Straight Talk on Mapping Supply Chains
Remembering the Maverick this Memorial Day weekend.
It’s late on Friday before Memorial Day weekend, and Washington DC is empty. That’s okay, though, because it’s about to be filled back up with the 500,000+ motorcyclists who will converge on the city on Monday for their annual ride to remember American POWs & MIAs. I genuinely look forward to Rolling Thunder! For a brief moment at the end of May, just about no matter where you are inside the beltway, the salt of the earth are inescapable.
Speaking of the salt of the earth and American POWs reminds me of the late Senator John McCain, one of the finest examples of each—salty, POW—our nation has known. When Senator McCain ran for the Republican Presidential nomination in 1999, he named his tour bus the “Straight Talk Express.” According to the Washington Post, he campaigned by riding the Straight Talk Express around New Hampshire and getting into arguments with public radio listeners about the proper role for the federal funding for the arts. It was . . . a different time. Then again, John McCain was a different kind of politician.
In 2007, when he ran for President again, and throughout his career, indeed until his death in 2018, Sen. McCain was renowned for being as much of an iconoclast as you can possibly be. When you’re also a decorated American war hero, respected six term Senator, and the son and grandson of U.S. navy admirals, that is. He called himself a maverick, and a maverick he was.
I thought about Senator McCain as I was reading a report published earlier this week by the Democratic staff of the Senate Finance Committee, detailing the results of a 2-year investigation into the intersection between automotive supply chains and forced Uyghur labor in China. The report covers a lot of interesting territory, including, ahem, the Volkswagen episode, as well as a few additional trade compliance blunders with moral significance. The report’s issuance got prime treatment in the New York Times.
Now, if you’re thinking: John McCain? An obscure Senate report? Mr. Foote, this a disagreeably long windup, even for a forced labor blog—well, hear me out.
The authors of the report express a particular view about supply chains, and how much any given company should know about them. It’s a coherent view, and it comes through loud and clear. The committee seems shocked—maybe even offended—that the targets of the investigation did not know that a UFLPA Entity Listed company was present in their supply chains at the time the Entity Listing occurred.
Three automotive companies named in the report all discovered that an Entity Listed company was in their supply chains after the Entity Listing occurred. In each case, the automotive company ended up discovering this information when it bubbled up from the supply chain below, in the form of a written notification from a sub-supplier. It is this particular sequence of supply chain discovery—as much as anything the automotive companies did or didn’t do after receiving the information—that grounds the Committee’s ire.
The view of the Committee seems to be: there should be no surprises in supply chain mapping. There should not be a moment when a company—automotive, or otherwise—“discovers” that a party is involved in its supply chain. This is information that should be known, reflexively and axiomatically, upon the construction of the supply chain in the first place.
Now, when I read this portion of the report, I had several strong, concurrent, and contradictory opinions. With all love and respect, that made me feel like John McCain! For instance: this a misunderstanding of the economic reality of supply chains. And: this is out of pace with the commercial reality of how companies manage their supply chains. And also: this is not totally crazy.
Committed as I am in the pages of FLT to help illuminate the essential nuances of forced labor trade laws, I have determined that this matter warrants some straight talk. And so, in honor of the late great Maverick himself, I am going to deliver straight talk on five of the truest things I can tell you about mapping supply chains. Or at least, I’m going to park them here until you wander back into the office from your Memorial Day holiday.
1. There’s nothing inherently nefarious about an opaque supply chain.
I have to begin with a lesson in economics. There’s a popular view that there is nothing more dastardly in a global supply chain than a lack of transparency, but such a view simply misunderstands the nature of supply chains, or perhaps, economic exchange itself.
All economic exchange—or quite a good bit of it, anyway—depends on some asymmetry of information. Whatever else drives economic activity (profit, consumption, convenience, necessity), a very good reason for paying someone else to do (or get) something for you is because you don’t know how to do (or get) it yourself. That is an asymmetry of information. It’s also a lack of supply chain transparency.
Don’t get me wrong. An opaque supply chain can obscure a tremendous amount of harm. It can even obscure evil. But an opaque supply chain is not, in and of itself, any more nefarious than the ramp forager at my local farmers market who refuses to tell me where he picked this week’s supply.
Come on, I say. You have a moral obligation to show me your supply chain. He rolls his eyes and declines to share his secret.
This same phenomenon is ubiquitous in the global economy. Everywhere economic exchange happens, folks get cagey about sharing information on their sources of supply. Why? Because they’re worried that as soon as you walk away, you’re going to raid their ramp fields.
A company might obscure information about its suppliers because it has something to hide. But it also might obscure information about its suppliers because it has nothing to hide, but rather, has everything to lose. If you’re a middleman—and in a global supply chain, basically everyone’s a middleman—sharing your supplier information can mean the end of your business.
So before anyone gets too reflexively hot and bothered about opaque supply chains, this is an important baseline truth to keep in mind.
2. Reverse-engineering a global supply chain can be impossible, if you do it wrong.
Further compounding the very natural, and potentially innocent excuses that exist for a lack of supply chain visibility, there is also the question of the right tool for the job.
The largest and most successful multinational enterprises may have tens of thousands of direct suppliers. And because of the inverted pyramid-like structure to most supply chains, having hundreds of thousands of indirect suppliers is not unheard of.
If this is the scale of your operation, you can choose two, or three, or even a half dozen of your sharpest employees. You can equip them with the very finest inboxes and premium spreadsheet access. And you can task them to map your supply chain. What they will discover is that this task has a very Sisyphean / Phantom Tollbooth quality to it.
Starting at the end of a supply chain and trying to work your way back is just a terrible way to prepare a map of it. But even if you had eons of time, and an infinite number of monkeys with an infinite number of typewriters, you’d still have the problem that mapping a supply chain is quite a different challenge than proving that your map was and remains correct. That sort of proof can only be achieved by some form of supply chain tracing, which is a horse of a different color.
If you listen to folks who have tried to undertake this—and we should listen, because this is difficult and important work—they will tell you that in their experience, supply chain mapping is hard and highly technical, and it can legitimately feel impossible. And they have a point. Reverse-engineering a global supply chain can be impossible.
3. Mapping global supply chains is easy; building them is hard.
But there’s the rub. Mapping a global supply chain is only impossible if you do it wrong.
“Doing it wrong” would include treating it as an email-and-spreadsheet exercise, driven by a highly-motivated by under-resourced team, or with ad hoc software tools that don’t properly integrate with business management. When you set that type of approach against the many legitimate (and non-nefarious) commercial reasons why suppliers don’t want to cough up their own supplier information—it can be easy to believe that mapping a global supply chain is a fool’s errand.
And yet, it’s important not to get distracted. This is a particular dimension of the challenge for which the right software would seem to be tremendously advantageous. In my line of work, I encounter a *lot* of aspiring software companies, including many that want very sincerely to help with this challenge in one way or another, and some that do. But I will tell you right now with one hand on my heart, and one hand on the steering wheel of this here Straight Talk Express that I do not know where the big players are hiding.
Where is Oracle’s or SAP’s AI-enhanced supply chain mapping ERP solution tailored to forced labor trade enforcement? Where is Google’s? Or Salesforce’s? Are they waiting to pick out a target to acquire? I can make some recommendations!
For all the ways that big tech has relentlessly hounded us into every nook and cranny of the human experience, where are they when we really need them? My phone can talk to me like Scarlett Johansson. Surely having continuous real-time identification and verification of a couple hundred thousand upstream suppliers is within the realm of the possible.
Moreover, we must not lose perspective. However hard the challenge of mapping a supply chain, it pales in comparison to building a global supply chain. There’s really no contest as to which is more difficult. The degree of human cooperation needed stock shelves at Whole Foods, or to produce an iPhone is breathtaking. And yet we do it. Simply tracking the parties involved in the process is far and away the easier lift.
4. A law codifying supply chain visibility as a condition of market access can change everything.
But what if I overstate the case? What if beg tech builds or buys or develops the perfect tool, but accessing this information really is just practically impossible because of lesson one? Even the largest and most influential companies in the world can run into intransigent suppliers, or suppliers that have disproportionate power in a supply relationship. Also, by definition, most companies cannot be the largest and most influential. What outcome should they expect, if they lack the market power to demand supply chain disclosure?
In my last post, I quoted the number one question I get during Q&A sessions on forced labor trade laws: what should you do when a Chinese supplier refuses your mapping request because of constraints imposed by Chinese law? What if a supplier can’t (or won’t) provide that information?
It is in the face of these challenges the power of the law as a condition of market access is on full display. Any country can require the disclosure of information as a condition for importing goods, and every country does. The European Union is doing this in a splashy new way, requiring every cocoa bean to be mapped to geocoordinates extending to six decimal places, because it’s concerned about deforestation. The U.S. did it with the Lacey Act. But we also do it in much more pedestrian ways: to ensure food safety, to manage the risk of transporting hazardous materials; to keep lead paint off kids’ toys. That’s the power of market access: the customer is always right, and possesses an inherent right to make demands.
There is no tool with greater power to break the logjam of supply chain opacity than a law that clearly establishes supply chain visibility as the condition for market access. Compliance is always voluntary, and so is market access. Pay to play. Win, win.
It bears mentioning that U.S. law does not do this presently. While it is true that having a fully mapped supply chain is one of the most important qualifications that would allow a company to navigate the forced labor import ban, it is not—strictly speaking—a requirement of U.S. law at present state.
5. A credible risk of forced labor is the best reason to break an opaque supply chain.
For some, it is easy to get swept away in an interdimensional multiverse of supply chain mapping. “What warrants requiring total supply chain transparency?” “Everything, everywhere, all at once!”
It’s true there are a lot of benefits to be gained from supply chain transparency. It’s almost all upside. Who doesn’t want to root out fraud, waste and abuse? But it’s important to be realistic. Not everything legitimately does require full supply chain transparency. There are many circumstances where the juice really is not worth the squeeze.
I recently heard a lawyer for a commodities business bemoan the death of commodities—death by traceability. With apologies to Mark Twain, I suspect that reports of the death of commodities have been greatly exaggerated.
But if there’s any scenario where we should be able to find a consensus that traceability is merited, is it not this? If you trade in goods that present a high risk of supply chain forced labor, full transparency—as a means of incentivizing the identification and eradication of forced labor—doesn’t seem to big an ask.
Coming Up . . .
On Thursday, June 18, 2024, at 12:00 pm ET, I am delighted to be sitting down with my colleagues Josh Kagan and Jennifer McCadney, as well as the newest member of the Kelley Drye International Trade Team, senior international trade advisor and former Deputy U.S. Trade Representative Jayme White for a lunchtime discussion on Trade and Labor.
We’re going to begin our meeting with a series of brief vignettes about how labor rights moved from a fringe interest to a central concern of international trade. To a degree I think fully unique on the landscape of international trade practices in Washington DC, our team has been involved in every major development related to trade & labor over the last 20 years. We’ve got some stories to tell.
Then, we’re going to spend some time forecasting what we view as reasonably foreseeable developments in the trade & labor space over the next 12-18 months. That’s a span that will carry us into the second Trump or Biden terms, and the 119th Congress. We’re gonna talk Rapid Response, and 10% tariffs, and UFLPA priority sectors, and legislative derring-do.
Finally, we’ll conclude our discussion by offering up some of our most practical and useful guidance on how companies should be preparing for what’s to come. History favors the prepared! I hope you’ll be able to join us.