Forced labor has been a problem in supply chain management for a long time. The good news is that over the past few years governments and companies have been taking action to help eradicate this problem. That said, it’s not an easy problem to solve. In a survey we conducted with members of our Indago supply chain research community in March 2021, a plurality of the respondents said that screening suppliers to ensure no environmental violations or human rights abuses existed in their end-to-end supply chains would be very or extremely difficult. So, where are we today with regulations such as the Uyghur Forced Labor Prevention Act (UFLPA)? How are different industries impacted by these laws? What are companies doing to mitigate the risks of non-compliance? And how is technology helping? Those are some of the questions I discussed with Sung Choi, AVP of Solution Consulting at e2open, on a recent episode of Talking Logistics.
What is UFLPA?
I began by asking Sung to explain the UFLPA for those who may not be familiar with it. He notes the UFLPA is a U.S. regulation that deals specifically with forced labor in one region in China. However, due to the complexities of multi-tiered supply chains, the issue goes much deeper. For example, Sung says, “For a retailer it’s not just about who made the shirt, but who made the cotton, who were the ginner and spinner of the cloth, all the way down the line. This concept applies across many industries.”
As Sung notes in the short clip below, Customs and Border Protection (CBP) is inspecting tens of thousands of shipments and companies must show them documentation of compliance.
This is difficult for companies because they’ve never had to do this before. And because this is being investigated under the auspices of Congress, the penalties can be onerous. Also, you don’t want your company’s name in the newspapers because you have millions of dollars in goods held up in customs due to questions about forced labor.
The problem is most companies don’t have visibility to their supply chains beyond the first-tier suppliers. But these regulations are forcing brand owners to take responsibility down to the nth tier. The good news is this visibility will reduce risks and improve resiliency across their supply chains.
Compliance Requirements
The U.S. government provides a list of 68 companies that are banned due to their forced labor practices. Is just checking against this list enough for compliance?
Sung suggests that it is important to verify suppliers against this list, but it’s not enough. The onus is on companies to verify compliance across their n-tier supply chain beyond those on the list. And supply chains are always changing so a one-time check is not enough either. The key is gathering data on an on-going basis and making sure it is timely, accurate, complete and verifiable.
It should be noted that the European Union has similar forced labor regulations, but it is even broader because it applies to all forms of forced labor, not just those related to the Uyghur issue in China. Canada and other countries have similar measures too. “The good news is that gathering the data for compliance will be very similar across all of these regulations,” Sung says.
How Can Technology Assist with Compliance?
Sung comments that many companies are deploying AI and machine learning to help map out their supply chains. “The problem is, the next day the map is already out of date because supply chains are dynamic, especially down at the nth tier. What’s more, it doesn’t prove compliance for a specific shipment.
“The way we approach compliance is to see how we can solve the enforcement problem. We call this concept Network Discovery, which is about discovering your supply chain network but base it on the actual transactions you’re performing.” Sung explains this further in this short clip:
“This process allows companies to also do risk mitigation for other areas, such as environmental concerns and social responsibility,” says Sung. “Network-based technology is the mechanism for gathering this data. You can never do this manually.”
Developing the Right Processes
How can companies go about putting the right processes and technology in place to address the risk mitigation and compliance issues Sung discussed? And which industries are most impacted by this? Sung addressed those questions and more in our conversation, so I encourage you to watch the full video for all of his insights and advice. Then post a comment and keep the conversation going with your questions and perspective on this topic.
