Automating Procurement and Supplier Relations to Alleviate ESG Concerns

It is no secret that procurement executives are constantly seeking innovative ways to maximize efficiency and address unexpected supply disruptions. With a war raging in the Ukraine, ongoing COVID restrictions in China, and the holistic repercussions that are still being felt from the pandemic, the traditional supply chain is quickly undergoing a digitization revolution for more visibility and control. However, procurement is evolving into much more than the most cost effective option since the cheapest option often involves real world atrocities like child and forced labor.

Thanks to social media and readily accessible information, consumers are now more engaged with the ethics surrounding products more than ever, and they put their money where their morals align. However, consumer attitudes toward ethically produced products haven’t had a deep impact on the behavior of most companies as we are now seeing regulatory compliance play a key role. For example, roughly 85 percent of companies incorporate sustainable procurement practices due to government regulations and policies and the risk of being noncompliant – not in response to consumer attitudes. Environmental, social, and governance (ESG) standards are not only aggressively becoming more important for investors, they are becoming mandatory through ever changing regulations and policies around the globe.

For importers to the United States, the Customs Trade Partnership Against Terrorism (CTPAT) trade compliance program has undergone frequent, recent changes. For example, as of November 2022, the program has added three additional benefits for CTPAT certified organizations:

1. 1. Front of the line admissibility review: shipments detained due to forced labor concerns will have admissibility packages prioritized over non CTPAT members. Prioritized review must be requested at the same time that supporting documentation to Customs and Border Protection (CBP) is submitted.
   2. Redelivery hold: shipments may be held intact at the importer’s facility rather than delivering goods to CBP when forced labor is suspected until admissibility determination or physical examination.
   3. Detained withhold release order (WRO) shipments move to a bonded facility: After a WRO is administered, importers can move inventory to a bonded facility until admissibility determination by CBP.

While these benefits provide some relief for importers who are CTPAT certified, the best strategy is preemptive and ensures no disruption from CBP and other government agencies.

Due Diligence from the Source

Collaborative supplier relationships cut supply risks and result in a greatly beneficial relationship for all parties involved. The needed connectivity between manufacturers and suppliers means relying on increased digitized processes and solutions.

Instead of relying on manual information processes like spreadsheets, phone, and email, real-time information sharing solidifies relationships with critical sourcing partners.

Not only does digitization help with the relationships between manufacturers and suppliers, it also helps improve supplier screening and begin ongoing ESG monitoring. One strategy to consider is evaluation of the use of modern technologies like advanced analytics, machine learning, and artificial intelligence as tools to improve ESG monitoring. Another worthwhile strategy is to begin the exploration of advanced technologies with input from supply chain partners and full transparency to make meaningful improvements to the network.

Effectively Prepare for Impending Legislation

Supply chain compliance is increasingly dynamic. Environmental concerns, shareholder expectations, labor rights and import/export compliance requirements are common factors that organizations have to navigate. The most recent piece of legislation is the German Supply Chain Act. This Supply Chain Due Diligence Act was approved in July 2021 and took effect on January 1, 2023. The legislation states that companies with 3,000 or more employees must take appropriate measures to respect human rights and the environment with their supply chains. Companies also need to maintain awareness of pending and changing regulations. Just a couple examples include:

• European Commission (EU) Corporate Sustainability Due Diligence Directive – The draft legislation has passed and will require large EU organizations to detect, prevent and mitigate breaches of human rights, such as child labor, as well as environmental hazards in their supply chains.
• New York Fashion Sustainability and Social Accountability Act – If passed, it will require New York fashion retailers and manufacturers with over $100 million in annual revenue to make required social and sustainability information available.

Are your processes and technology prepared to collect the necessary information from suppliers and effectively share with the appropriate regulatory agencies?

Improve Supplier Management and Regulatory Compliance: A Cloud-based Solution

Software that enables real-time data and user-friendly information sharing across the supply chain by extracting relevant ESG data and making it visible via secure internet access eradicates issues associated with outdated manual methods. Suppliers can better share ESG information along with utilizing self-service capabilities for invoices, bills of material, PO, invoice information, and any other type of document. The right cloud-based software solution provider should be able to seamlessly integrate with existing ERPs, regardless if the manufacturer or the supplier is cloud-based or on-premise. Good software will work as a data poller, pushing data to and from the ERP so that your users can improve decision making. Find a simple solution without needed hardware that is also quick to implement and widely accepted by suppliers.

Effectively managing suppliers with the right software offers a plethora of benefits including:

• Improved ESG compliance throughout the supply chain
• Reduced lead times
• Better management of inventory delivery and quality issues from suppliers
• On-time deliveries
• Standardization of bar codings
• Forecasts and plans communicated to suppliers in real-time

Instead of approaching CBP inspections with the worry of WROs and loss of inventory due to human rights violations, take a preemptive approach and know that your organization is working with ethical suppliers that fully support your ESG objectives.  Not only does investing in procurement and supplier management software save organizations on their bottom line, it also helps the most vulnerable of the world.