Many of the global challenges we are facing today originate from the nontransparent supply chains of businesses. Ethical responsible companies risk that counterfeit parts and unethical behaviour enter their supply chain as nontransparent supply chains effectively hide slavery, corruption and pollution. This can lead to loss of reputation and legal consequences. In this way, not having full control of the supply chain can cause severe damage to companies, societies and the planet.
are affected by slavery worldwide
affected by slavery is children
is linked to business supply chains
generates anually into illcit profits
Slavery affects more than 40 million people worldwide and 1 out of 4 of these persons are children. According to anti-slavery.org about 16 million of those caught in modern slavery can be linked directly to the supply chains of international businesses. Modern slavery most likely generates more than $150 billion a year, and is most prevalent in Africa, followed by Asia and the Pacific. According to BDO Australia, signs that a business might be using forced labour include unlawful withholding of wages, withholding identity documents, excessive work hours and restriction of movement, or inflated loans to be paid back to employer.
Long and complex supply chains can make it difficult to actually see these signs. Companies need to map out their supply chains as accurately as possible, in order to adequately trace a product from origin to finished state, to ensure transparency of the kind of labour used.
of global GDP is estimated to be
the cost of corruption
is paid in bribes anually each year
Corruption is estimated to be the single greatest obstacle to social and economic development around the world. It distorts markets, reduces economic growth, debases democracy and undermines the rule of law. The cost of corruption is estimated by the UN to equal 5% of global GDP.
According to the UN, the most direct and devastating form of corruption that supply chains face is in the form of procurement fraud. Such fraud might contribute to products bypassing health and safety requirements or environmental criteria, which might cause unnecessary harmful pollution or be directly dangerous to the persons who use the products. Additionally, corruption might have indirect impacts such as legal liability, damage to reputation, or requiring an excess of time and resources to address the issue.
Ways that companies counter these issues might be by due diligence, setting strict supplier principles, offer or require supplier education on the topic, accurate auditing, enforcing specific contract clauses etc. At the same time, strictly overseeing that these mechanisms are enacted properly might be difficult in long complex supply chains making corruption hard to combat or root out.
of companies impact on the environment is due to their supply chain
of companies total emissions is from supplier operations
According to McKinsey, up to 90% of companies’ impact on the environment is due to their supply chains. Such impacts can include toxic waste, water pollution, loss of biodiversity, deforestation, long-term damage to ecosystems, air emissions and excessive energy and water use. In a report made by The Economist, it is stated that with CO2 emissions specifically supplier operations are responsible for 65-95% of the company’s total emissions. Reducing these emissions are not only environmentally friendly, but reduce the costs of the supply chains themselves. As CDP notes, suppliers related to their network saved about 14 billion USD in 2017 by lowering emissions, spending less on petrol, electricity, etc.
The main challenge with reducing emissions today is to ensure supplier compliance. Some ways companies do this is by using sustainability scores for their suppliers, so that they can choose the most environmentally friendly products if multiple are comparable. Public emission reduction goals, industry collaboration and giving awards for sustainable performance are other mechanisms being used. In addition, new technology, like data analytics, AI, or blockchain, is becoming more common in order to improve supply chain visibility.
of all goods are fake
jobs are lost due to counterfeit
Counterfeit goods is a problem supply chains face that transverses the problems outlined above. According to the OECD, the risk of a consumer purchasing counterfeit goods, or products made with a counterfeit component, is 1 in 20. In 2018, the counterfeit industry had grown to account for 1.2 trillion dollars worth of goods and about 3.3% of all goods sold worldwide where counterfeits in 2019. Counterfeit goods and components are labelled falsely, and passed off as fulfilling requirements that they do not actually do. They might be produced with slave labour or unnecessary pollution, or they might not fulfil specific product related criteria, such as they ability to bear a load of x kilos, etc. This can be a huge risk in many industries using heavy machinery, e.g. a single counterfeit part can make a plane unsafe to fly and the results of attempting to use such a plane could be disastrous. The pharmaceutical industry also shows us how dangerous counterfeits can be. E.g. in Panama in 2006 cough medicine lead to the death of 78 people, because one of the ingredients in the medicine, glycerine, was a falsely labelled counterfeit, and was in reality another substance, diethylene glycerol, which can cause multiple organ failure.
Creating a transparent supply chain and ensuring suppliers fulfill your requirements are the main ways that counterfeit goods can be combated. Ensuring that suppliers are trustworthy, and that you only receive legitimate data on the products you receive help you hinder counterfeits in entering your supply chain. Both parts and suppliers must be verified at all stages. Training suppliers so that they have the ability to catch counterfeits in earlier stages of the supply chain or partnering with other companies in your industry to create collaborative anti-counterfeit efforts can also be effective methods.
Closely following your suppliers and ensuring that they comply with your requirements is one of the most effective ways to reduce the risk of unethical behaviour in your supply chain. Make sure they have read and understood your company code of conduct and strive to comply to it. Ask questions, demand answers and encourage suppliers to be open about challenges. Help your suppliers to comply with your ethical and environmental standards, discuss issues and give your suppliers the opportunity to improve.
Yet, auditing a large amount of suppliers in this way, who all might be in different places with regards to environmental or labour requirements, can be daunting and unwieldy. The Orixe Audit module can help you and your suppliers in this process. In the Orixe Audit Module you can find supportive tools for both you and your suppliers giving every body an opportunity to improve. The module will also make the auditing process less time consuming for both you and your suppliers, and grant you with a full overview of your suppliers portfolio and their ability to comply.
By creating a supply chain where you can easily track a product or component from origin to finish, you might easily root out irregularities in the chain, and ensure that you are not receiving counterfeits or products that are simply not fulfilling the requirements you have with regard to labour used or environmental footprint. Transparency deters unethical behaviour, as any anomalies will be logged. This also makes it easy to hold the right people accountable if problems are encountered.
Orixe Trace is a SaaS that easily helps you create this transparent tracking of products, parts and components. Trace ensures traceability and transparency throughout the supply chain, and allows you to verify that goods are legitimate and authentic at every stage in the chain. As the original documentation and certification of goods are securely stored in the blockchain, the introduction of counterfeits is effectively deterred, and you can ensure that your suppliers are in compliance with your requirements.