Can Supply Chains Be Completely Transparent?
In an earlier post (here), we discussed the new litigation trend in which plaintiffs are filing putative consumer class actions against manufacturers and retailers for failing to fully abide by their California Transparency in Supply Chains disclosure statements or their internal supplier policies. Well, as anyone following this story is likely aware, the trend has continued, with suits against Whole Foods, Thai seafood supplier Thai Union, and others also being filed over the past several days.
The gist of these complaints is that the defendant companies are not able to effectively trace their products back to their most organic level of suppliers, and guarantee that all raw materials and sub-components were made without the use of forced labor. To date, however, none of these cases can establish or alleges with certainty that the relevant supply chain has human trafficking in it. Rather, the allegation is that the industry and geographic region involved is known to tolerate human trafficking and slavery, and the defendant companies cannot prove that their products are not tainted by that. Reports such as the Verite report commissioned by the US government to help it get its hands around possible human trafficking and slavery in federal supply chains, identify the regions and industries in which human trafficking may occur, and have to some degree aided these lawsuits.
Supply chain traceability is relatively simple once the supply chain reaches the point where business-to-business transactions are taking place. But of course nearly every supply chain extends to more granular levels. There is a case to be made that nearly every product conceivable, at some point in its supply chain, comes from a farm, harvesting/hunting operation, or mine operated at the individual or family level. The lawsuits against Costco and Nestle complain about conditions in small fishing boats. The litigation against Whole Foods alleges unsavory animal practices on individual farms. The reality is, many supply chains start at very organic levels, and at some point, encounter an “accumulator” phase, where fish are combined in canneries, animal meat is butchered en masse, raw metal is smelted together from different sources, etc., and after that point in the supply chain, it becomes unrealistic to attempt to trace materials back to their original sources.
In the future, this dead end in the supply chain traceability may be able to be addressed through RFID-type devices, the Internet of Things, or more likely something that hasn’t been invented yet. But as of today, manufacturers and retailers have only difficult choices. Making good faith efforts to improve conditions in supply chains by adopting supplier codes of conduct seems to invite these new “failure to disclose” lawsuits. But making no efforts is often inconsistent with corporate CSR goals. Implementing thoughtful supply chain policies requires care and finesse, especially now.