Recently, supply chains have faced severe challenges. From empty store shelves to backordered products, the world has experienced the effects of supply chains unable to keep up with demand amidst global crises.
Companies looking to build resilient supply chains may benefit from using product compliance data. Harnessing this data can help companies create a solid supply chain strategy built for market resiliency in a global economy.
North American and European Supply Chains Under Intense Scrutiny
Recent history has shown us that a global, decentralized supply chain can face unique interruptions. First, worldwide populist movements, such as the United Kingdom’s exit from the European Union (commonly known as Brexit), highlighted the economic downsides of relocating manufacturing jobs out of more developed countries and into lower cost regions.
Then a global pandemic exposed the vulnerabilities of worldwide supply chains when they were confronted with unexpected shocks.
Most recently, geopolitical factors arising from the war in Ukraine, along with subsequent economic sanctions, have further highlighted the risks of dependence on foreign energy and raw materials sources.
The confluence of these factors has led to increased governmental regulations requiring key industries to build sustainable domestic supply chains.
For example, in the United States (US), the Biden Administration’s new Buy American Rule requires a higher percentage of federally purchased goods to be “Made in America” to increase and strengthen American manufacturing. The Buy American Rule will require 75% of the content of government-procured end products to be made in America by 2029. The first wave of these new requirements goes into effect October 25, 2022.
In the European Union (EU), the European Commission has created a list of critical raw materials (CRMs) that have a high importance in the EU economy and a high risk associated with their supply.
The EU’s supply of many CRMs is highly concentrated. China provides 98% of the EU’s supply of rare earth elements (REE), and Turkey provides 98% of its borate. South Africa provides 71% or more of its platinum, iridium, rhodium, and ruthenium. Some sources indicate that the EU may actually have only one single company that supplies all of its hafnium and strontium. The risks are also compounded by low substitution and low recycling rates for some of these substances. Such concentrated supply chains can be subject to vulnerabilities, especially in the face of global crises like the world has recently seen.
Product Compliance Reporting Has Laid the Groundwork for Meeting Supply Chain Challenges
In the early 2000s, while globalization and supply chain decentralization were rapidly expanding, the EU was focused on how to gather product data from these increasingly globalized supply chains.
New environmental requirements such as the End of Life Vehicles Directive (ELV); Registration, Evaluation, and Authorization of Chemicals (REACH); and Restriction of Hazardous Substances (RoHS) have required companies importing into the EU to report on the chemical composition of their products. This began a massive undertaking for companies to survey their entire global supply chains and understand the chemical composition of the materials they buy on the world market.
In the 2010s, additional worldwide regulatory requirements expanded the product compliance concept to required Country of Origin reporting. The US Dodd Frank Act and EU’s Conflict Minerals Regulation required companies to not only know what was in their products, but to also establish where the raw materials for some of their products originated.
Now, in the 2020s, the past 20 years of product compliance reporting have built an excellent foundation for meeting the challenges of decentralized supply chains which are subject to geopolitical risks. Indeed, geopolitical risk is merely another facet of sustainability; creating sustainable products includes the need to know what is in a product along with where in the world that product is produced.
Since such a large amount of work has already been done to connect the dots in the supply chain, companies can now reap the benefits of this labor and efficiently meet the new challenges of the 2020s. Product compliance efforts can be leveraged to establish supply chain resiliency by using existing processes, tools, and best practices.
Depending on the industry sector a company is in, several options may be available to establish a robust supply chain resiliency program that builds upon its product compliance foundation.
Product Compliance Benefits for Industry Specific Supply Chains
For 20 years, automakers have used the International Material Data System (IMDS) to create a materials database with hundreds of millions of datasheets describing the materials in automotive components in tremendous detail. Companies in the automotive industry should be able to harness this vast collection of information to find the data needed on components and suppliers to strengthen their supply chains.
Aerospace and Defense Industry
The Aerospace and Defense industry should also be able to use years of collected substance data. Companies in aerospace and defense can use the wealth of information from its substance of concern reporting: the Aerospace/Defense Declarable Substance List (ADSL).
Electronics manufacturers have been collecting RoHS data for at least 15 years in an effort to identify substances of concern that create environmental hazards. Much of what they have done uses the IPC reporting standards, which strengthens supply chain transparency by showing which suppliers supply which products. This provides complete traceability for vulnerabilities in the supply chain.
Companies in all industries have been required to collect conflict minerals information for many years now, and the repository of minerals information collected, coupled with country-of-origin information, is enough to map out supply chain vulnerabilities at a high level. The information collected for meeting conflict minerals regulations provides information on what is in the materials purchased and where in the world the components are produced, both key pieces of information for building resilient supply chains.
Get Help Building Your Resilient Supply Chain
If you are wondering where to start with strengthening your supply chain so it can meet the challenges of a global economy, get started with three major steps:
First, evaluate the current state of your product compliance program and how many data gaps it would fill in building a complete picture of your supply chain’s vulnerabilities.
Build internal competence so that your team is qualified to understand what regulatory and commercial requirements are important for your company’s supply chain resilience.
Once you know what needs to be done and have an internal understanding to proceed with executing a plan, you will need to implement tools, procedures, and processes to proactively manage your supply chain. This includes having the correct software in place, putting the right people in charge of various aspects of the work, and securing any outside resources you may need to stay on top of the challenges.
If you need help with any of these tasks for building a resilient supply chain, contact Tetra Tech’s product compliance experts today at [email protected]. We can help you understand the changes your supply chain may need to undergo to keep it resilient in the face of changing requirements and global challenges.