How to Prepare for Emerging Supply Chain Regulations
New regulations are coming online around the globe, and they will soon impact supply chains across every sector. While organizations have long viewed their supply chain through the lens of quality and cost, they will now have to consider strict compliance requirements in areas like sustainability, environmental impact, and human rights.
Many of these compliance burdens will not only apply to companies, but also to their third-party contractors and suppliers in all tiers. As they strive to assess risk and ensure compliance with these new regulations, the complexity of their supply chains, and the involved decision-making, will increase significantly.
Organizations must prepare now for these emerging supply chain regulations. Two areas to prioritize include: gaining better visibility into suppliers and third parties through new technology and platforms, and using supply chain modeling to reduce risk, visualize tradeoffs, and make optimal decisions.
New Supply Chain Regulatory Compliance Imperatives
Driven by climate change and public perception, there is growing momentum for governments worldwide to raise the bar for sustainable and ethical practices in the global economy. The global and interconnected nature of supply chains means that regardless of where they are enacted, the impacts of these regulations will ripple across the globe.
In the United States, sustainability remains a priority for the Biden Administration. The administration has added more than 40 new policies,1 including regulations that lower limits on methane emissions. It’s expected that the administration will put more policies and regulations in place in coming months. In addition, the governors of both New York and California have also enacted executive orders to end the sales of new internal combustion cars and trucks by 2035. Combined with the growth of the electric truck market in the coming years, there will be growing pressure to shift supply chain transport to EVs.
Regulatory momentum is also growing in Europe. The German Supply Chain Due Diligence Act includes a set of operating practices and procedures around human rights and environmental standards. It will go into effect in January 2023 and applies to companies with 3,000 or more employees, carrying fines of up to EUR 8 million. It will require companies to fulfill due diligence in internationally-recognized human rights and environmental standards like freedom of association, child labor, unsafe working conditions, use of subcontractors, discrimination, and environmental degradation. The most pressing issue for many companies will be in third-party risk management.
The Fit for 552 legislation in the EU also aims to bring together the EU’s 27 countries to collectively reduce greenhouse gas emissions to “net-zero” by 2050. It will raise the cost of carbon for transport, create new taxes for high-carbon transportation, and implement carbon border taxes for imports like steel, aluminum, and cement.
Greater Visibility and Modeling for Complex Decisions
As these new regulations will force industries to adopt more sustainable methods and business practices, they will have to scrutinize their supply chain carefully. Decision-makers will now not only have to consider quality and cost of goods, but also things like environmental impact, sustainable sourcing, and human rights implications. While some companies may have already invested in programs to address these variables, they will be held to enforceable standards moving forward.
These new compliance requirements will increase the need for greater visibility in the supply chain and more nimble decision-making. Companies need to prepare to design their supply chains and systems to meet these new regulations. One particular area of focus will be in transportation and CO2 reduction, which will impact shipping, aviation, trucking, and how companies move goods through the supply chain. Transportation alone accounts for approximately a quarter of all the EU’s greenhouse gas emissions, and the Commission has a target of decreasing these emissions by 90 percent by 2050.
Labor and human rights standards could also significantly impact sourcing and procurement, forcing companies to re-evaluate their suppliers and third-party providers. Increased scrutiny will lead many to standardize practices across borders, holding some suppliers to new labor standards to which they previously weren't accountable. They will need to undertake a comprehensive risk analysis and develop policies and processes to ensure compliance throughout the supply chain. This may call for a comprehensive review of supply chain contracts in many cases.
How Coupa Can Help
Ensuring supply chain regulatory compliance in this complex environment calls for enhanced visibility in the supply chain and dynamic processes to manage risk.
New technologies can help companies adapt to these regulations by offering greater visibility across the entire supply chain and identifying and selecting the best options. Coupa can help manage third-party risk by requesting, controlling, and monitoring suppliers, vendors, distributors, and resellers. Through modeling tools like Coupa Supply Chain Design & Planning, they can also more clearly understand their decisions' impact by planning contingencies in specific scenarios and the outcomes of switching suppliers.
Want to dive more into supply chain regulations and how to prepare for them? Watch a recent webinar with KPMG and Coupa! This webinar included an in-depth discussion about the Supply Chain Due Diligence Act and similar ESG legislations and Supply Chain organizations support sustainability efforts. Learn more and sign up to watch the replay here.
1 Tracking Biden’s environmental actions, Juliet Eilperin, Brady Dennis, John Muyskens, Washington Post, 7 Apr 2022
2 "Fit for 55," Council of the European Union, 25 Mar 2022.