Supply Chain Compliance: Tips for Ensuring Total Compliance

Supply chain compliance has evolved from a neglected back-office function into a boardroom priority, as consumers, investors, and regulators demand greater transparency about how products move from source to shelf. What makes this shift so significant is how compliance can now affect a business’s competitive edge. Those with ethical, traceable sourcing can build loyalty among sophisticated customers, secure financing more easily, and lower the risk of the reputational damage caused by compliance failures.

What’s more, your business will gain a marketplace advantage by viewing compliance as a strategic differentiator. Learn more about supply chain compliance and how it can help your business build goodwill and command premium prices.

What is supply chain compliance?

Supply chain compliance refers to an organization’s holistic adherence to the regulations, standards, and ethical expectations of how products and services move through the supply chain’s network of suppliers and producers, shippers, distributors, and sellers.

Aspects of supply chain compliance

• Government regulations
• Bilateral and multilateral trade agreements
• Industry standards
• Internal corporate policies
• Contractual obligations
• NGO expectations

To figure out how it applies to your small business and build a compliance program for your entire supply chain, it’s important to examine several key areas:

Government regulations

Regulatory compliance serves as the backbone of any supply chain compliance program. The relevant rules can range from international trade regulations established by organizations like the European Union (EU) and World Trade Organization (WTO), as well as national laws and even state or local government ordinances.

International regulatory requirements like the EU’s REACH (Registration, Evaluation, Authorization, and Restriction of Chemicals) law dictate how companies manage chemical substances throughout their supply chains, while RoHS (Restriction of Hazardous Substances) is an industry-specific law that restricts the use of certain hazardous materials in electronics and electrical equipment.

For examples of how local legal compliance works, look at the printed warnings posted around stores and food-service operations in California. They’re the result of Proposition 65, passed in 1986, which mandates notices for products containing substances known to cause cancer or reproductive harm.

The regulatory environment is multilayered and requires businesses to evaluate regulations across an array of jurisdictions—international, national, and local—where your materials and products are sourced, manufactured, distributed, and ultimately sold.

Bilateral and multilateral trade agreements

Although not technically laws passed by a legislature, trade agreements or treaties often have the same effects and are a key aspect of any effective supply chain compliance program. These agreements—from comprehensive pacts like the United States-Mexico-Canada Agreement (USMCA) down to sector-specific treaties—determine tariff rates, rules-of-origin requirements, and customs procedures that have a direct impact on sourcing and pricing decisions.

Put simply, such treaties govern how goods move across national borders.

Industry standards

Certain guidelines developed by professional organizations and trade associations establish standards for quality, safety, and operational excellence in supply chain management processes. Unlike supply chain laws instituted by governments, these standards are voluntary.

ASTM International (founded as the American Society of Testing and Materials) is a professional organization that publishes technical standards for materials, products, systems, and services across multiple industries, from construction to electronics and toys. Industry standards like these provide a common language for defining product specifications, establishing testing methods, and benchmarking the quality of materials.

Although complying with specifications and standards issued by ASTM International and similar organizations isn’t mandatory, market expectations can make adherence a practical necessity. Likewise, trade publications produced by these organizations can be useful in developing your business intelligence. They comprehensively cover whole industries, drill down into specific markets, and provide valuable insights into how compliance processes and regulatory adherence work in practice.

Internal corporate policies

Your business’s policies and key performance indicators (KPIs) might seem like the least challenging part of the supply chain compliance puzzle—after all, you control these policies and enforce them. But at the same time, no one is better suited than you to take external compliance requirements and ethical standards and turn them into actionable guidelines tailored to your specific operations and values.

Developing a comprehensive supplier code of conduct, for instance, sets clear expectations for business partners on ethical practices, environmental responsibility, and labor standards. Such codes typically outline minimum requirements for a supplier to be selected, as well as how you will measure their performance over time.

For example, your code can instruct all suppliers to maintain accurate and transparent documentation of potentially hazardous materials used in manufacturing processes—including substance names, Chemical Abstracts Service (CAS) registry numbers, and concentration levels by product.

By embedding guidelines like these into your company’s policies and procedures, you will not only avoid legal or reputational repercussions but also create a culture of responsibility in markets that increasingly demand supply chain accountability.

Contractual obligations

Supply chain compliance also extends to the specific commitments you enter with your business partners. These are often more stringent than the requirements established by law, treaty, or even industry standards, but they can also drive efficient supplier management.

Obligations embedded in contracts typically address performance metrics, quality standards, ethical requirements, and remediation processes. They also often include internal policies (like the supplier code of conduct discussed above). The results are legally binding standards that clearly define both expectations and the consequences for failing to meet them.

Contracts also inherently involve a mutually beneficial relationship, which can more effectively cultivate vendor compliance than imposing penalties for noncompliance.

Customer and non-governmental organization (NGO) expectations

Some aspects of supply chain compliance go beyond formal regulations and standards. Customer preferences and NGO campaigns increasingly shape supply chain transparency expectations, particularly around ethical sourcing, environmental impacts, and fair labor practices.

You can accommodate these stakeholder concerns through transparent reporting, credible third-party certifications (like those issued by Fairtrade International, the Forest Stewardship Council, and B Corp), and meaningful community engagement. By doing so, you can access new market segments and sustain valuable customer goodwill.

Tips for remaining compliant

• Thoroughly evaluate suppliers
• Conduct risk assessments
• Employ service-level agreements
• Monitor sub-suppliers
• Store data accessibly and responsibly

A good supply chain compliance program predicts and addresses possible supply chain risks before they become compliance gaps. The following processes provide a foundation for a robust compliance program.

Thoroughly evaluate suppliers

Above all, comprehensively evaluate potential suppliers before entering into a contractual agreement. This can include on-site assessments performed by both internal and external auditors, verifying certifications, reviewing performance history, and obtaining third-party references.

Checking a supplier’s security posture regarding data quality and data protection is also extremely important. After all, you will rely on the thoroughness and accuracy of their reports to assess their performance. Here again, your supplier code of conduct can help, providing a straightforward template for vetting potential supply chain partners.

Conduct risk assessments

Performing regular vendor risk management assessments will help you identify compliance gaps and mitigate risks quickly. These risk management assessments might look at geographical and political factors, the financial viability of suppliers, forthcoming regulatory changes, and industry-specific variables (like raw-material availability) that could affect compliance efforts.

For example, gap analysis is one risk control tool that specifically helps identify gaps between current practices and emerging regulations, standards, or market expectations before they become compliance issues.

Employ service-level agreements

A service-level agreement is a contract that defines the level of performance (or adherence to standards) a customer can expect of their supplier. Think of it as your supplier code of conduct in bilateral contract form. It explicitly spells out measurable commitments and performance metrics, reporting requirements, and timelines for remediation. As a result, it can streamline communications between partners by clarifying supply chain obligations and expectations.

Monitor sub-suppliers

Suppliers sometimes outsource certain functions, such as obtaining the raw materials needed to manufacture a certain product. As part of an effective supply chain compliance program, companies seek visibility into how suppliers use subsuppliers to ensure they’re honoring the same standards.

One way to do this is by implementing cascading requirements in your supply contracts that obligate tier-one suppliers to monitor and report on their own suppliers and enforce standards throughout the chain.

Store data accessibly and responsibly

Visibility across the entire product and supply chain facilitates proactive compliance management rather than reactive crisis response. Having a secure, centralized system for your data goes a long way in helping ensure that compliance documentation is quickly retrievable during audits and partner evaluations, as well as (hopefully rare) customer inquiries or regulatory investigations.

Using specialized software designed for supply chain management and compliance (like Logiwa WMS or Netsuite) ensures that your data is safe, sound, and accessible when you need it. Relying on manual processes can increase your risk of documentation gaps and reporting errors.