President Obama recently signed a new trade law that bans imported goods made through slave labor. The Trade Facilitation and Trade Enforcement Act of 2015 eliminates a loophole in the Tariff Act of 1930 allowing the import of slave-made goods when demand for a product exceeded domestic supply. The new law is significant because now companies all over the world have to dig deeper into their supply chains to ensure slavery and human trafficking does not exist. The risk of non-compliance is great: Damage to brand reputation and regulatory consequences are two examples.
The Lowdown: Which Companies Are Going to Be Affected and What Are the Ramifications of Non-Compliance?
The new provisions affect any company that does business internationally and with foreign supply partners. Companies are especially vulnerable if they make or sell products on the list of goods marked by the U.S. Department of Labor as being susceptible to slave labor.
Ramifications for non-compliance include trade restrictions and barriers, which can impede a company’s ability to conduct international business, and amp up negative media attention and poor public perception. With parent companies now legally responsible for the actions of their supply base, businesses need to take proactive measures so their entire supply chain is slave- and child labor-free.
Six Steps for Success: What Companies Need to Do Now to Prepare their Supply Chains
Now is the time to prepare by taking an in-depth look at the supply base, and executing concrete steps to increase transparency and visibility, while eliminating exposure throughout the entire supply chain.
Step One: Understand the Law and Where You’re at Risk
The first and arguably most important step is to map your supply chain to see where you are prone to risk. Take a look at the U.S. Department of Labor’s list of goods expected to be made with forced labor and compare it with your supply base. This is not an all-inclusive list, but understanding where you may be vulnerable, both from the supply and demand side, can help you wrap your mind around the entire supply chain and where problems may arise. Start at the top of your supply chain and work your way down across the rest of the tiers, including manufacturers, importers, exporters and trading companies.
Take an honest look at the supply chain visibility you have by asking the following questions: What do we not know? What is happening with Tier 1 suppliers? Tier 2? Tier 3? Do we need to set up more audits? Can we trust our auditors? Are the agencies we’re using compliant with the new law?
Accountability within the supply chain is a necessity. In response to rising due diligence regulations, including the UK Modern Slavery Act, Unilever, a company that touches millions of people in over 30 countries across its supply chain, developed a responsible sourcing policy that sets mandatory labor rights procedures for its supply base. By communicating these requirements at the outset of a relationship, and setting clear benchmarks and reporting requirements, Unilever successfully engaged suppliers, and created an environment of continuous improvement and accountability.
Step Two: Work with the C-Suite to Ensure Alignment
Secure the executive team’s support as you develop a supply chain or supplier risk management plan tied to your enterprise risk strategy. Work with the C-suite to map out the impact any non-compliance with the new law may have on your business as a whole and be prepared with a disaster plan that protects the entire organization.
Understanding the business’ overall goals and processes can help you identify viable alternate supply sources that meet your strategic objectives in the event a current supplier fails to abide by the new law.
Step Three: Preparedness Is the Best Form of Risk Management
The seemingly simple process of identifying alternate suppliers in the event of a disruption is now more complicated with the new trade law. There is more criteria to consider when vetting a secondary source, so companies need to start asking questions and take a deep look into the supply base now to avoid issues down the road.
Tony’s Chocolonely, a Dutch chocolate brand that opened its U.S. headquarters in Portland last fall, highlights positive progress: To do business in the U.S., the company agreed with the new trade provisions and even created a roadmap for change to encourage the industry to only source from sustainable suppliers.
Step Four: Leverage Technology for Enhanced Visibility and Tracking
It’s one thing to have technology, it’s another to use it. Companies need procurement systems in which suppliers can onboard all of their information themselves, including recent audit results, and compliance to local and global regulations. This makes suppliers accountable for their own supply base, and sharing information that may indicate non-compliance throughout the second, third and fourth tiers.
Supplier relationship management (SRM) technology is one solution that can help identify compliance issues so you can develop your suppliers or identify non-compliant suppliers for elimination. Teams can flag risk areas, look for compliant secondary supply sources and ultimately do more due diligence that they could do without this technology.
Step Five: Set Up a Regular Auditing Program
Routine and surprise audits are critical for staying abreast of what’s going on in your supply base. Routine audits should be conducted at least once a quarter. If red flags surface within your SRM system or you know issues are present, you need to conduct audits more often and remedy the issues quickly.
Make sure auditors are aware of the local laws, sign off on the compliance or non-compliance, and are not afraid to call out questionable practices. Your auditors must fully understand what you can and can’t do within the scope of the new trade law.
Step Six: Stay on Top of the Laws
Work with your legal function to understand the policies and processes required when you run into issues with non-compliant suppliers. Outlining current processes, the compliance and non-compliance criteria, and tying the new law to your practices can help you understand what needs to change. Changing ahead of the laws gives you time to do your due diligence and implement best practices.
Procurement and the business it represents must become the police of the supply base. Getting ready for the new legislation isn’t going to be easy, but with a coordinated effort on the part of the brands, suppliers and government to take concrete steps in supply chain transparency and visibility, we can together overcome this problem and make a real, positive impact on human rights across the globe.
Mickey North Rizza is vice president of strategic services at BravoSolution. She is a supply chain expert, a former analyst at both AMR and Gartner, and a member of the Institute for Supply Management. She leverages her practitioner heritage and deep domain knowledge to accelerate sourcing and procurement performance.