Governance + Compliance: Supply chain due diligence

Technology Supply chain due diligence

38 M ay 2024 | Is s u e 3

Technology Supply chain due diligence

The missing link in supply chain due diligence A review of role of technology and its potential for strengthening supply chain due diligence.

WILSON CHAN ceo of permutable ai

I

n today’s globalised business landscape, supply chain due diligence is a critical aspect of corporate governance, involving systematic assessment and monitoring to ensure compliance with legal, ethical and environmental standards.

In addition to compliance with regulations, supply chain due diligence is also about upholding ethical and sustainable practices. Thorough due diligence is crucial to identifying and mitigating risks, protecting brand reputation and maintaining stakeholder trust.

Consumers and stakeholders are increasingly demanding transparency from organisations. They want to make informed choices and align themselves with responsible companies, making the disclosure of information regarding suppliers, manufacturing processes, sourcing of raw materials and compliance with environmental and social standards crucial.

Sustainability goals Supply chain due diligence can play a valuable role in companies achieving their sustainability goals. By thoroughly assessing suppliers’ environmental and social practices, companies can ensure that their supply chains align with their sustainability objectives. Technology-driven due diligence processes are enabling governance professionals to monitor and measure suppliers’ performance against sustainability criteria, empowering companies to make informed decisions, collaborate with responsible suppliers and contribute to a more sustainable future.

Challenges of complex supply chain networks Today’s complex supply chains pose significant challenges when it comes to due diligence. Gathering and analysing data from diverse sources, verifying compliance and managing risks across the entire supply chain can be a daunting task. The lack of standardised frameworks and varying regulatory requirements in different jurisdictions further complicate the process.

However, technology provides solutions to these challenges by automating and streamlining activities, enabling governance professionals to navigate supply chain networks better.

Risk factors and legal ramifications Non-compliance in supply chain due diligence can expose companies to various risks and legal ramifications.

These include reputational damage, financial losses, regulatory penalties and even legal action.

Non-compliance can occur due to inadequate monitoring of suppliers, failure to conduct proper risk assessments or a lack of transparency in the supply chain. Governance professionals must be aware of these risks and legal consequences and take proactive measures to mitigate against them.

Technology-driven solutions can help to minimise these risks by enabling real-time monitoring, risk assessment and data analytics, supporting compliance and – more importantly – reducing the likelihood of non-compliance.

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Technology Supply chain due diligence

Automation of due diligence processes

Technological advancements

Automation plays a crucial role in streamlining and expediting due diligence processes. By leveraging technology, governance professionals can automate data collection, verification and analysis, reducing the burden of manual tasks. Robotic process automation – which automates routine, rule-based tasks – can be applied to increase efficiency and reduce human error.

This technology supports compliance by ensuring consistent execution of business processes, enabling organisations to adhere more effectively to regulatory requirements and standards. The automated extraction of data from various sources, checking and generation of reports saves time and improves accuracy, freeing up capacity to focus on strategic decision-making and risk management.

The internet of things (IoT) encompasses physical objects equipped with sensors and software to connect and exchange data with other devices via the internet, enabling devices to communicate real-time data without human intervention.

IoT devices and sensors can capture data at every stage of the supply chain, providing valuable insights into performance, quality and compliance. Leading the way, Unilever combines the use of IoT with satellite imagery, GPS artificial intelligence and other visibility data to monitor palm oil farms, the health of local forests and traffic to and from Unilever’s suppliers and production facilities to cut deforestation from its supply chains.

Blockchain technology enhances corporate governance and compliance by providing a transparent, immutable ledger that ensures data integrity and simplifies audit processes. It facilitates real-time monitoring and verification of transactions, reducing the risk of fraud and ensuring regulatory compliance across industries.

Blockchain technology has great potential to strengthen supply chain due diligence. It could offer a decentralised and immutable ledger that enables transparency and security across the supply chain by recording every transaction and verifying its authenticity. This leads to enhanced traceability and ensures the integrity of the supply chain by creating tamper-proof records of suppliers, certifications and compliance documents.

Several companies have successfully implemented blockchain technology for supply chain due diligence.

For example, IBM Food Trust uses blockchain to enhance transparency and traceability in the food industry, allowing consumers to track the journey of products from farm to fork. Walmart has also adopted blockchain for its food supply chain, enabling real-time monitoring and efficient recall management, and Maersk, the global shipping company, leverages blockchain through its TradeLens platform to streamline documentation processes and improve visibility in logistics operations.

While blockchain technology has the potential to enhance supply chain transparency, it also presents some drawbacks. These include scalability and interoperability across networks, security concerns and cost barriers.

Collaborative initiatives, government incentives and costsharing models will be necessary to encourage wider adoption of blockchain technology in supply chains to realise its full potential.

Technology-driven supply chain due diligence: good practices • Assess current processes: Conduct a thorough assessment of existing due diligence processes, identify pain points and evaluate the readiness for technology integration.

• Identify suitable technology solutions: Research and select technology solutions that align with the company’s objectives, considering factors such as scalability, compatibility and ease of integration.

• Collaborate with stakeholders: Involve key stakeholders, including suppliers, in the implementation process to ensure their buy-in and cooperation.

• Invest in training and education: Upskill and develop governance professionals and employees to ensure they understand the purpose and benefits of technology-driven due diligence.

• Monitor and evaluate: Continuously review and assess the effectiveness of technology-driven solutions, making necessary adjustments and improvements as required.

40 M ay 2024 | Is s u e 3

Technology Supply chain due diligence

Real-time visibility

AI-powered supply chain links monitoring

Technology can enable real-time visibility into supply chains which is essential for effective due diligence. At Permutable AI, we implement NLP to conduct news sentiment analysis of local news sources. This offers a powerful tool for tracking local incidents in real-time, unearthing compliance issues which may otherwise either go unreported at a company level or could take months to uncover.

As an example, Tesco employs NLP algorithms to monitor local news sources for mentions of its operations, suppliers and relevant industry topics. By analysing the sentiment of news articles and social media posts, Tesco can identify potential compliance issues or reputational risks in real-time.

This proactive approach allows Tesco to address concerns promptly, ensuring adherence to regulatory standards and maintaining public trust.

Real-time visibility allows governance professionals to identify potential risks, detect anomalies and take immediate corrective actions across the entire supply chain. By integrating data from multiple sources, technology-driven solutions provide a holistic view of the supply chain, enabling proactive risk management and ensuring due diligence.

We are pushing the boundaries of innovation in this field with AI-enabled supply chain links mapping to support comprehensive understanding of the intricate network of connections within a supply chain. By analysing the interconnected nodes and pathways within supply chain relationships, governance professionals can uncover hidden patterns, trends and potential disruptions.

Through sophisticated algorithms and data analysis, the AI-driven mapping process identifies existing dependencies and vulnerabilities, and can also predict future risks and scenarios. This predictive capability equips organisations with foresight, allowing them to implement proactive measures to mitigate risks before they escalate into costly disruptions.

Moreover, for governance professionals tasked with ensuring compliance and risk management, this advanced mapping technology can facilitate regulatory compliance assessments and assist with identification of potential points of risk. This should enable governance professionals to develop targeted compliance strategies and implement controls to mitigate compliance-related issues.

Risk assessment and data analytics Risk assessment is a critical component of supply chain due diligence. Technology-driven solutions facilitate risk assessment by leveraging data analytics to identify and prioritise potential risks. Using AI, it is possible to analyse vast amounts of data, including supplier information, compliance records and market trends.

Data analytics enable predictive analytics, allowing companies to anticipate and mitigate risks before they materialise. The valuable insights provided help governance professionals to enhance due diligence efforts.

For example, Nestlé employs advanced data analytics tools to assess and monitor supplier compliance with its responsible sourcing standard. By analysing supplier data and performance metrics, Nestlé can identify potential governance issues, such as labour violations or ethical sourcing concerns, and take appropriate corrective actions.

Likewise, IKEA uses risk assessment and data analytics to improve governance and transparency in its supply chain operations, ensuring compliance with its supplier code of conduct, which covers labour rights, environmental sustainability and business ethics. By analysing audit data and performance metrics, IKEA can identify governance gaps and implement corrective actions to strengthen supplier governance and accountability.

Future outlook Technology is changing the field of supply chain due diligence. It offers unprecedented opportunities to enhance transparency, automate processes and mitigate risks. As supply chains continue to evolve and become more complex, the role of technology will only become more critical.

By embracing technological advancements, governance professionals can strengthen due diligence efforts, protect corporate reputation and contribute to sustainable and responsible supply chains.

However, technology is not a standalone solution, rather an enabler. It should be integrated into a comprehensive governance framework, supported by robust policies and driven by a culture of ethical and responsible business practices. The future of technology in supply chain due diligence holds immense potential. Governance professionals must stay informed and adapt to the evolving landscape to ensure effective and efficient due diligence processes.

Wilson Chan is the CEO of Permutable AI, a leading marketintelligence company at the forefront of offering innovative solutions including supply chain risk monitoring, ESG risk screening and supply chain links mapping, reshaping how companies approach strategic decision-making, risk management, compliance and ethical business practices in the dynamic global market.

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