Three ways to combat the risk of forced labor in supply chains
Research shows that forced labor touches every supply chain. But there are some practical steps you can take to reduce the chances of it infiltrating yours.
Kilian Moote is the project director for KnowTheChain, a Humanity United project dedicated to helping businesses and investors understand and address labor abuses within their supply chains.
With more than 20 million victims of forced labor around the world, it's likely that no company's or industry's supply chain is protected from this heinous crime.
The International Labour Organization, a specialized agency of the United Nations, defines forced labor as situations in which persons are coerced to work through the use of violence or intimidation. Forced labor taints every company's supply chain and has been documented in production stages as diverse as the manufacturing of electronics, the extraction of gold, the catching of seafood, the production of apparel, and the harvesting of palm oil. Furthermore, 71 percent of companies believe there is a likelihood that forced labor could occur in their supply chain, according to a recent survey by the Ethical Trading Initiative, an alliance of companies, trade unions, and nongovernmental organizations (NGOs) that promotes respect for workers' rights around the globe.
It is crucial that procurement departments understand how their decisions are connected to forced labor. The procurement department is the part of the business most likely to come into contact with forced labor. Additionally, the increased awareness of forced labor has led to more regulations requiring purchasing departments to work proactively to ensure they're taking adequate steps to address and prevent this problem.
What can a company do to ensure its procurement department can successfully mitigate the risk presented by forced labor? While there is no "silver bullet" solution that will completely protect companies, there are some practical steps they can take.
1. Address practices that drive risk
There are certain practices that contribute to a company's risk of forced labor. For example, failing to evaluate a supplier's capacity to fulfill a purchase order before awarding the contract may lead to unauthorized outsourcing. Outsourcing decreases the potential for oversight and creates an environment in which unauthorized sub-suppliers can engage in abusive practices.
Additionally, feeding widely fluctuating demand signals to suppliers also increases the risk of forced labor. As suppliers rush to meet unpredictable demands, they may turn to unscrupulous labor brokers to bring in bonded laborers, who are required to work around the clock without pay. When a company's procurement department can instead provide accurate forecasts to its suppliers, it can help them prepare for increased demands while ensuring that they have the capacity to fulfill the order. According to KnowTheChain's benchmark report on the information and communications technology (ICT) industry, Ericsson, for example, strives to provide medium to long-term forecasts to its suppliers to allow for long-term planning and an even workload.
2: Build strong tracing efforts
A skilled procurement officer knows that it is important to understand where specific inputs and commodities are coming from. Supply chain tracing efforts can not only reduce forced labor risks but also help increase the general knowledge of the supply chain. KnowTheChain's newest benchmark report on food and beverage companies shows that more and more companies are implementing processes to trace elements of their supply chains.
This is particularly important for companies in the food and beverage sector, which are often sourcing a diverse set of commodities produced in higher-risk countries. The U.S. Department of Labor's annual list of goods produced with forced and child labor identified 19 different food commodities with documented instances of forced labor.
In short, you cannot manage what you don't see. For many procurement officers, tracing inputs and commodities is a prerequisite for taking action to address forced-labor issues or reduce risk.
3. Collaborate with competitors
It is rare for a company to collaborate with its competitors, especially when it comes to its supply chain. However, addressing forced labor is a shared challenge. In fact, addressing the deep-rooted risks, which are often happening beyond the first tier of suppliers, requires engagement with a company's industry peers.
Companies that work together through industry associations or other collective dialogues recognize that they all benefit from a supplier and sourcing network that rewards responsible practices and prohibits forced labor. Cohesion is imperative when creating common industry standards or sharing audits on suppliers, which can strengthen an industry's practices and protect the workers that all companies depend on. The Electronic Industry Citizenship Coalition (EICC) for information and communications technologies (ICT) companies, Fair Labor Association (FLA) for garment manufacturers, and Consumer Goods Forum for consumer packaged goods companies are all examples of industry groups working to engage competitors on some of the collective supply chain challenges they face. These types of groups provide an opportunity for industry peers to engage in conversations about shared risks, such as the exposure they all may have to a certain commodity. The discussions, commonly known as pre-competitive forums, can allow for the sharing of effective strategies and best practices that do not compromise their individual businesses' positions.
In a globalized world, purchasing and supplier relationships have become a key differentiator. Yet, no global company with thousands of suppliers and multiple stages of production has complete visibility into its supply chain; such opacity creates forced-labor risks for all companies. Engaging the purchasing department and determining how best to strengthen procurement decisions and practices is a necessary starting point for companies looking to meaningfully address and prevent these risks.
A hefty 42% of procurement leaders say the biggest threat to their future success is supply disruptions—such as natural disasters and transportation issues—a Gartner survey shows.
The survey, conducted from June through July 2024 among 258 sourcing and procurement leaders, was designed to help chief procurement officers (CPOs) understand and prioritize the most significant risks that could impede procurement operations, and what actions can be taken to manage them effectively.
"CPOs’ concerns about supply disruptions reflect the often unpredictable nature and potentially existential impacts of these events," Andrea Greenwald, Senior Director Analyst in Gartner’s Supply Chain practice, said in a release. "They are coming to understand that the reactive measures they have employed to manage risks over the past four years will not be sufficient for the next four.”
Following supply disruptions at #1, the survey showed that the second biggest threat to procurement is seen as macroeconomic factors, which include economic downturns, inflation, and other economic factors. While more predictable, those variables can substantially influence long-term procurement strategies.
And the third-most serious perceived risk was geopolitical issues, including tariffs and regulatory changes, and compliance issues, including regulatory and contractual risks.
In addition, the survey also revealed that “leading organizations” are 2.2 times more likely to view energy availability and cost as a top risk; indicating a focus on future emerging risks. As electrification drives demand for power, brittle grid infrastructure raises concern about whether the energy supply can keep pace. Therefore, leading organizations recognize that access to energy will become a significant future risk.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
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Peter Weill of MIT tells the audience at the IFS Unleashed user conference about the benefits of being a "real-time business."
These "real-time businesses," according to Weill, use trusted, real-time data to enable people and systems to make real-time decisions. By adopting that strategy, these companies gain three major capabilities:
Increased business agility without needing a change management program to implement it;
Seamless digital customer journeys via self-service, automated, or assisted multiproduct, multichannel experiences; and
Thoughtful employee experiences enabled by technology empowered teams.
The benefits of this real-time focus are significant, according to Weill. In a study with Insight Partners, he found that those companies that were best-in-class at implementing automated processes and real-time decision-making had more than 50% higher revenue growth and net margins than their peers.
Nor is adopting a real-time data stance restricted to just digital or tech-native businesses. Rather, Weill said that it can produce successful results for any companies that can apply the approach better than their immediate competitors.
Weill's remarks came today during a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI" at at the “IFS Unleashed” show in Orlando, Florida.
For example, millions of residents and workers in the Tampa region have now left their homes and jobs, heeding increasingly dire evacuation warnings from state officials. They’re fleeing the estimated 10 to 20 feet of storm surge that is forecast to swamp the area, due to Hurricane Milton’s status as the strongest hurricane in the Gulf since Rita in 2005, the fifth-strongest Atlantic hurricane based on pressure, and the sixth-strongest Atlantic hurricane based on its peak winds, according to market data provider Industrial Info Resources.
Between that mass migration and the storm’s effect on buildings and infrastructure, supply chain impacts could hit the energy logistics and agriculture sectors particularly hard, according to a report from Everstream Analytics.
The Tampa Bay metro area is the most vulnerable area, with the potential for storm surge to halt port operations, roads, rails, air travel, and business operations – possibly for an extended period of time. In contrast to those “severe to potentially catastrophic” effects, key supply chain hubs outside of the core zone of impact—including the Miami metro area along with Jacksonville, FL and Savannah, GA—could also be impacted but to a more moderate level, such as slowdowns in port operations and air cargo, Everstream Analytics’ Chief Meteorologist Jon Davis said in a report.
Although it was recently downgraded from a Category 5 to Category 4 storm, Milton is anticipated to have major disruptions for transportation, in large part because it will strike an “already fragile supply chain environment” that is still reeling from the fury of Hurricane Helene less than two weeks ago and the ILA port strike that ended just five days ago and crippled ports along the East and Gulf Coasts, a report from Project44 said.
The storm will also affect supply chain operations at sea, since approximately 74 container vessels are located near the storm and may experience delays as they await safe entry into major ports. Vessels already at the ports may face delays departing as they wait for storm conditions to clear, Project44 said.
On land, Florida will likely also face impacts in the Last Mile delivery industry as roads become difficult to navigate and workers evacuate for safety.
Likewise, freight rail networks are also shifting engines, cars, and shipments out of the path of the storm as the industry continues “adapting to a world shaped by climate change,” the Association of American Railroads (AAR) said. Before floods arrive, railroads may relocate locomotives, elevate track infrastructure, and remove sensitive electronic equipment such as sensors, signals and switches. However, forceful water can move a bridge from its support beams or destabilize it by unearthing the supporting soil, so in certain conditions, railroads may park rail cars full of heavy materials — like rocks and ballast — on a bridge before a flood to weigh it down, AAR said.
Imports at the nation’s major container ports should continue at elevated levels this month despite the strike, the groups said in their Global Port Tracker report.
To be sure, the strike wasn’t without impacts. NRF found that retailers who brought in cargo early or shifted delivery to the West Coast face added warehousing and transportation costs. But the overall effect of the three-day work stoppage on national economic trends will be fairly muted.
“It was a huge relief for retailers, their customers and the nation’s economy that the strike was short lived,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a release. “It will take the affected ports a couple of weeks to recover, but we can rest assured that all ports across the country will be working hard to meet demand, and no impact on the holiday shopping season is expected.”
Looking at next steps, NRF said the focus now is on bringing the International Longshoremen’s Association (ILA)—the union representing some 45,000 workers—and the United States Maritime Alliance Ltd. (USMX) back to the bargaining table. “The priority now is for both parties to negotiate in good faith and reach a long-term contract before the short-term extension ends in mid-January. We don’t want to face a disruption like this all over again,” Gold said.
By the numbers, the report forecasts that U.S. ports covered by Global Port Tracker will handle 2.12 million twenty-foot equivalent units (TEU) for October, which would be an increase of 3.1% year over year. That is slightly higher than the 2.08 million TEU forecast for October a month ago, and the strike did not appear to affect national totals.
In comparison, the August number was 2.34 million TEU, up 19.3% year over year. The September forecast 2.29 million TEU, up 12.9% year over year, November is forecast at 1.91 million TEU, up 0.9% year over year, and December at 1.88 million TEU, up 0.2%. For the year, that would bring 2024 to 24.9 million TEU, up 12.1% from 2023. The import numbers come as NRF is forecasting that 2024 retail sales – excluding automobile dealers, gasoline stations and restaurants to focus on core retail – will grow between 2.5% and 3.5% over 2023.
Global Port Tracker, which is produced for NRF by Hackett Associates, provides historical data and forecasts for the U.S. ports of Los Angeles/Long Beach, Oakland, Seattle and Tacoma on the West Coast; New York/New Jersey, Port of Virginia, Charleston, Savannah, Port Everglades, Miami and Jacksonville on the East Coast, and Houston on the Gulf Coast.