Rules and regulations play a crucial role in ensuring safety and security across various industries, especially in supply chain and manufacturing. This is where supply chain compliance becomes essential.
Below, we’ll explain what supply chain compliance entails and share the top four best practices for maintaining it.
What is Supply Chain Compliance?
Supply chain compliance refers to the process of ensuring that companies adhere to all relevant laws, regulations, and industry standards across their supply chain operations. This includes managing every phase of the supply chain, from sourcing raw materials to delivering finished goods or services to customers, while maintaining the required legal and ethical standards.
Maintaining compliance is crucial for upholding the integrity of the supply chain, reducing risks, and protecting the reputation and credibility of the business.
Key Aspects of Supply Chain Compliance
- Labor Standards: Ensuring suppliers and partners follow labor laws, including fair wages, safe working conditions, and reasonable working hours, while avoiding child or forced labor.
- Ethical Sourcing: Ensuring that raw materials and components are sourced in a responsible manner, free from illegal activities, environmental harm, or social injustices.
- Environmental Regulations: Complying with environmental laws to minimize the ecological impact of operations, covering waste management, emissions control, and sustainability practices.
- Product Safety and Quality: Ensuring products meet safety and quality standards, while being produced and handled according to relevant regulations.
- Data Protection and Privacy: Adhering to data protection laws, ensuring that customer and employee data is securely managed and ethically used.
- International Trade Regulations: Following trade laws and regulations in the import and export process, including customs duties, trade restrictions, and export controls.
- Anti-Corruption and Bribery: Enforcing policies to prevent corruption and bribery, while complying with anti-corruption regulations.
- Conflict Minerals Compliance: Ensuring that minerals sourced from conflict-affected areas are not used in products, in compliance with laws such as the Dodd-Frank Act.
- Social Responsibility: Engaging in socially responsible practices that benefit local communities and stakeholders impacted by the supply chain.
- Supplier Audits and Monitoring: Regularly auditing and assessing suppliers to ensure they maintain compliance and to identify areas for improvement.
Ensuring compliance often requires close collaboration with suppliers, vendors, and partners. Companies may implement codes of conduct, supplier agreements, and verification processes to maintain oversight. In addition, some businesses pursue certifications, such as ISO 9001 for quality management or ISO 14001 for environmental management, to demonstrate their commitment to compliance and sustainability.
Best Practices for Maintaining Supply Chain Compliance
The practices for maintaining supply chain compliance can vary based on industry needs. For example, food manufacturers need to focus on timelines and temperatures to ensure food safety, while manufacturers of military equipment must enforce strict security clearances. Regardless of the specific industry, any business selling physical goods should maintain detailed oversight of the origins and movement of their products, as well as the ingredients or materials used in their production. A clear understanding of the supply chain allows companies to identify areas for improvement, increase efficiency, and boost profitability.
Here are some essential best practices for maintaining supply chain compliance that can be applied to any industry:
1. Evaluate and Onboard New Suppliers Carefully
A crucial aspect of maintaining compliance is ensuring that new suppliers follow the appropriate regulations and ethical standards. Before entering into a partnership, conduct thorough research into the supplier’s operations to ensure they align with your legal and ethical expectations.
Onboarding a new supplier should be a structured process, similar to the onboarding of a new employee. This process includes background checks, reference verifications, and a detailed introduction to your compliance standards and practices.
To streamline this, use set procedures for vetting and onboarding, ensuring that no critical steps are skipped. It may also be beneficial to have new suppliers sign an agreement that outlines their commitment to adhering to your company’s compliance standards.
Third-party services can also assess the risks and evaluate the compliance of potential suppliers, adding an extra layer of security to the process.
2. Store Supplier Data Centrally (And Organize It Visually)
It’s important to centralize and securely store all supplier-related documents (e.g., insurance, safety certifications, legal compliance) in one easily accessible location. This ensures that relevant departments can easily manage and update supplier data.
Many supply chain management software systems offer features that allow you to store and display supplier data in a centralized location. These systems often include dashboards that provide a clear, visual overview of each supplier’s status, including certification details, inventory levels, and invoice statuses. Alerts for expiring certifications or upcoming audits can also be integrated, ensuring that compliance information is always up-to-date.
By organizing this information visually, you can easily track suppliers’ compliance and make informed decisions about whether to continue, update, or revise your partnership with them.
3. Improve Product Tracking and Labeling
Effective product tracking and labeling go beyond simply trusting that suppliers are complying with regulations. More manufacturers and distributors are implementing sophisticated tracking systems that allow them to trace every product’s journey throughout the supply chain.
A growing number of industries, including electronics, food and beverage, and pharmaceuticals, use unique product identifiers such as alphanumeric codes or serial numbers, encoded as barcodes. These unique identifiers enable companies to monitor a product’s movement and origin with greater accuracy.
Some companies are even exploring advanced technologies like blockchain or DNA tagging for traceability, especially in food industries, to enhance the visibility and traceability of products.
Tracking and tracing provide valuable data that helps companies quickly manage recalls, identify contamination issues, or verify product authenticity, all of which are essential components of maintaining compliance.
4. Keep Track of Visitor Details
Alongside product tracking, supply chain compliance requires tracking which individuals have access to facilities, products, and sensitive materials throughout the supply chain. Limiting access to products reduces the risks of tampering and ensures greater security.
For industries where sensitive materials are involved, it’s standard practice to track visitor access as a compliance measure. For example, companies that want to join security programs such as the Customs-Trade Partnership Against Terrorism (C-TPAT) are required to maintain detailed records of visitor access. Similarly, organizations adhering to ISO standards often include visitor management as part of their compliance procedures.
While it’s important to respect privacy rights, tracking visitor details can help optimize staffing levels and identify potential security risks. Furthermore, detailed visitor records can be a valuable tool for assessing facility operations and ensuring that all access points remain secure.
By implementing these best practices and ensuring that all suppliers, partners, and internal stakeholders are consistently meeting regulatory and ethical standards, companies can maintain a robust and compliant supply chain. Ensuring compliance not only minimizes risks but also fosters greater trust and reliability with consumers and business partners alike.
