Transparency is better

Globalisation and digitalisation confront Swiss companies with tricky compliance issues. Technological progress is making supply chains more fragmented, and manufacturers now have suppliers all over the world. For example, a supplier of fully automatic coffee machines whose components come from Asia. The appliances are merely assembled in Switzerland. The manufacturer derives great prestige from its Swiss location, but may not be able to say exactly under what conditions raw materials are extracted, components manufactured and preliminary products assembled.

Emerging issues through global supply chains
Raw material producers, processors and suppliers of components often come from regions where there is neither an administration comparable to European standards nor the corresponding legal basis. For example, chromium and nickel: these two metals are important components of corrosion-resistant steels such as Cromargan or Nirosta, which are also found in most household appliances and many other products.

However, their extraction raises questions. There are deposits in South Africa, Kazakhstan and India (chrome), as well as China, Russia and Cuba (nickel), where they are often extracted in labour-intensive open-cast mines. But do the final manufacturers know under what conditions the raw material was produced, whether working time laws and environmental regulations were observed? Due to the many intermediate steps in the global supply chain, the raw material extraction is very far removed from the branded product. However, situations are conceivable in which compliance problems in the supply chain come closer, for example as a result of media inquiries about occupational health and safety and human rights.

It therefore makes sense for a company to be able to provide precise information about its global supply chain at all times. For EU companies, this is even mandatory, because since 2017 there has been a reporting obligation on the topic of "Corporate Social Responsibility". Via foreign branches or subsidiaries, many Swiss companies are also affected by this, although the federal government has so far refrained from passing its own legislation on this issue. However, many internationally active companies in Switzerland already use CSR instruments and publish voluntary sustainability reports.

Responsibility in international supplier networks
Not only in view of the increasing regulatory pressure, compliance in international supplier networks is a major challenge for companies and can have significant economic consequences if problems arise. This is particularly true for companies in industrial production, which traditionally has a large number of suppliers of materials, components and preliminary products. Cross-border trade and the relocation of manufacturing processes to developing and emerging countries enormously increase the complexity of the supply chain and the resulting liability risks

In addition, the laws of different countries and regions must be complied with. This can be difficult in individual cases, as companies have to bring requirements and standards down to a common denominator for this. In addition, numerous non-governmental organizations exert pressure. How can companies avoid reputational damage caused by a lack of compliance, which often has consequences such as a decline in sales and profits or a sharp drop in the stock market?

In the European single market, it has become common practice for companies to demand compliance with certain rules from all suppliers and processors - no business without agreement to the compliance code. It is not that simple in a global context. Those who have suppliers in less regulated countries with low compliance standards are exposed to a high risk. The greatest difficulty lies in achieving transparency throughout the entire supply chain and finding methods for exercising supplier responsibility. Modern digital technologies can help increase supply chain visibility and reduce audit and reporting costs.

Technology as a tool for compliance
To reduce compliance risks, it is essential to know exactly who the suppliers are and where they are located. In doing so, companies must also look at the suppliers of suppliers. After all, supply chain transparency is ineffective if it doesn't go beyond the first stage. But this is easier said than done. Many companies are therefore considering technological solutions that can identify potential risks more easily.

Database systems help to manage complex supply chains. This gives manufacturers an overview of which raw materials, components and primary products are used at the individual locations. In addition, they must know exactly which compliance documentation or waiver is required for each individual component. Keeping an inventory list is therefore of central importance. This is the only way to obtain an accurate picture of the extent to which one's own company is exposed to risks.

Cloud Platforms provide a simple, straightforward data interface. Quick access to the right information and the ability to initiate and control actions helps reduce the likelihood and severity of potential problems - for example, in a factory that does not provide adequate workplace safety or in a warehouse that does not meet local safety requirements.

Platforms and IoT technologies for logistics

Performance Management Platforms enable suppliers to register themselves and feed their data into it. This can reduce the time-consuming administration involved in implementing code-of-conduct surveys, for example. Companies can thus map their "supply chain hotspots" in software with a reporting function and, by evaluating and analyzing data streams, better understand where suppliers are located, how many employees are employed there and what "risk rating" is associated with them.

Collaboration and communication with corresponding online solutions are not only helpful within the company. Many manufacturers already use such solutions for their own departments and subsidiaries. They can therefore easily extend them to the supply chain for communication with suppliers. They facilitate the exchange of news and notes in a chat room environment. This encourages collaboration and makes it easier to see how risk management is progressing. Defined interfaces to supply chain management solutions also give manufacturers the ability to view all data on individual suppliers at the touch of a button.

The Internet of Things allows hardware solutions that enable tracking of all types of transport containers or entire workpieces. When implemented as a complete end-to-end solution from raw material to end product, they can provide conclusive data for compliance. Blockchain technology is also being explored in some companies for this purpose. It enables the forgery- and tamper-proof storage of data, making material flows verifiable and traceable at all times.

Through these different approaches with software and hardware, it becomes clear that the effective use of modern technology offers companies a streamlined, centralized and viable way to collect data, establish information flows, assess risk, enforce compliance and monitor supplier performance.