Digitizing Supply Chains for Enhanced Due Diligence and Trade Compliance

In an era of rapid globalization, utilizing global trade technology is not just a convenience but a strategic necessity for companies aiming to stay competitive, efficient and ESG conscious in the global marketplace.

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Supply chain due diligence is undoubtedly a major consideration for organizations, especially those who participate in global trade. With The Fashion Sustainability and Social Accountability Act, more commonly referred to as the New York Fashion Act, on the horizon, more regulatory requirements expected surrounding the Uyghur Forced Labor Prevention Act (UFLPA), the EU Corporate Sustainability and Due Diligence Directive (CSDDD) to eliminate environmental and human rights atrocities across value chains, and numerous high-profile elections, 2024 is sure to be a year with a watchful eye on the world of global trade. Already this year, there has been significant disruptions in the Red Sea, with worries of long-term consumer price increases.

The need for efficient and resilient supply chains is paramount and immediate. Traditional supply chain processes are often marred by complexities, delays, human error, and a lack of real-time visibility. As businesses increasingly operate on a global scale, ensuring due diligence and trade compliance has become a significant challenge, especially with constantly evolving rules and regulations. Digitizing supply chains emerges as a solution to address these challenges, offering a streamlined approach that enhances transparency, efficiency and compliance.

The Current Landscape

Traditional supply chain management relies heavily on manual processes, paperwork, and a multitude of supply chain partners. Ensuring due diligence and compliance with trade regulations in such an environment is not only cumbersome but also prone to human error. Manual processes make it difficult to trace the origin of products and ensure the authenticity of the entire supply chain. This lack of transparency can lead to various issues, including shipment delays, counterfeit products, regulatory violations, human rights violations and, ultimately, reputational damage.

The Need for Due Diligence

Due diligence in the supply chain is crucial to assess and mitigate risks associated with the sourcing and transportation of goods. Organizations need to ensure that their suppliers adhere to ethical and legal standards, preventing the risk of engaging with entities involved in illegal activities, human rights abuses or environmental violations.

For example, violating the UFLPA carries severe consequences for businesses. Enacted to address human rights concerns, this legislation prohibits the importation of goods produced through forced labor, particularly targeting the reported use of Uyghur forced labor in the Xinjiang Uyghur Autonomous Region of China. Businesses found in violation may face substantial fines, supply chain disruptions, and legal actions. US Customs and Border Protection can, has, and will seize shipments that are suspected of violating this law. Reputational damage is a significant risk, as consumers increasingly prioritize ethical sourcing. Companies failing to ensure compliance may encounter boycotts, loss of customers, and strained relationships with stakeholders. Adhering to the UFLPA is essential not only for legal compliance but also to maintain ethical business practices.

Trade Compliance Challenges

Global trade is subject to a myriad of regulations, tariffs, and trade agreements. Navigating this complex landscape manually is a daunting task, often resulting in inadvertent non-compliance. Failure to comply with trade regulations can lead to severe consequences, including significant fines, legal repercussions and damage to consumer brand perception.

How Digitization Addresses these Challenges

Global trade compliance is undoubtedly an intimidating obstacle for those still relying on manual processes. However, by automating an organization's supply chain processes with global trade software, the bureaucracies, policies and regulations are automatically updated within the network. Digitizing global trade compliance can be broken down into seven areas:

  1. Restricted party screening: Automatically checks blacklists of banned and sanctioned parties, sports warning features, performs third-party background checks at any time and minimizes overall risk.
  2. Import management: Automating imports helps avoid unnecessary costs, customs delays, and reduces overall regulatory risks. Software can help with automated documentation concerning creation, retention and self-administration, and also with supplier screening and admissibility requirements. 
  3. Export management: Regulatory challenges, extensive checklists, manual customs clearance and lots and lots of paperwork, are all obstacles with exports. Automating export processes helps with compliance and regulations, supplier audits, permit requirements and document creation.
  4. Supplier Management: This allows manufacturers to facilitate real-time communication with suppliers, lower procurement costs, reduce supplier risk and meet sustainability goals, including reducing Scope 3 emissions.
  5. Free trade agreements: Automatically know if a product is eligible for duty-free entry to lower/eliminate tariffs, simply create documents, enhance filing efficiency and eliminate origin determination errors.
  6. Foreign-trade zones: FTZs can reduce and even eliminate tariffs as well as reduce clearance costs while completely avoiding duties on waste and scrap. With a global trade solution, reports can be electronically filed, auditing and reporting is made simple, documentation and reporting requirements are efficient, and inventory control is seamless.
  7. Compliance analytics: Real-time visibility into audit volume, transactions to be checked, and failed checks to improve overall operational efficiencies.

The digitization of supply chains is not just a technological advancement; it is a necessity for businesses operating in a globalized world. The benefits of enhanced due diligence and trade compliance are manifold, ranging from mitigating risks and ensuring transparency to maintaining a competitive edge in the market. As technology continues to evolve, businesses that embrace digitization across their people, processes and systems will be better equipped to navigate the complexities of the modern supply chain landscape, fostering sustainable growth and resilience.

A global trade software solution is essential for companies managing complex supply chains in today's interconnected world. It streamlines operations by automating tasks such as documentation, customs compliance, and tracking. This software enhances visibility across the supply chain, allowing businesses to mitigate risks effectively. With a comprehensive solution, companies can make informed decisions, reduce errors and ensure regulatory compliance. In an era of rapid globalization, utilizing global trade technology is not just a convenience but a strategic necessity for companies aiming to stay competitive, efficient and ESG conscious in the global marketplace.