Opaque supply chains allow bad actors to operate freely and without accountability, leaving potential for any number of social or environmental harms to be carried out. This lack of understanding may previously have been tolerated, but a clear shift has more recently taken place in the mind of the consumer – indifference to the history of a product is no longer acceptable. Individuals are no longer impressed by the knowledge that nothing demonstrably bad has occurred in the manufacture of the goods that they buy, and are instead placing value on the knowledge that the impacts of their consumption have been mitigated by a responsible production process.

Greater supply chain transparency can be achieved in a number of ways, but it is important to understand in general terms that material information can almost always be provided at little to no cost by any actor in a supply chain. This information is not regularly given without request today, as it is not typically rewarded in the market, though other sharing hesitancies could occur; it is reasonable for a factory to anticipate that they could be unnecessarily criticised by revealing too much to their downstream partners, or there could instead be a more fundamental fear surrounding their organisation being cut from the chain.

Establishing the expectation for product details to be shared can in turn be tricky, though avenues of opportunity do exist. If the volume of trade between two businesses is high, then this can be leveraged to the benefit of the purchaser. If the buyer cannot use purchasing power to their advantage, then other incentives (such as preferred supplier status) could be employed.

In a world where ESG issues are at the forefront of consumer minds, it is now more than ever that difficult questions will be asked of industry, which will in turn echo down the supply chain.

Anonymity is no longer an acceptable argument for a lack of transparency, as the risk to the brand – and the world – is too great. It is our job as industry to facilitate transparency, to ensure that origins are known and risks mitigated. Tackling these problems supports our shared ESG responsibilities and builds consumer confidence, enabling our brands to grow.

TRG’s COP26 monitoring group response:

We have 100 countries signing up, and some of these signatories have substantial forest areas, which is a great start, but Climate Change is happening here and now and we need to act immediately if we are going to see a positive effect in time. Global forests absorb one third of annual CO2 emissions, but on average 28 million hectares of forest are cut down every year. There are some big questions that we need to ask the signatories such as the following:

• There is a commitment to stop deforestation in 8 years time, but what are the practical steps and measures that are going to be employed as we countdown to 2030?

• Most of the countries with the largest forests host the poorest people. How can we fairly and equitably incentivise local populations to protect and manage their forests in a sustainable way? Particularly where use of the forest region is shared with large corporations.

• How will signatories practically demonstrate their commitment to this declaration? What will be the physical proof? Will they permit and acknowledge the outcome of regular independent forest monitoring and reporting?

• What will be the sanctions caused by state failure to adhere to the declaration and who will impose them? Will it only be by embarrassment? Most of the individuals that have signed will have moved on in 8 years and be unembarrassable.

What drives deforestation is money, what will stop deforestation is investment. Through informed purchasing decisions, we as consumers of forest products or of products grown on deforested land, should support visibility of the upstream supply chain to enable good forest management to happen.

It is we as individuals and as participants in global industry who have the ability and responsibility to enact this 2030 commitment through transparency and investment, to ensure that the products we buy and supply do not cost us the Earth.

ESG performance by a company within its own boundaries can be qualified. But what about its supply chains? These often cross continents and influence actions taken by a range of distant connected international supply chain actors.

There are no all encompassing laws for qualifying ESG performance in supply chains and only a range of sector specific and often ‘E’ or ‘S’ or ‘G’ specific standards, but no generalised approach. The problem is that ESG performance in supply chains encompasses a massive slew of issues. There is no consensus on where in the supply chain to look; what to measure; and how to measure the ESG risks associated with it. Or how to report those risks. And these qualifications need to be undertaken in a manner that can be seamlessly replicated across a widely heterogeneous supply chain population.

Perhaps those that are currently debating this topic are all trying too hard to seek perfection – when perfection is the enemy of progress.

Practical methodology that works

Track Record Global (TRG) has been assessing risk in supply chains for the last 15 years. Although the focus was initially on ‘G’ alone (European Union Timber Regulation 2013) the same approach is successfully being used to qualify the full gamut of ESG risks in supply chains that deliver cotton, leather, recycled plastic, recycled paper; animal products (and other materials) by many of the UK’s leading retailers. The same approach is also used to qualify Forced Labour and Modern Slavery supply chain associated risks.

The TRG methodology consists of 3 principal steps:

Why this approach has brought results for our clients

Technology-enabled supply chain transparency is the key to monitoring, managing and mitigating the associated ESG risks. Technology driven solutions (like TRG’s) keeps costs low, efficiency high, makes the Assessment results accessible – being visible to clients, their shareholders/investors, customers, auditors and supply chain actors alike. Simplicity is key. There must be no ‘black box’ based risk results. Of course there are judgements about the appropriate documentation needed to mitigate risks. But if such judgements are science- or logic- based and completely out in the open then experience demonstrates there are no serious disagreements over the outcomes.

Complex indexes or algorithms should not be used if all the involved parties need to agree with the Assessment outcome.

And when high risks are identified, our client’s have been able to:

• Work with and improve performance of specific problem supply chain actors
• Swop out a poor performing supply chain actors for a better performing ones
• Replace irredeemable high risk supply chains in their entirety with ones proven to be low risk.

There will always be ESG risks in supply chains that initiate in countries or traverse countries where the regulatory capacity is low. But there are often means of effectively and objectively managing those risks.

We believe regular, repeatable supply chain risk monitoring, mitigation and management methods that are technology enabled, using a consistent transparent methodology, are a necessity for a business’s long term credibility – in the eyes of its investors, consumers, staff and auditors.

~ Frank Miller, TRG Managing Director

What’s different between EUTR and UKTR for timber importers?

• EUTR: currently if your business is based in the UK, and you are placing timber/timber products on the EU marketplace for the first time (i.e., imported from the rest of the world) you need to complete a risk based due diligence process to assess the likelihood that the products you are importing are legally traded from the forest of harvest to the point where you are clearing them through customs. You are in an Operator relationship with your supplier. If you are buying products that are already on the EU market place you are in a Trader relationship with your supplier. 
• UKTR: from 1st January 2021 if your business is based in England, Scotland, or Wales UKTR replaces EUTR and you need to add the all EU member states to the list of exporting countries where the products you purchase require risk based due diligence. So on that date your relationship with your EU suppliers changes from Trader to Operator.

What happens if my business is based in N. Ireland and I’m importing products directly from the EU, the rest of the UK and the rest of the world?

• Once the custom union ends, it’s different for N Ireland than for England, Scotland and Wales. From 1st January 2021 you treat your EU suppliers as still being in a Trader relationship and your rest-of-the-world suppliers as Operators. Nothing changes there. What does change,  however is your trading relationship with England, Scotland and Wales. They are treated just the same as the rest of the world and you must satisfy the needs of an Operator relationship ie – run those products through your due diligence system.

What happens if my business is based in England, Scotland or Wales and I then move products to N Ireland?

• From 1st Jan 2021 whatever entity is receiving the timber products in N Ireland is going to have to run them through their own EUTR due diligence process. Even if it’s one of your own business outlets that’s operating in N Ireland. And even if you’ve already completed UKTR due diligence on them before moving the products to N Ireland.

What happens if my business is based N Ireland and I then move products to England, Scotland or Wales?

• From 1st Jan 2021 you can move the products to England, Scotland or Wales without any paperwork or due diligence.

Chris Meadows, TRG Technical Knowledge Manager

Will there be a Free Trade Agreement?

• The negotiation of a Free Trade Agreement between the UK and EU is continuing, however it is increasingly unlikely that a deal can be reached in time for the 1st January 2021. The trade deal could include mutual recognition of product safety legislation such as the toy or electrical safety legislation.

Improving product safety?

• One frustrating point is the amount of resources (from manufacturer, retailer and enforcement authorities) that is being focussed on updating marking and paperwork. This resource could be  focussed on improving product safety. The current uncertain environment could also create the opportunity for unscrupulous traders to sell unsafe products.

How will the new regulatory regime be enforced?

• It’s likely that UK enforcement will take a pragmatic approach to enforcing UK specific legislation, however the lack of time to transition to the new requirements will undoubtedly cause discrepancies. This should be taken into consideration when defining your compliance strategy. 
• Products being sold into Europe & Northern Ireland still need to comply with EU legislation and enforcement will remain the same.

How quickly will regulations diverge?

• Regulatory divergence will hinge on a trade deal or lack of. In the short term there will be some minor differences. Over time, the divergence is likely to increase, however there should be more defined implementation timeframes giving businesses time to adapt. 

Should the UKCA mark be applied to products now?

• This will depend on the particular retailer’s attitude to risk and ability of the supply chain to adapt to the new marking requirements. Changes to the UKCA marking may be possible now for some retailers, for others it might be more pragmatic to apply the UKCA mark after 1st January – when there should be more certainty.
• The UKCA mark does not apply in Northern Ireland, the CE marking can continue to be used – or the new UKNI mark. 

Latest government guidance on;

• Placing Manufactured Goods on UK Market
• UKCA / UKNI Marking 

Chris Meadows, TRG Technical Knowledge Manager

In a recent report (Rogerson, S., 2019. Forest 500 annual report 2018 – the countdown to 2020, Global Canopy: Oxford, UK. Lead author: Sarah Rogerson, contributing authors and reviewers: Helen Bellfield and Helen Burley.) it was stated than none (not even one!) of the 500 companies that made public commitments regarding removing the deforestation ‘drivers’ from their supply chain will meet those targets.

The question is why? Why did they fail to deliver on their promises? These are big businesses with massive procurement power, yet all have failed to deliver. It’s true – some to a greater degree than others – but nevertheless a pretty hopeless performance by many.

What’s the cause? Why the lack of compulsion to meet these very public targets?

These commitments are focused on the key commodities whose production drives tropical deforestation, namely: palm oil, soy, cattle and timber products. Global Canopy describes what it terms as the ‘implementation gap’ – the gap between what companies say they will deliver and reality. They state that the implementation gap is closely linked to a company’s performance in terms of how it:

• ‘monitors and verifies its suppliers against its own commodity commitment;
• engages with non-compliant suppliers;
• has a grievance mechanism so that issues in its supply chain can be raised;
• is actively involved in collaborative actions to improve sustainable commodity supply chains;
• is transparent and has published supplier lists or coordinates of specific sourcing regions.’

In TRG’s experience – and we’ve been undertaking supply chain due diligence for large business and consumer facing retailers for well over a decade in over 40 countries – what really makes supply chain practices fundamentally change are the following:

1. A commitment from the senior directors of the company (that powers the demand chain – from the company secretary to the commercial director) to realistic supply chain performance  targets
2. Well trained and committed buyers (that talk directly to their tier 1 suppliers) who fully understand and recognise this as a basic product ‘quality’ issue – regarded in the same light as product health and safety requirements. They must be prepared to change to suppliers if their current supply base cannot deliver
3. Well trained and supported tier 1 suppliers (after all they have to pass this new quality requirement up the demand chain to their suppliers) that understand that if they don’t deliver (on this new quality) by a certain deadline, their client is going to stop paying them and find a new supplier that can meet the new spec, and
4. Reliable, efficient and effectively IT systems that support the collection of data sets and mitigating documentary evidence that demonstrate – in a transparent manner – that progress towards targets is being met and if not – then exactly why not, sop that remedial action can be taken in time.

If these are in place, then radical changes in supply chain practises can be made. Companies that are identified under the Global Canopy 500 programme can shut the ‘implementation gap’ if they adopted the above approach.

Frank Miller, TRG Managing Director

The stats below come from a major international report on the status of the world’s environment published in early May ’19.

Those in denial of these horrifying declines are largely individuals inured to the human population’s destructive powers. These deniers, who look the other way, are often financially secure or are too out of touch and cynical to care.

Unfortunately it’s usually also these same privileged few that make the laws, or rather prevent new protective laws from being enacted.

So – in my personal view – we’re not going see any significant impactful regulations delivering major positive impacts on the environment and climate change for another 5 to 10 years. It will not happen until say 20% of the population’s lives are being directly devalued.

So what can be done in the absence of appropriate regulations? Given that we cannot rely on politicians to make the right laws, can businesses (with the ability to react swiftly to consumer demands) break the mould and take action?

I would argue that in the absence of regulations and regulatory capacity, it’s only international, large scale manufacturing or retailing businesses that can start to slow the ship and begin to turn it around.

Big businesses, leveraging their corporate policies, backed up by their commercial clout, can effectively ‘regulate’ their own supply base via their demand chains. Obviously control exerted in this way will have a limited impact on a few demand chains that reach into to source countries where supply chains are initiated. The majority of regions and their populations will be largely unaffected. But it’s a start. It will show what is possible and act as encouragement for politicians to act. Many would say that the FSC (www.fsc.org) and PEFC (www.pefc.org) provided the confidence for EU politicians to enact the European Union Timber Regulation (EUTR) in 2013 that banned the import of illegal timber into the EU.

A key internal benefit for businesses adopting this approach is that they can state that their products having heightened Environmental, Social and Governance (ESG) qualities. This enhances their brand. and helps differentiate their products in a highly competitive market place.

But how do they convince a sceptical customer base that what they say is true? The only way to build a convincing level of trust is through transparency. In this situation transparency can be regarded as consisting of a supply chain map showing all the actors and documentary evidence showing how the product moves down the supply chain from source to the consumer facing retailer.   Through the use of such modern due diligence techniques (supported by online systems and processes) products can be cost effectively imbued with intrinsic ESG qualities.

Although you cannot touch, sniff or technically measure these new qualities, it is entirely possible to demonstrate that they are present by using modern due diligence approaches.

There are 3 basic ESG due diligence steps:

1. Qualify the inherent demand chain risks that threaten to significantly devalue the required ESG qualities – specified in the corporate policy

2. Use the data sets gathered from supply chain actors to map the supply chain so that it’s easy to identify the critical control points – where raw materials or product pass from one supply chain actor to the next

3.  Gather documentary evidence from each and every key supply chain actors (that have a role in a critical control point) to mitigate the risk associated with each of critical control point identified on the supply chain map.

To be effective this approach needs to be supported by well-planned supplier training programmes,  expert technical know-how, and excellent data gathering and comms systems. The incorporation of system driven artificial intelligence can make the supplier experience a really comprehensive one.

So if this is an effective process – why in the longer term – do we need regulations to prevent degradation of ESG qualities?

We need robust far reaching regulations in the long term because:

• Implementation of corporate policies is discretionary. When times get hard then corporate requirements – if they increase procurement costs – often get abandoned

• Each corporation sets different requirements resulting in a diversity of demand chain requirements and confused supply chain actors

• Many corporations – particularly the smaller ones are unconcerned about ESG requirements and will purchase on the basis of price alone. Regulation provides an unambiguous trading environment – an even playing field.

Regulations are the long term and permanent solution but take time to be put in place. Corporate policies provide an effective and cost efficient step in the right ‘Responsibly Sourced’ direction.

Frank Miller, TRG Managing Director

This will have an impact on their suppliers who will need to demonstrate how they are taking greater responsibility for product quality. It’s also an opportunity, however, for suppliers to rethink their use of IT systems to increase efficiency and control in order to lower the cost of demonstrating product compliance.

The Challenges for Suppliers:

Sourcing Information:

• How will you keep up-to-date with the changing quality requirements and regulations?
• Do you have a dependency on the buyer to tell you what’s required that also differ from retailer to retailer?

Many suppliers rely on their buyer to inform them of any regulation and requirement updates. This can be tricky if you supply to numerous retailers with different requirements. Test houses can also advise suppliers of the requirements and regulations for their products. Some suppliers have in-house experts, this is more tailored to suppliers who manage their testing in-house. Finally, suppliers also have the option of subscribing to 3rd party services which can provide them with a compliance library tailored for them and regular webinar training sessions.

Managing Information:

• How will you provide objective evidence to demonstrate you are managing product quality that meets the expectations of your buyers?
• What IT systems do you need in order to provide greater transparency about your products’ compliance and the integrity of your supply chains to all your buyers?
• How do you select the IT system that will provide greater buyer confidence?

There are two options for suppliers. Either the supplier needs to have an in-house IT system (requiring constant development and maintenance) OR the supplier can outsource to another company to help cost efficiently manage their product compliance.

Outcome:

With the ever-increasing demand for product compliance in the retail industry being pushed in to the hands of suppliers, the importance of being able to collect, keep up to date with and manage compliance related documentation has never been greater. This change will give a competitive advantage to those suppliers who realise this and act to improve their information sources and I.T management systems. Those who do not take on these new compliance responsibilities risk failing to be able to meet the expectations of buyers thereby damaging future sales opportunities.

~ Frank Miller, TRG Managing Director

Celebrating the greatest innovations in retail technology

Operated by- Retail Week ¦ WORLD RETAIL CONGRESS – London 13th Sept, 2018

We are excited to announce that Track Record Global (TRG) has been shortlisted by the Tech.AWARDS for its ground-breaking Trackvision software for Product Technical File (PTF). This software service does exactly what it says on the tin – enabling retailers and their suppliers to work together in an efficient and fully collaborative manner to capture regulatory and corporate compliance product data; making it readily available to concerned parties.

TRG’s industry leading approach ensures that suppliers in over 50 countries know what evidence documents must be made available and by when, so that their products can be traded legally. Once uploaded, the evidence documents can be immediately assessed by TRG and made available for a rapid final validation by those buying the goods.

Using this software, TRG’s clients have saved millions of pounds. They have redeployed highly skilled technical staff, who were formerly administering test certificates, but who can now apply their significant technical expertise to product design and improvement.

Suppliers who were formerly ignorant of the test certificates to provide, now have clear instructions on exactly what’s required; when requirements change and when the test certificates are about to expire. TRG consistently supports all suppliers by both online and off-line methods.

The outcome is that no products are shipped prior to compliance being fully demonstrated; all compliance evidence is available for up to 10 years after products have been removed from sale; no supplier is left not understanding exactly what evidence they need to deliver; and the regulatory authorities can have immediate access to evidence of compliance when required.

What’s coming next? The world never stands still and TRG has no intention of resting on its laurels.  During Q1, 2019 TRG will release Trackvision’s new supply chain visualisation system which will map key supply chain characteristics (such as ‘legality’ or ‘no contribution to deforestation’) for timber, cotton and leather.

Also in 2019 TRG will launch its ‘Monitored Pre-Shipment Inspection Service (MPSI)’ which promises to slash the cost of PSIs by over 50% and completely disrupt the old and tired approach. Watch this space!

~ Frank Miller, TRG Managing Director