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Driving upstream compliance: Proactive supply chain management for global manufacturers

In a world where supply chain disruption has become increasingly common, comprehensive visibility and resilience are more than just risk management tools — they can represent a genuine competitive advantage.

18/12/2024 · 6 minute read

Recent enforcement actions by US Customs and Border Protection (CBP) regarding trade compliance have highlighted the critical importance for manufacturers to evaluate their direct and indirect supplier relationships. In the past 12 months alone, CBP has executed over 8,800 enforcement actions through product seizures under the 2021 Uyghur Forced Labor Prevention Act (UFLPA), which took effect on June 21, 2022. This legislation prohibits the importation of goods into the US that were manufactured wholly or in part using forced labor from China's Xinjiang region.

Data from US CBP shows that the most significant amount of seizures by value originated from Malaysia, Vietnam, and Thailand, followed by China. Based on Altana’s analysis, a total 938,991 companies tied to forced labor were observed. This impacts 785,415 direct (first tier) trading relationships to US importing companies and 6,871,643 indirect (second tier) trading relationships. The data revealed 590 distinct industries were affected and 183 distinct countries supplied. This complex network of international shipment routes demonstrates the challenge of maintaining visibility across global supply chains.

Organisations can no longer claim ignorance as a defense for noncompliance. With the burden of proof for demonstrating compliance placed primarily on importers under current cross-border trade compliance regimes, manufacturers should proactively monitor their upstream suppliers and maintain vigilance over their products' origins and movement.

An ethical and environmental crossroads

The auto and technology industries face particular challenges with ethical and sustainable sourcing, given their heavy reliance on raw materials like lithium, cobalt, nickel, graphite, and manganese. These materials, critical for manufacturing, often originate from regions with elevated risk of labor violations.

The situation is further complicated by rising demand for critical minerals, which are essential for electric vehicle batteries — a top priority as part of the global energy transition. The push for ethical and sustainable sourcing goes beyond mere compliance; it represents a direct response to growing consumer awareness and demand.

Understanding supply chain vulnerabilities

Few manufacturers have clear visibility of suppliers beyond Tier 1 and Tier 2, with most exposure existing above Tier 1. To address this challenge, Marsh McLennan entered into a strategic partnership with Altana, the world's first value chain management system, to facilitate comprehensive supply chain mapping and risk monitoring capabilities for clients. 

According to Altana's analysis of US CBP data, $1.43B worth of products or components have been seized in 2024 across 8,878 cases. The data reveals that most of the exposure is concentrated in Tiers 2 through 4, specifically for entities shipping directly from the UFLPA enforcement zone. When examining exposures across supplier tiers, Altana identified 4% of exposures at Tier 1, 28% at Tier 2, and 68% at Tier 3. 

Complex routing patterns can further complicate supply chain visibility. Many shipments typically pass through multiple countries before reaching US CBP locations. Analysis of seizure data shows that Malaysia, Vietnam, and Thailand represented the highest shipment values, followed by China in fourth position and India in fifth. These indirect routing patterns can obscure the true origin of goods and make compliance verification more challenging.

Through advanced supply chain mapping and analytics, manufacturers may gain critical visibility into several key areas, including the: 

  • Number and location of suppliers flagged by UFLPA
  • Concentration of tiers in their supply chain before reaching US ports
  • Last shipping location before reaching US CBP
  • Percentage of OEM supply chain exposure in each tier

Understanding these elements helps organisations identify potential blind spots and vulnerabilities in their supply networks. For instance, while a manufacturer might have strong compliance protocols with its Tier 1 suppliers, significant risk exposure often lies in the less visible upper tiers where components or raw materials originate.

Three strategies to mitigate compliance risk 

For risk managers, legal professionals, and executives across global industries, compliance risk should be a top-of-mind concern now and into the future. Below are three key strategies that OEMs, manufacturers, and Tier 1 suppliers should implement in an effort to begin mitigating risk and working towards greater visibility and stability in their supply chains:

Perform due diligence in the pre-contract stage

It is critical to conduct thorough research before entering any binding, contractual relationship with a third-party supplier. Traditional processes like supplier questionnaires or due diligence programs tend to be costly and inefficient, pulling leaders away from other urgent objectives to evaluate suppliers' manufacturing processes, quality management systems, financial health, history of compliance, or track records delivering products on time.

Now more than ever, these processes are not enough to mitigate risk in the pre-contract stage. Manufacturers should adopt more streamlined, digital-first approaches that can save them significant manual effort through repeatable, scalable tools and processes.

Regularly scan your supply chain and scenario plan

Like any risk management approach, consistency is key — meaning annual or biannual supply chain reviews are insufficient in today's dynamic environment. Supplier relationships are subject to change, and manufacturers must maintain continuous visibility and oversight of their upstream relationships.

Effective scenario planning helps organisations prepare for potentially adverse events and align on a unified response. This involves developing proactive strategies to facilitate sustained compliance with evolving regulations, while simultaneously working to reduce the risk of penalties and reputational damage. Through comprehensive scanning and planning, manufacturers can better identify potential blind spots in their supply chains and implement necessary measures to address vulnerabilities, ultimately enhancing their overall risk management capabilities.

Verify suppliers and products when incidents arise

As regulatory bodies become increasingly strict about enforcing compliance across all tiers of the supply chain, manufacturers cannot assume they will be given the benefit of the doubt. When flagged by US CBP under UFLPA, organisations must act swiftly and methodically. This includes conducting immediate investigations into identified suppliers and products, performing independent research about the targeted entities, and maintaining detailed documentation of all verification steps taken, among other things. Organisations should establish and maintain clear communication channels with authorities while being prepared to demonstrate their due diligence efforts comprehensively.

Through these strategies, manufacturers can better position themselves to navigate the complex landscape of global supply chain compliance while maintaining efficient operations and protecting their reputation in an increasingly scrutinised marketplace.

Embracing innovation in the face of compliance risk  

Manufacturers cannot afford to wait for costly interventions before addressing compliance risk in their upstream relationships. Mitigating this critical risk requires a systematic approach that encompasses continuous validation and verification of supplier exposures, coupled with regular gap identification and assessment. Organisations should also implement targeted risk mitigation measures while maintaining proactive monitoring of potential blind spots in their supply networks.

In today's rapidly evolving regulatory landscape, traditional approaches to supply chain management may no longer be sufficient. Organisations should embrace technological innovation, including AI-powered analytics and advanced monitoring platforms, to achieve the level of visibility and control appropriate for effective compliance management.

To address these emerging challenges, Marsh McLennan has introduced Sentrisk, an innovative AI-powered platform that combines advanced analytics with integrated advisory services. Through proprietary analytics, organisations can more accurately pinpoint low, medium, and high-risk vulnerabilities down to the site, supplier, or component-specific level, enabling businesses to better understand their supply chain vulnerabilities and build stronger operational resiliency.

This integration of advanced technology with expert advisory services has transformed how businesses understand and manage their supply chain vulnerabilities. Companies stand to gain unprecedented insight into risks at every level, enabling more informed, data-driven decisions about their risk mitigation strategies.

In a world where supply chain disruption has become increasingly common, comprehensive visibility and resilience are more than just risk management tools — they can represent a genuine competitive advantage. Organisations that invest in these capabilities now will be better positioned to navigate future challenges while maintaining regulatory compliance and operational efficiency.

To learn more, speak with a Marsh representative.

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