Forced labor remains a significant issue in global supply chains, with over 27.6 million people trapped in exploitative conditions across industries like agriculture, textiles, electronics, batteries, and manufacturing.
Up to 75% of the battery supply chain is at risk of forced labor and child labor practices. This is an unacceptable reality that we must confront head-on.
Addressing this issue is not only crucial for compliance with regulatory frameworks such as the U.S. Uyghur Forced Labor Prevention Act (UFLPA) and the European Union Forced Labor Regulation, but also a financial imperative. Companies with forced labor in their supply chains risk severe fines, import bans, and virtually irreparable reputational damage.
To get or stay compliant and to protect revenue (and exploited people), here are four steps for businesses to proactively identify and remove forced labor in their supply chains.
1. Leverage Data and AI to Map Your Supply Chain
The first step is to gain comprehensive visibility into your supply chain. This means going beyond self-reported supplier information and utilizing advanced data and artificial intelligence to map out the full network of suppliers, sub-suppliers, and the flow of materials. Supplier intelligence tools and AI can help you sift through thousands of data sources, illuminate the relationships between companies, identify high-risk geographies, and flag potential forced labor red flags.
For example, are your suppliers or sub-suppliers located in regions that are notorious for forced labor, like Xinjiang, China?
These maps have a huge payout. We recently worked with one major original equipment manufacturer (OEM) to develop a network map. It revealed that one of its battery suppliers was sourcing raw materials from a high-risk region. They immediately sought alternative suppliers, preventing regulatory and reputational issues before they arose.
2. Create Audit and Due Diligence Processes
Once your supply chain is mapped, the next step is to implement a robust audit and due diligence system. These processes ensure that you’re continuously monitoring for forced labor risks and can respond fast to violations.
First, focus on high-risk suppliers or industries like mining, agriculture, and textiles. Use supplier risk assessments to evaluate everything from workforce conditions to sourcing practices. Data is your best friend here: Third-party databases and audit services can pinpoint risks that might not be immediately visible.
Audits should cover tier-one suppliers along with subcontractors and raw material providers. Forced labor very often occurs deep within the supply chain and in places that aren’t immediately visible. Routine audits and compliance verification should be performed both on a schedule and at random.
Under the UFLPA, companies must provide documentation to prove that goods entering the U.S. were not produced with forced labor. A well-planned and structured due diligence system meets these demands and avoids business disruptions.
Additionally, working with non-governmental organizations (NGOs) or local organizations can provide valuable information about local suppliers, especially in regions where transparency is limited. NGOs often have firsthand knowledge of supply chain issues and can help identify risks that might go unnoticed in conventional audits.
3. Look for Red Flags in Your Supply Chain
After an audit and due diligence system are in place, you should look for red flags in your supply chain that could indicate forced labor is present.
They can be difficult to spot, but they typically appear as irregularities in supply chain operations. Businesses should look for the following to identify concerns before they become a bigger issue:
● Sudden changes in supplier locations: If a supplier moves production to a high-risk region without explanation, or significantly reduces its workforce while maintaining production levels, you should explore further.
● Irregular shipment patterns: Unexplained increases in shipments from high-risk regions or discrepancies in shipping schedules that don’t match up to production timelines could signal forced labor. For example, a supplier could suddenly ship more than expected – a signal that unethical or forced labor is being used to meet demand.
● Workforce data discrepancies: Look for inconsistent hours worked, or wages paid, particularly in regions with known labor abuses. Subcontractors could try to mask forced labor by manipulating payroll or the number of on-site employees.
● Unusually low pricing: If a supplier’s pricing is far below market averages, they might be implementing unethical labor prices to improve margins or be more competitive.
4. Replace High-Risk Suppliers or Expand to New Regions
After you’ve identified forced labor, you will need to address it. That might involve finding new suppliers in a region you already operate in, replacing problematic suppliers, or sourcing materials from a region new to the business.
If red flags emerge for a critical supplier, first assess whether your supplier can correct the issue. If they can’t, you’ll need to replace them. In rare cases, a high-risk region might be critical to your supply chain, thus finding new suppliers within the same region may be your only option. Use tools like trade databases or NGO reports to identify suppliers with proven compliance records or certifications.
Another option is to explore entirely new regions for sourcing. For example, if sourcing from the Democratic Republic of Congo poses too much risk, you might look to suppliers in Brazil or Indonesia with a history of better labor practices. Remember, however, that shifting to a new region requires careful due diligence, as different regions pose different challenges. You may still encounter forced labor conditions in new regions, like a Chinese electric vehicle manufacturer recently did in Brazil.
Building Ethical and Resilient Supply Chains
As forced labor regulations like the UFLPA and EU Forced Labour Regulation gain momentum, companies that fail to be proactive and account for these laws risk massive fines, import bans, and PR nightmares.
Technology like AI and machine learning can make for more ethical and transparent supply chains by analyzing supplier data, detecting anomalies, and providing N-tier visibility across supply chains. It can also analyze trade records, shipping data, and workforce documentation in real-time to identify and address forced labor risks faster and more accurately.
By pairing technology with thorough due diligence programs and regular monitoring, businesses can reduce their exposure to forced labor, create more ethical practices across their supply chains, and protect revenue.
