As companies adjust their supply chains to deal with geopolitical tensions, tariffs and disruptions, many are moving their sources of supply closer to home. This is not without challenges, and our data reveals a surprising truth: significant social and environmental compliance gaps exist across North American supply chains. These operational risks are just as serious as those associated with more remote sourcing regions.
Our SMETA audit results show that 41% of North American sites have wage compliance issues, thousands face waste management violations, and fire safety remains seriously neglected despite being a major operational risk.
These challenges can threaten supply chain continuity and resilience, impacting your business bottom line. And yet, estimates show that 43% of companies have no supply chain visibility beyond their first-tier suppliers.
The four insights below are designed to help you strengthen your North America sourcing strategy and supply chain resilience during this critical time through increased supply chain visibility and sustainability risk management. These tactics can also help your business achieve related benefits such as improved productivity, energy efficiency, reduced worker-related interruptions, and reduced operational costs.
1. Sustainability compliance gaps exist across North America.
It is easy to assume that the greatest human rights and environmental risks exist in the foreign parts of supply chains. That would be an oversight.
Data from our platform and SMETA audits reveal that these risks may be just as relevant for North American suppliers. This highlights the importance of conducting thorough due diligence with suppliers in this region, in order to effectively mitigate these issues.
The good news? Visibility is increasing, and we’re certainly seeing more and more North American companies developing it, with a huge growth in interest and activity around supply chain due diligence. In just seven years, we’ve seen a 10-fold increase in SMETA audits conducted across North America, and this visibility gives us an opportunity to act: to close gaps, build resilience, and achieve better outcomes at every level.
As more audits are performed on North American supplier sites, companies are discovering a range of social and environmental compliance gaps, including:
- Salaries and working conditions: 41% of audited locations in North America have wage compliance issues, such as failure to pay overtime premiums or other legally required benefits.
- Environmental compliance: Thousands of waste management violations, including lack of wastewater disposal permits, have been reported on North American job sites.
- Safety at work: Although warehouse fires are one of the top operational risks in the United States, audits found that many sites lacked critical fire safety protocols, with a lack of safety drills being one of the most common SMETA findings on North American job sites.
(Source: Sedex, SMETA audits carried out over the last 3 years until December 2024)
These findings challenge the perception that sustainability risks are highest at offshore supplier locations or in countries with very different legal environments. As U.S. companies implement offshoring and reshoring strategies to mitigate supply chain risks, their due diligence reveals the reality.
2. Build resilient supply chains through proactive due diligence and compliance assessment.
A resilient supply chain relies on high visibility and proactive risk management. As trade rules tighten, expectations for responsible sourcing remain and even increase. Companies that anticipate and quickly address compliance risks are better equipped to prevent disruptions such as fines or product seizures.
Social and environmental concerns not only pose regulatory risks; they can directly affect supply chain performance and business continuity:
- Lower productivity, with high employee turnover, absenteeism or errors/injuries: Abusive and unsafe working conditions can lead to an unstable workforce and operational disruptions. For example, regular losses of experienced workers, labor shortages, and high accident rates all contribute to production delays.
- Environmental events disrupting operations: Rising temperatures and extreme weather events are already impacting regional economic activitylabor availability and production operations. The International Labor Organization estimates that the cost of injuries from excessive heat in the workplace can reach 1.5% of national GDP, while the World Economic Forum predicted that corporate profits could fall by up to 7% for those that fail to adapt to climate risks.
- Production and logistics delays: Suspicions of serious violations, such as child labor or forced labor, may result in closures, legal action, or shipping delays.
- Reputational damage: As consumers, investors and regulators scrutinize companies’ practices and supply chains, failure to meet the expectations of these stakeholders can result in rapid retaliation and negative media coverage.
Companies that actively engage with their suppliers to mitigate risks, close gaps and improve social and ethical standards lay a strong foundation for short- and long-term supply chain stability and the business benefits that flow from it.
3. Legislation requires transparency and compliance from your supply chain.
Lawmakers around the world are introducing stricter supply chain due diligence laws, placing increasing responsibility on businesses to ensure responsible and sustainable practices. These can have an instant operational impact — under regulations such as Uyghur Forced Labor Prevention Act In the United States and under new European forced labor regulations, governments can seize products and prevent their resale.
For many teams, the challenge is not only complying with existing regulations, but also adapting to a changing legal landscape, with highly demanding requirements on the horizon but uncertainty over timing and enforcement. Companies that proactively improve their supply chain visibility to improve operations, rather than waiting for legislation to mandate change, position themselves for successful compliance while enjoying the other benefits and avoiding the consequences described above.
The law technology for Deep supply chain visibility down to the lowest levels of a supply chain –– integrating and analyzing large amounts of standardized data –– enables intelligent, accurate decision-making to manage risks and drive measurable improvements. A recent study indicates inventory costs could be reduced by 15-20% using in-depth visibility to avoid overstocks and shortages.
4. Collaborate with suppliers to combat supply chain disruptions, address sustainability risks and strengthen defenses.
The final key to addressing supply chain shocks, sustainability risks and compliance gaps is to work collaboratively with your supply chain. Long-term partnerships with suppliers encourage innovation, trust and support during difficult times, which is mutually beneficial.
Suppliers often need support from their customers to manage more complex social and environmental risks like forced labor, physical environmental impacts or sudden policy changes. In fact, the more serious the problem, the more likely they will need it. Meanwhile, in case of sudden disruptions, businesses can offer instant assistance by reviewing order schedules. Talk to your most strategic suppliers about the support they need and what you could provide.
As manufacturers increase their supply chain due diligence activities, you will need the support of your suppliers to access information from lower levels of your supply chain and accurately identify the greatest operational and sustainability risks. This includes both labor and environmental data from existing lower-tier suppliers, as well as information on alternative suppliers so you can make a truly informed decision on the best option for your business.
No matter what supply chain challenge you face, working with suppliers to increase transparency and strengthen their practices improves your business’s resilience. They strengthen risk management efforts and allow you to better ensure continuity of supply, meeting short-term operational needs while maintaining progress against long-term business goals.
Maurizio Capuzzo, Marketing Director at Sédexis an award-winning marketing executive with more than two decades of leadership experience in marketing, strategic planning and driving results for technology brands. His strong track record of success in the technology industry includes senior roles leading the global strategies of some of the world’s most recognizable brands, including Motorola, Poly-HP and Lucent Technologies.