’s complying with these laws or simply doing it for resiliency purposes. 

Ulf Venne: 

And maybe one more comment to this. As a supplier, imagine you now filling out this survey with all your part level information. That’s a lot of work, frankly, and it’s very hard to keep that updated. Frankly, it’s impossible to do that over your entire supply chain and not a lot of people will not give it to you. So if you also feel that your OEM could do more, tell him to reach out to us and we will help him make that process much easier. 

Lauren McKinley: 

Thank you. With that, we are at time. So I wanted to thank our audience again for joining us today. Thank you, Ulf and Jon, for the great content. We will send a recording of this session after the event. Thank you all. Any additional questions, please email us at [email protected], or you could always visit us at our website. With that, we will conclude today’s session. Thank you.