These are interesting times for supply chain professionals, many of whom find themselves with one eye on their procurement networks and the other watching the news. Once expected to focus solely on controlling costs, today’s supply chain managers must now maintain compliance and anticipate risks in a global economy.

Over the last few years, geopolitical tensions, domestic politics, and shifting views about globalization have made it seem like change is the only constant. Each of these factors has real consequences for supply chains, and it’s important that chief procurement officers and managers understand the unique risk landscape confronting them as we head towards 2019. Only then can they take steps to mitigate any challenges that could interrupt operations or negatively affect revenue.

First, long-standing tensions between the United States and Iran continue to cause uncertainty in global trade and security. The White House decision to restore sanctions on Iran was widely anticipated, as were the negative effects on the Iranian economy. Capital flight and a plunging currency valuation have made it difficult for Iranian companies to participate in global trade. Uncertainty around whether other signatories to the Iranian nuclear deal will continue to uphold their economic commitments has stifled growth in the country, and sanctions on Iranian oil threaten to raise prices at the pump—especially if additional factors put pressure on crude production.

North Korea is another potential flashpoint that could cause pain for supply chain managers. The United States has ratcheted up economic sanctions in an attempt to bring the North Korean leadership to the negotiating table, but hopeful signs from earlier in the year seem to have resulted in little tangible progress on denuclearization. It’s unclear how much more economic pressure can be brought to bear on the North Korean government, but dramatic options like a blockade would interfere with trade in Asia.

Sanctions are also an issue in regard to Russia. Beginning with the annexation of Crimea and escalating as a result of concerns about election hacking and Russian cyber attacks, these sanctions target institutions and oligarchs closely associated with President Putin. While the U.S. has a relatively minor trading relationship with Russia, sanctions on a Russian aluminum producer caused prices of that material to spike. The effect on supply chains was so pronounced that the U.S. government is considering lifting those sanctions at a time when political considerations make such a move difficult.

Global strife and sanctions aren’t the only threats to supply chains. Leaving behind the most tumultuous relationships, we must also consider the increasingly common reliance on tariffs as a negotiating tool of the United States. Steel tariffs on China, duties on Canadian lumber, and the threat of targeting European automobiles have already weighed on companies’ bottom lines. Furthermore, the Trump administration’s efforts to renegotiate the North American Free Trade Agreement could result in duties being imposed on products that had previously benefited from the pact.

Across the pond, the Brexit drama continues to unfold. While it’s been several years since Britons voted to leave the European Union, there are scant details on how this will play out in practice. Losing easy access to mainland markets could prove damaging to U.K. businesses and have unpredictable consequences for international supply chains.

It’s important to emphasize that sanctions, tariffs, and other risks can impact companies that don’t have direct relationships with the countries in question. Your own suppliers may rely upon foreign vendors that are affected, and those costs propagate down the supply chain. How, then, can supply chain professionals reduce the risks of increased costs or a disruption in shipments?

A diverse supply chain is key to guarding against damage from unpredictable events. Establishing relationships with vendors in different countries and regions makes it easier to adjust when concerns arise. Given the nature of politics and trade at this moment in history, metaphorically speaking, your eggs should be in more than one basket.

Next, procurement teams should be assessing risk when evaluating and onboarding vendors. Business research tools, including advanced data and analytics applications, can help identify parent-subsidiary relationships and exposure to geopolitical risk factors. However, it’s not enough to investigate a supplier before signing a contract; consistent monitoring is required so changes to a company’s risk profile are recognized in a timely manner. Late payments, deteriorating credit scores and ratings, compliance violations, or abrupt changes in leadership are all potentially troubling signs that warrant further investigation.

While it may seem like there are new supply chain risks around every corner, there are ways to reduce the likelihood that they’ll damage your business. Building a diverse, resilient network of vendors is key, employing new data-driven technologies, and keeping a watchful eye on developments that may find their way into your factory or warehouse.

Brian Alster is Dun & Bradstreet’s global head of supply and compliance. He is responsible for developing new and innovative compliance products and improving existing ones through the incorporation of customer and industry feedback. Brian holds nearly two decades of experience in the financial services industry, including positions at JPMorgan Chase and MBNA/Bank of America.

Slavery and human trafficking are still prevalent in America today. An estimated 17,500 foreign nationals and 200,000 Americans are being trafficked into and within the United States every year, 80 percent of whom are women and children. In fact, modern slavery is the fastest-growing organized crime, with more than 40 million worldwide victims. This problem—which happens out of our sight—continues to line human traffickers’ pockets with $150 billion every year.

Those stark facts underscore that this is truly a global crisis, and organizations have a duty to pay attention, remind our fellow humans to be vigilant, and do their part to help eradicate it. At the core, there must be close inspection of the supply chain—but that’s often easier said than done. It’s very difficult for companies to track each and every layer of their supply chain to root out trouble, and the responsibility can be overwhelming.

When we talk to businesses today, many are still figuring out the right approach for eradicating human trafficking in their supply chain — but some haven’t made it a priority yet. That’s in part because knowing what to do is one thing, but people say they also need to weigh the risk it will bring to their company and employees, along with the investment it requires. That may be why many companies are interested in how other organizations handle it. In fact, “What’s everyone else doing?” is the most common question we get.

As unsettling as a delayed approach may sound given this sensitive issue, it makes sense from a business perspective. If there’s a new regulation that may impact your global supply chain, your brand’s public image or your stock price, an executive’s reaction may likely be to delay action as long as legally possible or to just meet the regulatory minimum.

To foster ongoing conversation, I put together the most common questions we get from companies on this topic.
The goal is to tackle each concern with transparency and clarity, and to answer the ethical questions that come up, while also considering your company’s financial and operational requirements.

Why are we responsible for our supplier’s supplier’s supplier?

Human traffickers are sophisticated; they prey on the most vulnerable people, often in less-regulated countries, and they create systems to keep people enslaved. Because it is so profitable, traffickers will stop at nothing to maintain these abhorrent practices.

The only way to truly stop our war against modern slavery is by striking at the root of the problem—where the funding of human trafficking begins.

The unfortunate truth is, many large companies—possibly yours—could be unknowingly feeding these forced labor organizations and keeping them alive. They rake in billions of dollars each year, and can hide behind layers of companies whose subsidiaries use slave labor. The world is depending on ethical organizations to refuse to do business with these suppliers at every level and cut off their resources.

One way to minimize the impact of human trafficking in our world is through the use of data. By incorporating data-driven analytics into your supply chain management processes, you can better understand which companies are potentially contributing to the scourge of modern slavery.

What is my company legally responsible for? 

Here’s a quick summary of the major regulations that exist now and how they affect your organization:

UK Modern Slavery Act. Impacts UK companies 36 million pounds or more in revenue. Requires an annual statement of all the steps the organization takes to ensure no human trafficking is taking place.

US Trade Facilitation and Trade Enforcement Act. Impacts any company involved in international trade with the US. Bans any goods or services produced by forced labor from being imported. Requires that any merchandise denied entry be reported to the federal government.

The US Federal Acquisition Regulations Subpart 22.17. Impacts employees and agents of federal contractors and subcontractors. Prohibits denying access to employees’ identity documents, misleading recruitment, and charging recruitment fees. Prohibits providing sub-standard housing, failing to pay return transportation costs, and failing to provide employment contracts.

The California Transparency in Supply Chains Act. Impacts retailers and manufacturers with annual gross receipts of $100 million+, and property or salaries in California that total more than $50,000. Companies must disclose how supply chains are verified, audit suppliers, and train employees to identify risks.

There are no enforced fines for these regulations, but there’s talk of that coming soon, especially with UK Prime Minister Theresa May’s full support on the issue.

So while there is no legal punishment if you don’t take action, there is the risk of brand damage if something is discovered in your supply chain and you did nothing to prevent it.

Are companies complying?

A majority of companies are not complying. These human rights laws are relatively new, and it will take time for companies to learn the laws, investigate what’s happening in their supply chains, and take appropriate action. It’s a multi-step process.

The good news is that some major companies are taking swift, decisive action, which will encourage others to follow suit. We’ve seen them investigate their supply chain, or work with us to discover their high-risk supplier families, and take targeted action.

If it’s not legally required, why should I take action now?

There are four major reasons to take action now. These regulations are expected to tighten, and fines can be added at any point. It’s best to prepare now to avoid last-minute scrambling. As social media becomes more powerful, brand equity can be damaged in seconds. Investors are paying attention to more than your current stock price. They are paying close attention to risk, and it’s understood that if you’re depending on a faulty and unsustainable supply chain, that is a big risk for a business.

Finally, this is an issue of integrity: winning on fair terms, while doing good for the world. These regulations are about saving people who have been kidnapped, and they are about preventing more people from being kidnapped. It’s hard to ignore the significance of this human rights crisis when 10 percent of UK businesses found evidence of modern slavery in their supply chains—a rise of six percent since the act came into effect.

Action is often driven by regulation, but ideally it should be driven by your company’s mission, values and goals—your deeper purpose. Your action becomes a strategic choice, rather than a reaction to get drowned out when everyone else does the same.

What is everyone else doing today?

Companies are doing one of three things:

Championing the cause: Some companies are leading the way, investigating supply chains and taking a public stand against human trafficking. General Motors is a perfect example.

Investigating the supply chain: Some companies are taking a more behind-the-scenes approach, investigating their supply chain to at least understand their risk, while some are filing statements to share what actions they are taking to ensure they aren’t contributing to modern slavery.

Nothing.  

In October 2017, 42 percent of UK organizations reported they have mapped their supply chains to better understand risks, and this number is rising, according to a new survey by the Chartered Institute of Procurement and Supply (CIPS). CIPS also found that 40 percent of supply chain managers in the UK admit to not having read the government guidance on modern slavery.

And as of today, 28,988 US companies have posted their statements in the Transparency in Supply Chains (TISC) Report. In the UK, 28,576 companies have complied, and close to 85,000 organizations worldwide have posted a public statement, including those voluntarily complying, according to the TISC Report.

What’s my first step? 

Start small, by getting to know a little more about your supply chain and by thoroughly vetting future suppliers. Knowing the truth can be scary, or it can be a relief. It will ensure your goods are made ethically, and you’ll rest well knowing your customers won’t find out something damning about your company before you do.

It’s also a good idea to join organizations fighting for the cause; it makes it easier to become part of the solution, while collaborating and learning from others. The automotive industry is a shining example. Several automotive original equipment manufacturers (OEMs) formed an industry organization, with ethical standards that their partners throughout their supply chain must follow, under the Automotive Industry Action Group (AIAG). AIAG includes many OEMs, tier one, and tier two suppliers. General Motors (GM) is currently very active with AIAG, as well as the Conflict-Free Sourcing Initiative. This kind of open, collaborative approach among partners and competitors across industries will be necessary to win the global fight against human traffickers.

There are other benefits to being a leader in this space. While it can be hard to measure and generate ROI in the short term, a strong stance against human trafficking shows customers and employees that you mean well for the world; that it’s about more than just the numbers, which can improve company reputation and the public’s perception, leading to growth, in the long run.

Human trafficking is a complex, heart-wrenching problem – not just another checkbox to review with legal. It concerns human safety and freedom of life. It’s personal. If any company inadvertently has a hand in enabling human trafficking, they are responsible for standing up against it.

Brian Alster is Dun & Bradstreet’s Global Head of Supply & Compliance. By incorporating customer feedback and industry insight into product strategy, Alster develops innovative solutions that solve challenges for procurement and compliance professionals in business.