Why Digitizing Supply Chain Mapping Data is the Way of the Future

In the last few years, digital supply chain mapping has gone from a relatively niche concept to a regulatory requirement. The passing of the U.S. Forced Labor Prevention Act set in motion a global mandate for companies to gain greater visibility into their end-to-end supply chains, as well as to collect auditable chain of custody data to prove they knew where their goods were coming from. Following the lead of the United States, regulations in Canada, Mexico and the European Union have made this level of supply chain traceability the norm. While these regulations have vastly improved supply chain transparency overall, there is room for improvement to ease the burden on companies, regulators and enforcers, particularly through standardization and digitization of all supply chain data that lands on the desks of customs authorities.

While conceptually daunting, digital supply chain mapping is completely do-able. Companies across industries have been mapping their supply chains down to the raw material level long before regulatory incentives or penalties existed. On average, companies that undertake mapping discover 5-25 times more upstream suppliers than direct suppliers. Unknown suppliers can mean non-compliance with U.S. regulations such as Dodd-Frank, the Forced Labor Prevention Act, or Section 307 of the Tariff Act of 1930. It can also mean that U.S. companies may be sourcing from “bad actors,” posing a threat to product and consumer safety.

Not all supply chain mapping approaches are created equal. Companies looking to map their upstream supply chains are primarily concerned with both speed and accuracy of data collection. Some solution providers use publicly available data to rapidly map upstream. While this approach can quickly provide a high-level picture, it can result in outdated data that is difficult to verify. More importantly, it can miss major red flags by not providing a complete and validated chain of custody for a product.

Other more traditional supply chain management platforms only connect companies with their direct, or Tier 1, suppliers, providing little to no visibility further upstream. This fails to solve the prevailing visibility issue faced by most companies, as the majority already know who their direct suppliers are. A more comprehensive approach involves a combination of AI-driven automation and supplier-attested data collection, onboarding direct suppliers onto a platform that automatically cascades to each upstream tier. As each new supplier is discovered, transaction traceability data - otherwise known as chain of custody data - in the form of transportation and payment records is collected at every step, resulting in a verifiable audit trail for every purchase order.

Discovering unknown suppliers allows companies to make more informed sourcing decisions that represent their values. In 2019, after the Bolsonaro administration stated that the Amazon rainforest should be open to development, a major U.S. shoe and apparel company that had recently traced its products to the raw material level and discovered a significant amount of Brazilian leather in its supply chain publicly announced that it would stop sourcing Brazilian leather until it had “the confidence and assurance that the materials used in [its] products do not contribute to the environmental harm in [Brazil].” A mere 72 hours later, Bolsonaro softened his stance and put a stop to the practice of using fires to clear rainforest for cattle. Without digital supply chain mapping, the U.S. company would not have known how much of the leather in its supply chain was coming from Brazil. This discovery not only led to more responsible procurement practices, but had a direct influence on legislative change outside of the United States.

Greater supply chain transparency transforms companies and industries

Public commitments to transparency can lead to industry-wide adoption, spurring global change. In 2018, several apparel heavyweights discovered connections to state-sponsored forced labor in Turkmenistan while mapping their supply chains. Several had been unaware of these connections due to limited visibility into cotton sourcing. As a result, 12 brands signed the Responsible Sourcing Network’s Turkmen Cotton Pledge, committing to not source cotton from Turkmenistan until forced labor was eliminated. This public commitment raised awareness and accountability across the apparel and textile sector, pushing more companies to map their supply chains and better understand where their goods were coming from.

For some, the strongest motivator to implement more robust supply chain mapping practices has been the risk of detentions and seizures under the Forced Labor Prevention Act. Many have adopted a proactive approach, as the law intended, to better understand the risk of forced labor in their supply chains. In one case, an apparel company quickly onboarded its direct suppliers and within 30 days identified a noncompliant upstream supplier. Within 60 days, all of its cotton farms were mapped. Over the course of 90 days,  500 previously unknown sub-suppliers were discovered. Armed with data, the company was able to sever ties with the noncompliant supplier and find alternate sources for their goods before ever receiving a detention at import.

Efforts underway to mandate digital supply chain maps in major global markets

Without supply chain mapping, many companies have little to no idea where their raw materials originate, increasing the risk of unknowingly sourcing from bad actors. The problem affects critical industries such as food, agriculture and pharmaceuticals, as well as those tied to national security, like electronics, aerospace and defense. U.S. lawmakers are cracking down on opaque supply chains. Severe enforcement efforts including detentions and seizures upon import and the public issuance of Withhold Release Orders have pushed companies to be more proactive in their efforts, but a lack of standardization and clear guidelines has resulted in disparate approaches and inconsistent data collection.

Despite this, standardization is on the horizon. The European Union Deforestation Regulation (EUDR) requires an unprecedented level of supply chain data and risk assessment before products enter the market. Compliance entails mapping and collecting polygons and geolocation data for every forest and farm used in shipments of cocoa, coffee, palm oil, soy, wood, rubber and cattle. Large multinational companies may need to track thousands of land plots per shipment to screen for deforestation risks. Non-compliance can result in fines of up to 4% of a company’s global annual revenue. Without a compliant Due Diligence Statement, in-scope products will be excluded from the EU market without exception, at the importers expense with additional commodities to be added. In the coming years. These policy shifts fundamentally change the volume and complexity of supply chain data flowing through customs.

Efforts to standardize digital supply chain data are underway in the United States as well. U.S. Customs and Border Protection (CBP) is in the midst of interoperability standards testing with the private and public sectors to facilitate seamless supply chain data exchanges under its ACE 2.0 rollout. These standards aim to increase transparency and enable faster, more secure real-time data sharing by federal agencies with various worldwide entities. Long term, this program would establish standards for verifiable digital supply chain data for all imports entering the US and European markets, improving efficiency and security at the ports of entry while facilitating compliance for importers.

Digital supply chain mapping levels the playing field

Some of the largest companies in the world have proven that achieving a full supply chain is possible with the right tools and standards, even for highly complex industries. Establishing clear standards levels the playing field, ensuring compliant companies are not at a disadvantage compared to those that cut corners.

When a shipment is detained upon import, enforcement agents are often combing through hundreds of pages of documentation. Without clear and transparent standards, companies are left to submit varied levels of evidentiary data to prove provenance and chain of custody. A single, standardized portal could allow both importers and regulators to exchange data more efficiently, setting the stage for a future where digital supply chain mapping is no longer optional but essential.