Tips for managing supply chain compliance risks

In light of the new, heightened regulatory requirements surrounding supply chain compliance in the UK and around the world, it’s vital that businesses understand the complexities of how supply chain compliance works.

There's significant financial and legal risks for businesses that do not follow the stringent regulations in place in the UK around supply chain management, such as fines, sanctions and even financial losses, not to mention potential reputation damage. 

This can feel a little daunting, but if you have all your ducks in a row, there should be no reason for your business to be impacted. 

In this blog, we dive into exactly what supply chain compliance is, the essential tips for managing supply chain and compliance risks to ensure full transparency at every step of the process, along with the support Procurement Hub can provide for companies looking for guidance in how to navigate these complexities. 

Jump to:

·         What is supply chain compliance

·         What are supply chain compliance risks

·         Supply chain compliance risk examples

·         How to manage supply chain compliance

·         Supply chain compliance specialists

What is supply chain compliance?

Supply chain compliance is how companies follow and apply regulations, relevant laws, quality and industry standards to their operations – ensuring a company has fully transparent operational procedures that ultimately manages any risks, legal issues or penalties, and potential issues with regulatory compliance. It’s also important in managing your company’s reputation and contributes to a more positive society, as well as helping the environment.

It involves ensuring all aspects of a company's supply chain follow relevant laws, environmental goals, regulations, standards, and ethical practices. This includes meeting regulatory requirements like environmental laws and labour standards, whilst also upholding ethical guidelines, such as prohibiting child labour and ensuring fair wages. 

It’s also important that companies ensure that their suppliers meet quality standards and that their operations minimise environmental impact through sustainable practices as well as risks like cybersecurity threats and supply disruptions to maintain operational efficiency. 

With a bigger focus on UK net zero targets and an increase on social and governance (ESG) compliance requirements means that companies must be more aware than ever before.

What is supply chain risks?

Some of the key aspects of supply chain compliance that companies should be aware of include:

One of the riskiest aspects of any supply chain is corruption, potentially opening the door to passive or even active bribery, if the proper processes are not in place. It's for the organisations themselves to drive more positive change in their supply chain management, which is why having the right compliance processes in place have never been more important - making them well placed to respond to potential challenges and protecting against future risks.

Supply chain risk examples

Typical supply chain risks can include a range of legal, ethical, and operational challenges that can result from a company’s relationships with suppliers, that potentially leads to severe legal repercussions, reputational damage, and business disruptions if not properly managed.

Here’s five typical examples of supply chain risks:

1. Labour and human rights violations: Some of these risks include child labour, forced labour, minimum wages, working time regulations and unsafe working conditions. These can lead to legal consequences and severe reputational damage.
2. Environmental and product safety compliance: In some cases, you might find that suppliers violate environmental laws like pollution, resource mismanagement or fail to meet product safety standards, leading to legal penalties and product recalls. The UK’s Modern Slavery Act is a good example of this and lays out specific legislation for how the supply chain should be managed.
3. Corruption, bribery, and trade compliance: If a business engages with suppliers involved in bribery, corruption, or companies violating trade sanctions and export controls can result in fines, legal action, and ultimately damage to the company’s reputation.
4. Data security and privacy violations: Poor cybersecurity practices and mishandling of personal data by suppliers can lead to data breaches, violating laws like GDPR and causing significant trust issues.
5. Lack of transparency and ethical sourcing: Some of these risks can include non-compliance with documentation requirements, unethical sourcing practices like conflict minerals, animal welfare concerns, and undisclosed subcontracting, which can lead to legal and reputational challenges.

How to manage supply chain risks

To manage supply chain compliance effectively, companies should implement a comprehensive approach that includes the following key strategies:

1.      Due diligence: Conduct thorough background checks on suppliers, assessing their adherence to legal, ethical, and environmental standards. This can involve reviewing certifications, conducting audits, and verifying their compliance history.

2.     Contractual agreements: It's important to establish clear and enforceable contracts that outline the compliance expectations and standards for suppliers, including labour practices, environmental responsibilities, and anti-corruption policies. Include clauses for regular audits and penalties for non-compliance.

3.     Regular audits and monitoring: Businesses should perform regular audits of suppliers to ensure ongoing compliance with regulations and contractual obligations. You could use third-party auditors where necessary and implement monitoring systems to detect any potential compliance issues in real-time.

4.     Training and support: Provide training and resources to suppliers on compliance requirements, helping them understand the importance of adhering to legal, ethical, and environmental standards. This can include workshops, documented guidelines, and continuous communication.

5.     Supply chain transparency: Maintain transparency throughout the supply chain by tracking the origin of materials, the working conditions in factories, and the environmental impact of production processes. This can be achieved through supply chain mapping and regular reporting.

By integrating these strategies, companies can significantly reduce the risk of compliance issues within their supply chain, ensuring legal adherence, good ethical practices, and sustainable operations.

Using supply chain compliance specialists

With help from a supply chain compliance specialist, like Procurement Hub, organisations can feel empowered that their supply chains are being adequately managed, with the correct controls and processes in place to ensure full transparency.

With support from our expert specialists, organisations can implement bespoke solutions for their business’ unique supply chain compliance risks. We can help to:

1.      Identify and eradicate any current misconduct or non-compliance

2.      Implement the processes needed to respond to potential future issues

3.      Provide a expert advice around how to continuously build on and improve processes and procedures.