The Information Squeeze

Do any of the components in your product contain conflict minerals? Are they manufactured in sweatshops? Do their factories follow environmental best-practices? Are you sure about your answers?

These may be tough questions for many companies to answer. In fact, it seems as if many companies don't want to know the answers. But the days of secrecy in your supply chain are over. Government regulations, as well as demands from consumers, are forcing companies to not only ask these questions, but to share publicly the answers.

If supply chain transparency is not a top strategic issue in your company, re-evaluate your priorities. The issue is taking on a new urgency as new laws and regulations requiring identification, tracking, and reporting on materials, components, and working conditions start kicking in.

As of January 2012, the California Transparency in Supply Chains Act requires companies that sell goods in California (i.e., everybody) to disclose what efforts, if any, they are undertaking to eliminate forced labor and human trafficking from their supply chains. The law assumes, of course, that companies are aware of any such activity at any point in their supply chains. (You can find a good description of the act and its requirements here.)

Meanwhile, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 contains provision requiring companies to identify and disclose whether their products contain any minerals from the Democratic Republic of Congo. Although the US Securities and Exchange Commission has been dragging its feet in coming out with final rules, Congress recently sent a letter chiding the agency for the delay and asking for quick action. Presumably, the regulations will be issued soon. (See: The Great Congo Paper Chase.)

And starting in September, a provision included in the National Defense Authorization Act is going to require government contractors to systematically identify and report on any counterfeit or suspected counterfeit parts in their supply chains. Apparently, even when these companies find counterfeits, they don't readily share that information. Not only don't they share the information with the government and industry -- they are supposed to file a GIDEP (Government-Industry Data Exchange Program) report -- they don't even share the information with other divisions within their own company, according to a speaker at a recent conference on counterfeit electronics.

These are just three examples of the growing pressure for supply chain transparency. Yet the industry seems ill-equipped to deal with these requirements. Most companies do a poor job of tracking information on materials, component sources, working conditions, and environmental impacts in their supply chains, according to Gil Friend, CEO of Natural Logic, a sustainability consultancy. In a recent report from the Wharton School, "Greening the Supply Chain: Best Practices and Future Trends," Friend claims that even the world's largest corporations simply use Excel spreadsheets to compile the data. At one company, Friend found a senior vice president actually collating those spreadsheets himself.

It may have been an executive doing the work, but such an approach is far from strategic. How are you gathering and reporting this information? Do you have a strategy? Without one, the new requirements could put you at a competitive disadvantage.