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What Is Supply Chain Due Diligence? A Guide to Navigating Ethical Manufacturing

Supply chain due diligence is the thorough examination and evaluation of every step in the supply chain process to manage ethical risks. It involves a close look at suppliers, manufacturers, logistics, and other crucial aspects to identify and manage risks, ensure compliance with regulations, and improve transparency and accountability in the supply chain.

In this article, we will delve into the fundamental principles of supply chain due diligence, shedding light on its significance in fostering ethical practices within manufacturing processes. By understanding the key components of this diligence, manufacturers can gain insights into the ethical landscape of their supply chains, laying the foundation for responsible and compliant business practices.

What Is Supply Chain Due Diligence?

Due diligence refers to the systematic process that organizations should undertake to identify, prevent, mitigate, and account for how they manage both actual and potential adverse impacts concerning ethical, labor, human rights, and environmental aspects. This encompasses their internal operations, supply chain, and other external relationships.

Due diligence was traditionally a voluntary practice, but in recent times, there has been a notable shift towards increased legislation, making it increasingly obligatory for businesses to engage in thorough due diligence processes. While some aspects remain voluntary, the growing number of due diligence regulations means due diligence practices are quickly becoming compulsory across global markets and industries.

Key Tenets of Supply Chain Due Diligence

Supply chain due diligence practices will differ for each supply chain. However, there are several key aspects of due diligence that should be included in any due diligence strategy, including a comprehensive risk assessment, a tailored approach, mapping adverse impacts to your business’ contributions, and maintaining a dynamic, ongoing process to capture evolving risks and changing business operations.

Comprehensive Risk Assessment

Due diligence involves a thorough examination of risks, considering both potential harm to the company and potential impacts on the rights of individuals or entities. This comprehensive risk assessment ensures a holistic understanding of the challenges and opportunities within the supply chain.

Tailored Approach Based on Business Size and Risks

The extent of due diligence varies based on factors such as the size of the business, the perceived risk of impacts, and the nature and context of operations. A nuanced approach ensures that the level of scrutiny aligns with the specific characteristics and potential ethical challenges faced by the business.

Mapping Adverse Impacts to Your Business

Adverse impacts resulting from associated actions must be meticulously mapped against the roles a business plays in the supply chain. This includes mapping and assessing direct causation of impact, contribution (facilitation or incentivization of impact), and linkage to impact through relationships (even if no direct contribution to impact). Understanding these roles is crucial for effective risk mitigation and ethical business conduct.

Dynamic and Ongoing Process

Due diligence is not a one-time event but an ongoing and dynamic process. To capture changing risks, evolving impacts, and shifting business operations, continuous monitoring and reassessment are essential. This adaptability ensures that the supply chain remains aligned with ethical standards amidst a constantly evolving due diligence landscape.

Read more: How to Implement Due Diligence in Your Supply Chain

What Is Mandatory Due Diligence?

Mandatory due diligence refers to the legally required and enforceable processes that businesses must undertake to systematically assess and manage risks associated with their operations. Mandatory due diligence legislation is increasingly common across markets, particularly in areas such as human rights, environmental impact, and ethical business practices.

These due diligence regulations compel companies to conduct thorough investigations into their supply chains, ensuring compliance with legal standards and fostering responsible business conduct. The aim of mandatory due diligence is to hold businesses accountable for their impact on society and the environment, promoting transparency and ethical behavior throughout their operations.

Read more about mandatory due diligence: The Rise of ESG Due Diligence Legislation and Impacts on Supply Chains

What Principles Are Due Diligence Standards Based On?

Due diligence draws its foundations from various authoritative guidelines, with key influences being the UN Guiding Principles for Business and Human Rights and the OECD Due Diligence Guidance for Responsible Business Conduct.

The UN Guiding Principles stand as the globally recognized normative standard for business and human rights, offering comprehensive guidance for implementing the UN 'Protect, Respect, Remedy' framework, with recognition of the roles played by both states and businesses.

The OECD Due Diligence Guidance for Responsible Business Conduct aligns with the OECD Guidelines for Multinational Enterprises, covering a broad spectrum of areas including:

In addition to these primary standards, due diligence regulations consistently make reference to foundational documents such as the International Bill of Human Rights, the ILO Core Conventions, and the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work. These collective standards shape the framework for responsible business conduct and guide organizations in their due diligence endeavors.

Supply Chain Due Diligence: How QIMA Can Help

Supply chain due diligence requires a comprehensive approach that makes use of a variety of strategies, from supply chain mapping to carbon footprint analysis, depending on the standards your business must meet. QIMA’s suite of due diligence services is here to enhance ethical and compliant supply chain practices.

We offer:

Learn more about our due diligence services or read our whitepaper Mandatory Human Rights & Environmental Due Diligence: How to Get Prepared for more information on due diligence compliance.

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