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How Will You Enforce Compliance on a Changing Supply Chain?

August 31, 2022

As a brand or retailer, supply chain compliance means ensuring your suppliers are meeting regulations, abiding by local and international laws, and sourcing products to your ethical benchmarks. How does this work today, when the supply chain compliance landscape is more complex than it’s ever been?

Stakeholder expectations are at an all-time high. Fines for non-compliance are substantial. Global trade regulations delay market access, and stringent product integrity requirements mandate unprecedented levels of visibility and transparency — all while your supply chain partners are spread further around the globe each year.

There are a vast number of requirements that might need to be monitored and enforced to avoid supply chain disruption, regulatory scrutiny, and negative impacts to your bottom line and reputation.

According to Deloitte, brands and retailers need “not only the knowledge, access to information, and ability to interpret the impact of existing compliance requirements,” but also must be able to contend with “new and rapidly emerging requirements.”

Below, we look at the new risk requirements brands and retailers now face.

Global regulations

The more jurisdictions your supply chain covers, the wider range of international laws and regulations you will encounter. From the Restriction of Hazardous Substances Directive to REACH Chemical Compliance and beyond, you must ensure your suppliers are meeting their requirements.

Supplier integrity and social responsibility

Expectations for compliance to ethical standards have risen sharply in recent years, and legislation has followed suit. Brands and retailers that fail to secure ethical practices at every point in their supply chain put themselves at risk of financial and reputational damage.

Environmental responsibility

Climate change and environmental degradation are central issues to today’s consumers and governments. They also comprise an increasing amount of supply chain compliance.

In addition to official regulations, many brands and retailers are adopting meaningful sustainability standards. When implemented across your supply chain, these standards help fight the scourge of greenwashing and provide certifiable proof that your company has minimized environmental impact. It is important to be able to implement the same standards across your supply chain.

Product safety and integrity

Requirements for testing have grown increasingly strict after a number of widely publicized safety recalls, such as the Takata global airbag recall and exploding batteries in Samsung Galaxy Note 7 smartphones. Brands and retailers must commit to product safety and integrity to win customers’ trust and avoid losses.

Security

As supply chains become increasingly digitized and highly networked, your ability to identify, analyze, and mitigate the risks inherent in working with other organizations online grows ever more important. Auditable standards like ISO27001 for information security management are an important indicator of compliance with security best practices.

Labor and employment

The more globalized your production network, the greater the risk that unjust working conditions will arise somewhere in your supply chain and violate your governance requirements. Upholding labor standards and protecting employee rights requires a high degree of visibility.

Logistics and distribution

Numerous logistical risks exist in today’s world, including war, unsafe seas, pandemics, and other disruptions. These events can create compliance issues in transport, including late arrivals and departures and failure to meet volume commitments for capacity, as well as employment compliance issues in worker safety and conditions.

5 steps to manage supply chain compliance

Compliance is not a one-time task — it is a continuous undertaking. Whereas in the past brands and retailers needed only to satisfy regulators, they now “need to also satisfy investors, suppliers, partners, customers, and even the media,” writes Dun & Bradstreet.

Adopting a network platform for supply chain compliance allows even resource-strained organizations to reign in their global supply chains. By centralizing data and enabling real-time collaboration for compliance activities on the one cloud-based platform, transparency and verification are built-in.

This offer compliance managers radical new capabilities, especially the monitoring and analytics needed to tackle all categories of compliance risk.

 

1. Understand where the risks lie

Before you begin to take actions to mitigate compliance risks, you must know your individual suppliers. You may have already completed due diligence to work with them, but how much visibility do you have of the new areas of compliance?

All risk areas must be covered by your compliance management system:

  • Environmental, social, and governance (ESG)
  • Geopolitical
  • Supply chain disruption

Start by learning about your sub-suppliers and factories. Study their products and the materials they use. You also need to understand how they interact and depend on one another.

When your compliance system allows you to efficiently monitor supplier performance, it’s less difficult to identify high-risk facilities. To give you a clear vision of where troubles might stem and where to focus attention, Inspectorio’s Factory Performance Rankings feature automatically lists all your supply chain partners in order of current risk.

2. Collaboration > monitoring

While monitoring your suppliers is important, without proper collaboration you will simply enter a cycle of fire-control.

Supply chain compliance relies on a clear course of action and continuous process improvement. When done correctly, it allows your suppliers to take ownership over shared risks. Together you break the dynamic of policing and audit fatigue — a dynamic that harms partnerships and harms lasting improvements.

A shared digital portal allows strong, two-way communication that lays the groundwork for trust. Do away with clunky channels like emails, messaging, and texts, and instead use a single platform for real-time communication with all stakeholders across your entire enterprise, and decrease supply chain risk.

3. Collect trustworthy data

Every supplier activity can theoretically produce useful data. However, you need to know exactly what information to collect to achieve full compliance, standardize it, and integrate it into your compliance system. Data analysis can either be the most time-consuming part of the process (when using manual processes) or can happen automatically (when using a real-time network platform).

Inspectorio’s A.I. analytics allow you to standardize your supply chain across factories, product lines, and countries. Once standardized, you can objectively visualize and compare data and performance.

Importantly, A.I. shoulders the burden of accruing, organizing, and visualizing critical event data. This frees up resources for your organization while providing insights that were previously impossible without assembling large, expensive teams of analysts.

4. Continuous improvement

Because compliance is not a once-and-done activity, you must implement it with long-term improvement in mind. And the key to conquering the long-term is repeatability.

Ensure that your program strategy and processes are replicable across your supply chain and that stakeholders can access shared data and analytics. When you adopt a supply chain compliance management system, it needs to allow the same process to be performed by different internal stakeholders in any part of the globe. This scenario supports the development of thorough, high-integrity compliance documentation for certification audits and review by regulatory authorities.

When your compliance system can stores and analyzes all data, configure workflows, and offer stakeholders equal access to the same information, you maximize the efficiency and ROI of your compliance program.

5. Predict and prevent potential risk

McKinsey writes that “mitigating unknown risks is best achieved through creating strong defenses combined with building a risk-aware culture.”

A platform solution like Inspectorio enables risk-aware culture by:

  • …rewarding the resolution of problems instead of simply punishing mistakes. Through tools like CAPAs, centralized communication, and enterprise-wide standards, your supply chain partners can hold themselves accountable for mistakes with the knowledge they’ll receive the support they need.
  • …nurturing a sense of ownership. When external changes occur, supply chain partners who feel invested in your company are more likely to react more urgently to the situation. Real-time communication allows you to align and guide your supply chain around risks.
  • …creating transparency. In which all members of the supply chain can understand risks from a bird’s-eye view.
  • …demonstrating respect to your supply chain. Empower partners with evidence-based, helpful feedback instead of simply penalizing them.

With the help of A.I. and machine learning, you can put the full force of data analytics to work in steering your supply chain around unseen compliance risks.

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