As companies adjust their supply chains to navigate geopolitical tensions, tariffs and disruptions, many are moving sourcing closer to home. That doesn’t come without challenges, and our data reveals a surprising truth: significant social and environmental compliance gaps exist throughout North American supply chains. These pose operational risks just as serious as those in sourcing regions further afield.
Our SMETA audit findings show 41% of North American sites have wage-related compliance issues, thousands face waste management violations and fire safety remains critically overlooked despite being a leading operational risk.
These challenges can threaten supply chain continuity and resilience, ultimately impacting your company’s bottom line. And yet, estimates show that 43% of corporations have no supply chain visibility beyond their tier 1 suppliers.
The four insights below are designed to help you strengthen your North American sourcing strategy and supply chain resilience at this critical time, through increased supply chain visibility and sustainability risk management. These tactics can also help your business unlock related benefits like improved productivity, energy efficiency, fewer worker-related disruptions and reduced operational costs.
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1. Sustainability compliance gaps exist across North America.
It’s easy to assume that the most significant human rights and environmental risks exist in the overseas parts of supply chains. That would be an oversight.
Data from our Platform and SMETA audits reveal that these risks can be just as relevant for North American suppliers. This highlights the criticality of conducting thorough due diligence on suppliers in this region, to effectively mitigate these issues.
The good news? Visibility is increasing, and we’re certainly seeing more North American businesses building this, with huge growth in interest and activities regarding supply chain due diligence. In just seven years, we’ve seen a 10-fold increase in SMETA audits conducted across North America, and with that visibility comes the chance to act — to close gaps, build resiliency and drive better outcomes across the board.
As more audits are conducted across North American supplier sites, companies are uncovering a range of social and environmental compliance gaps, including:
- Wages and working conditions: 41% of audited sites in North America have wage-related compliance issues, such as failure to pay overtime premiums or other legally required benefits.
- Environmental compliance: Thousands of waste management violations, particularly missing permits for wastewater disposal, have been flagged across North American worksites.
- Workplace safety: Despite warehouse fires being a leading operational risk in the U.S., audits found that many sites lacked critical fire safety protocols, with a lack of safety drills being one of the most common SMETA findings across North American worksites.
(Source: Sedex, SMETA audits carried out in the last 3 years to December 2024)
These findings challenge the perception that sustainability risks are highest at offshore suppliers’ sites or in countries with vastly different legal environments. As U.S. companies implement nearshoring and reshoring strategies to mitigate supply chain risks, their due diligence exposes 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, responsible sourcing expectations remain or even grow. Businesses anticipating and addressing compliance risks early are better equipped to prevent disruptions such as fines or product seizures.
Social and environmental concerns don’t just pose regulatory risks; they can directly affect supply chain performance and business continuity:
- Lower productivity, with high worker turnover, absenteeism or error/injury rates: Exploitative and unsafe working conditions can lead to an unstable workforce and operational disruption. For example, regularly losing experienced workers, labor shortages and high injury rates all contribute to production delays.
- Environmental events disrupting operations: Rising temperatures and extreme weather events are already impacting regional economic activity, labor availability and production operations. The International Labor Organization estimates that the cost of injuries from excessive heat in workplaces can reach 1.5% of national GDP, while the World Economic Forum predicts that corporate earnings could drop by up to 7% for businesses that fail to adapt to climate risks.
- Production and logistics holdups: Suspicions of severe violations, such as child labor or forced labor, can result in shutdowns, legal action or shipment delays.
- Reputational damage: With consumers, investors and regulators scrutinizing businesses’ practices and supply chains, failing to meet any of these stakeholders’ expectations can come with swift retribution and negative media coverage.
Companies that actively engage with their suppliers to mitigate risks, address gaps and improve social and ethical standards are laying strong foundations for short- and long-term supply chain stability and subsequent business benefits.
3. Legislation requires transparency and compliance from your supply chain.
Legislators worldwide are introducing stricter supply chain due diligence laws, placing increasing responsibility on businesses to ensure responsible, sustainable practices. These can have instant operational impact — under regulations such as the Uyghur Forced Labor Prevention Act in the U.S. and the new EU Forced Labor Regulation, governments can seize products and stop them being sold on.
For many teams, the challenge isn’t just about meeting existing regulations, but in navigating a shifting 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 force change, are positioning themselves for successful compliance while unlocking the other benefits and avoiding the consequences outlined above.
The right tech for in-depth supply chain visibility through the lowest tiers of a supply chain –– integrating and analyzing vast amounts of standardized data –– empowers intelligent and accurate decision-making to manage risk and drive measurable improvements. One recent study indicates inventory costs could be reduced by 15%–20% by using deep visibility to avoid overstocking and shortages.
4. Collaborate with suppliers to combat supply chain disruptions, address sustainability risks and increase defenses.
The final essential component of addressing supply chain shocks, sustainability risks and compliance gaps is working collaboratively with your supply chain. Long-term supplier partnerships encourage innovation, trust and support during challenging times — all of which are 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 severe the issue, the more likely they’ll need it. Meanwhile, during sudden disruptions, companies can offer instant support by reviewing order schedules. Discuss with your most strategic suppliers what support they need that you could offer.
As manufacturers increase their supply chain due diligence activities, you’ll need suppliers’ support to access information from the lower tiers of your supply chain and accurately identify the biggest sustainability and operational risks. This includes both labor and environmental-related data from existing lower-tier suppliers, and 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’re facing, working with suppliers to increase transparency and strengthen their practices improves your company’s resilience. They empower risk management efforts and enable you to better safeguard supply continuity, satisfying short-term operational needs while maintaining progress against longer-term corporate goals.
Maurizio Capuzzo, Chief Marketing Officer at Sedex, is an award-winning marketing executive with over two decades of leadership experience in marketing, strategic planning and delivering results for technology brands. His strong track record of success in the tech industry includes senior roles steering global strategies at some of the world’s most recognizable brands, including Motorola, Poly-HP and Lucent Technologies.
