How to Improve Supply Chain Compliance – 8 Key Tactics for Businesses

Supply chains are the backbone of modern business, linking manufacturers and retailers to consumers worldwide. However, as supply chains have become more globalized, extended, and complex, the associated risks for businesses have increased significantly.

Supply chain compliance is the adherence of organizations to established guidelines, requirements, and standards. Today it is more critical than ever. It enables businesses to meet regulatory compliance, protects them from financial penalties, reputational damage, and loss of consumer trust.

Close collaboration among businesses and third parties, including suppliers, distributors, and other intermediaries, is essential for effective compliance. But what’s behind the growing importance – and what should businesses do to ensure they continue to comply?

Why is supply chain compliance important?

Supply chain compliance has become increasingly critical due to intensifying regulations across the globe, particularly in the cotton and fashion industry.

Landmark legislation such as the Uyghur Forced Labor Prevention Act (UFLPA), the EU Deforestation Regulation (EUDR), the EU Forced Labor Ban, and the Corporate Sustainability Due Diligence Directive (CSDDD) place stringent expectations on businesses regarding labor practices, ethical sourcing, social responsibility, and environmental impacts.

In addition, consumers and investors are increasingly expecting higher standards from the companies they buy from.

Risk management extends beyond the brand or final retailer. It encompasses suppliers, partners, and all other vendors within the value chain. A failure in any link of the chain can expose the entire network to significant risks.

The onus is firmly on businesses to prioritize and ensure comprehensive compliance throughout their supply chains.

8 tactics to improve compliance in supply chain management

Compliance managers and businesses have a number of tactics to improve their global supply chain compliance and mitigate potential risks.

1. Implement a robust supplier code of conduct

The first step towards improving supply chain compliance is to establish a comprehensive supplier code of conduct. This document should explicitly commit suppliers to a set of agreed-upon standards covering critical areas of sustainability and traceability. These may include the prohibition of forced labor, responsible sourcing of materials (eg. avoiding deforestation), reduced water usage, and promotion of product circularity.

Write standards in plain language for clarity and easy understanding, particularly for offshore suppliers for whom English may be a second language. This minimizes ambiguity and fosters a shared understanding of expectations.

Review standards annually to ensure they remain accurate and adequately address evolving regulatory requirements. Legislation can be amended or expanded. Regulations often differ between countries. All of these necessitate regular updates to the code of conduct.

2. Formalize a system for document collection and review

Collecting and regularly reviewing supply chain documentation is vital to ensure suppliers follow agreed standards. This involves gathering documents such as bills of materials, contracts, invoices, and production records. All documents should be stored securely for easy reference and access.

Regular review of these documents can help identify critical data gaps and inconsistencies. Mistakes, misrepresentations, and outdated information can result in wasted time, financial losses, and reputational damage.

Ensure the information provided is accurate and up to date, as suppliers may change their material sourcing locations, subcontractor partnerships, or other operating processes.

3. Establish a dedicated compliance function

Creating a well-resourced and effective organizational compliance function is essential. This will oversee the governance of your compliance program and foster a culture of compliance across your organization.

This function will be responsible for regularly updating ethics and compliance programs. It should incorporate insights from regulatory experts who can provide updates on emerging and pending legislative changes. Media monitoring can be used to identify news reports involving suppliers, providing an early warning system against potential compliance infringements.

Regular communication updates should be issued to inform leadership, investors, and other stakeholders of progress, risks, and potential impacts.

4. Enhance supply chain transparency

Increasing supply chain transparency is crucial for gaining a comprehensive end-to-end view of operations. This involves thoroughly understanding all entities within the supply chain, including their locations, operations, transport routes, key personnel, and business practices.

Mapping the supply chain creates a visual representation that can help define key relationships and identify vulnerabilities. Such maps are particularly helpful with complex manufacturing that involves a large number of operators.

Leveraging traceability technology to track products throughout the supply chain provides real-time visibility and strengthens accountability. There are a variety of traceability tools available, from blockchain to DNA markers and AI. However, care should be taken that these methods are only as reliable as the accuracy of the information input into them (see tactic 2 above).

5. Implement forensic testing protocols

Relying solely on paperwork and verbal agreements is insufficient for verifying the origin of raw materials. Implementing forensic testing provides scientifically robust evidence of material origins. Using an external provider like Oritain to ensure the quality of testing protocols and independent validation of results.

Oritain’s unique methodology combines forensic science and data to analyze products and raw materials to verify their origin. This provides businesses with reassurance of product integrity and authenticity, as well as mitigate risks with social or environmental abuses.

Proactive testing at various points in the supply network improves compliance and helps prevent issues from escalating. This in turn helps avoid potential penalties. Document the testing program and use it to demonstrate compliance efforts for transparency and accountability.

6. Conduct periodic risk assessments

Engaging legal and compliance experts to conduct periodic risk assessments of your supply chain ecosystem and key partners is crucial for identifying potential vulnerabilities. This will pinpoint areas of highest risk and implement remedial measures.

At a macro level, this assessment should focus on two things: priority (such as which elements of the supply chain are most critical to production and delivery) and geography (such as which regions are particularly vulnerable to political instability or civil unrest).

For individual suppliers, the assessment should include an analysis of financial stability, industry reputation, and compliance history.

Integrate this risk assessment into the due diligence management processes for onboarding new vendors.

7. Introduce supplier training programs

Introducing a training program to educate suppliers on the requirements of relevant legislation is an essential part of vendor risk management. This program will serve to raise awareness, shape positive attitudes and behavior, and minimize costly mistakes.

To achieve greatest engagement, make this training informative, relatable and interactive. Show vendors why this matters to them and share real-world examples which demonstrate the importance. Summarize the key themes and gauge understanding with follow-up tests.

This is particularly important when starting to work with new vendors and should be included as part of the supplier onboarding process. Providing training demonstrates the business's commitment to compliance to both suppliers and regulatory enforcement agencies.

8. Establish a corrective action plan

Developing a robust corrective action plan and follow-up process for supply chain issues is essential. This ensures a rapid and effective response to any allegations of forced labor, environmental abuse, or other non-compliance issues. This proactive approach helps mitigate risks, uphold ethical standards, and reinforce accountability across the supply chain.

This plan should outline specific steps to be taken, define roles and responsibilities, establish timeframes, and detail stakeholder communication strategies.

A well-defined corrective action plan enables businesses to mitigate risk, demonstrate accountability, and reinforce their commitment to ethical and responsible supply chain practices.