Supply chain mapping and traceability

Analysis 04 Jul 2024

Robert Bailes

Supply chain transparency and upstream product and raw material traceability are increasingly subject to supply chain due diligence regulation. Whether it’s the EU Sustainable Batteries Regulation, the Corporate Sustainability Reporting Directive (CSRD) or the recently approved Corporate Sustainability Due Diligence Directive (CSDDD), companies are legally obligated to not only understand their upstream supply chains and the origins of the raw materials, products and services they procure, but to take steps to assess, mitigate and remediate negative social and environmental impacts.

As supply chain transparency pressures increase, we consider some of the typical issues this raises for companies, as well as some of the potential digital solutions available today.

Traceability, but for what purpose?

Supply chain mapping and traceability itself is not an end goal. Before embarking on a data gathering exercise, companies must consider how they intend to use the arising data. With VANTAGE ESG Solutions, we encourage clients to think through the actions and decisions they need to make on that data, as well as the underlying processes and resources required to enable that. For supply chain due diligence, this is typically ascertaining the level of ESG risk associated with a specific supplier entity and making ‘go/no-go’ sourcing or remediation and engagement decisions.

Supply chain data: here, there and everywhere

Some companies lack data, and what data they do have is fragmented and lacks digitisation. The first step for these companies is to digitise and to improve procurement systems and processes.

More commonly, however, we find that companies are collecting some form of data on their upstream supply chains, but that the data is being collected for another purpose and therefore not in a form, or subject to a process, that can fulfil the due diligence requirement. With Control Risks’ VANTAGE ESG Solutions, our advice to companies is to mine existing data sources first and, where possible, to augment that data and introduce a new compliance system or process around it. This is not always possible, though, and some companies will have no choice but to invest in a new digital platform.

How far back in the supply chain do I need to map?

This depends on the specific due diligence regulation and its associated requirements. Some are very specific, whilst others are open to some interpretation:

The EU Deforestation Directive (EUDR) requires companies to trace agricultural commodities in high-risk origins back to the production unit
The EU Sustainable Battery Directive requires companies to ‘establish and operate a system of controls and transparency regarding the supply chain, including a chain of custody or traceability system, identifying upstream actors in the supply chain’.
CSDDD refers to ‘chain of activities’, the scope of which includes the upstream (Tier N) supply chain based on a risk-based approach
The German Supply Chain Act is focussed on tier 1 suppliers only, but should cover sub-tier suppliers if there is evidence or allegation of violations (social or environmental) at that level

Where interpretation is required, our advice to companies is to map as far back in the supply chain as is necessary to be able to identify and manage the sustainability risk and/or to fulfil the principles set out in the regulation.

What mapping solution do I need?

As supply chain due diligence obligations increase, so too has the volume of SaaS providers offering supply chain mapping, ESG compliance and traceability solutions. The vendor market is broad and diverse depending on the commercial business need and function it seeks to serve. As a result, companies often find it challenging to identify the type of mapping solution they need for their supply chains, their level of maturity, at the right price point.

We’ve highlighted a few options to consider:

Automated supplier ESG information cascading: These platforms connect to existing ERP systems and automatically cascade supplier ESG information/data requests down through the different tiers of the supply chain via an automated process and platform. Whilst not a traceability solution per se, the buyer is able to build a picture of their multi-tier supply chain – and associated ESG risk/compliance – as suppliers at different tiers are requested to declare their sub-tiers and provide relevant ESG data and information.
Supply chain data and mapping providers: There are an increasing number of data platforms specialising in supply chain entity mapping. These platforms draw on publicly available trade records such as bills of lading to build up a picture of supply chain linkages and product/material flows. Some of these platforms are beginning to integrate sustainability risk assessment data and layers now as well.
Digital Product Passports (DPP): Digital product passports, now mandated by the EU (by 2026) for all electric vehicle batteries placed on the EU market, are designed to collect supply chain and product sustainability data and to share that with multiple stakeholders across the value chain, including consumers, customers and regulators. DPP’s are seen as an important building block for building circular supply chains.

It’s not possible to account for every platform on the market today, and each solution has its own value and focus, whether its approach is sectoral (e.g., textiles, agricultural commodities), product and raw material focused (Batteries, Conflict/Critical Minerals) or dependent on the business need it seeks to serve.

Through VANTAGE ESG Solutions, our advice to clients is therefore to be clear on:

What is the supply chain mapping data you are seeking and for what purpose? Is it for ESG compliance, or is there a wider, adjacent business value proposition such as resiliency or circularity?
What decisions will that data support? Who will use the data internally, and how will they use it?
Is the business collecting this or similar data already, and can an existing data collection process be leveraged or enhanced?
How can the data be integrated into existing day-to-day risk and procurement decisions?

For more information on how we approach supply chain ESG due diligence, please get in contact - https://www.controlrisks.com/our-products/vantage/enquiry