Supply chain mapping sets the foundation of responsible sourcing
When it comes to documenting the complete origins of their products, many brands and retailers have some serious catching up to do. About half of senior supply chain executives could identify the locations of their tier-one suppliers and the key risks facing those suppliers, but only 2% could do the same for tier-three suppliers and beyond, according to a McKinsey study. By operating without end-to-end visibility into their supply chains, these companies are falling short of consumers’ growing expectations of sustainability and tightening global ESG regulations.
Shoppers across almost all demographics are increasingly concerned about child labor, dangerous working conditions, deforestation and environmental contamination, and for good reason. An estimated 16 million victims are forced into labor in the private sector, and supply chains account for more than 90% of many organizations’ greenhouse gas emissions. To reduce their social and environmental footprints, retailers and brands need to be able to map their supply chains down to what’s known as the Nth tier, which encompasses the material-level suppliers that make up the foundation of the supply chain.
Because of how fragmented the supply chain can be, mapping these Nth-tier suppliers can be challenging, but it’s integral for ensuring responsible sourcing, since these unilluminated corners are often where the greatest ethical and environmental abuses occur. Supply chain mapping is also increasingly necessary for staying ahead of new global ESG regulations. The European Union is rapidly nearing passage of arguably the world’s most consequential supply chain law, the Corporate Sustainability Due Diligence Directive (CSDDD), which will require companies operating in the EU to implement due diligence policies to mitigate environmental and human rights abuses in their supply chains. It follows a series of more narrowly targeted EU laws aimed at wedding products linked to forced labor, deforestation and conflict minerals from the supply chain.
As Europe moves the CSDDD past its final procedural hurdles, countries around Europe and North America are adopting their own, ever-tightening due diligence laws. Germany began the year by enacting its new German Supply Chain Act, which obligates companies operating in the country to prevent child labor, poor working conditions and environmental abuses from all levels of their supply chain. Canada has passed a strict supply chain reporting law, S-211, which holds companies’ business directors personally liable for abuses in their supply chain, and America is widely enforcing its new Uyghur Forced Labor Prevention Act, which forbids the importation of any goods produced or manufactured wholly or in part in the Xinjiang region of China on the presumption that were made with forced labor. In the first year of the law alone, U.S. Customs detained $1,400 million worth of shipments.
Benefits of supply chain mapping
Regulations surrounding sourcing will only continue to tighten. But for brands and retailers facing ongoing pressure to bring products to market as fast as possible, the benefits of supply chain mapping go well beyond mitigating regulatory and reputational risks. Businesses that haven’t mapped their suppliers to at least the fourth tier aren’t agile enough to deal with the kinds of challenges that have become pervasive in the wake of the COVID-19 pandemic – among them supply shortages, congested ports, transport delays and surging prices due to inflation.
They’re also leaving themselves vulnerable to disruptions and supply shortages created by climate change. That should be a particular cause for alarm, given that a recent Harvard Business Review study found that just 11% of suppliers are fully prepared for disruptions due to weather and climate change.
Businesses can navigate these disruptions if they’re agile enough to adjust their procurement and delivery strategies, but that agility hinges on how much visibility they have into their supply lines. When a business encounters a disruption or a problem with production — for instance a supplier that fails a quality inspection — it needs to have the agility to find an alternative quickly.
Supply chain mapping gives businesses the confidence to know whether they’ll be able to meet their quality and compliance targets. And crucially, it helps them address production problems earlier in the process. It's always easier to stop production earlier as opposed to discovering problems at the end of a run.
While supply chain mapping is a major undertaking, a multi-enterprise platform makes the process much easier, especially for large enterprises that rely on hundreds or even thousands of suppliers. A multi-enterprise platform also enables businesses to extract actionable insights from the data, including gaps in their supply chain and opportunities to consolidate or scale. Supply chain maps illustrate the relationships between vendors and factories, and even visualize key performance and scorecard metrics such as audit results, certifications and risk levels. This is the kind of visibility that’s increasingly necessary for conducting responsible sourcing — and for meeting consumers’ expectations of sustainability.
About the author
Eric Linxwiler is senior vice president of TradeBeyond. He has more than 30 years of experience in enterprise software and cloud-based platform companies with a specialty in supply chain optimization and workflow management. Contact him at [email protected].