The State of Compliance 2020: the surprising results of an industry study

2020 has been a tumultuous year for global supply chains, making it a complex yet revealing case study for the compliance industry. We now examine insights from The State of Compliance 2020, an annual report that summarizes the state of this sector.

One of the main challenges facing companies turns out to be slow adoption of supply chain data management programs. Given the disruption-prone nature of the global economy and increased interdependence of all elements of the global supply chain, adopting a digital solution is crucial for resilience in a dynamic compliance environment.

A mounting tide of regulations, implemented to mitigate economic, political, social, and environmental risk in a thoroughly globalized economy, is making it difficult for firms to navigate their own ecosystems. The report notes nearly 20 such laws and regulations commonly used within the industry that require increasing resources to address. Companies with large supply chains will find management more challenging due to growing complexity around regulatory compliance.

A key source of this challenge is the fact that half of the industry still relies on manual processes for compliance management. Such practices have proven to be a particularly stubborn relic. In many cases they persist even in the face of company-wide digital transformation that streamlines other operations. Compliance teams left with outdated processes therefore find it difficult to access centralized data and analyze it effectively, consuming more resources for poorer results. As the report notes, “these challenges could be alleviated by leveraging technology and automation.”

Alarmingly, many organizations cannot actually say how much they spend on their relatively new compliance programs. The report states that “approximately half of all companies do not know the cost” of their compliance programs due partly to the “spread of compliance functions across various teams and departments.”

In short, compliance operations are increasingly vital but remain out of date, time-consuming, expensive, and regrettably under-accounted for. This is the case even as compliance demands an increasing amount of time from companies. Nine out of ten surveyed reported spending more time on compliance this year than three years ago, with 16.06% reporting at least a 51% increase in time spent.

Below, we discuss in greater depth the scope of these problems, the projections for the near future, and what companies can do to stay ahead of growing challenges and regulations.

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The current state of compliance

One of the key takeaways of the State of Compliance 2020 is that companies, ever more aware of compliance, are looking for ways to leverage technology and data in moving their operations forward. McKinsey outlines a four-step roadmap toward compliance and control, with the final point being to ensure that “improvements are made on a sustainable basis.” As we shall see, manual processes are unequipped to weather disruptions, scale, or remain competitive in a sustainable way as demand and regulations surge.

As it stands, half of all companies surveyed report using manual processes for compliance management. A quarter more have adopted some form of software solution but still supplement with manual processes. Worse yet, 38% of these companies report having no plan to update their processes, which “highlights a lack of a clear vision…Companies predict dedicating more time on programs to meet regulatory requirements and satisfy customer requests, but there is no clear way forward in a complex environment.”

Numbers indicate that compliance teams are not satisfied with the lagging technological shift. The current satisfaction rate with available technology is just 46.5% — though this dissatisfaction with technology appears to arise largely from those who are not using it. As the report notes, “companies that indicated they were using only manual tools were most likely to indicate that they have poor satisfaction with the technology available to them.”

Conversely, those companies with more advanced digital transformation report greater interest in investing in further resources. One of the key benefits they cite is clean, high-quality data. Executives rate the quality of supply chain data as much higher now than they did three years ago, according to a study by Ivalua, with 64% reporting either an improvement or a significant improvement. The number of supply chain managers reporting the ability to find clean data increased by 113% in just one year (2018 to 2019), a testament to the power of digital solutions.

Another difficulty for compliance teams is that they are hardly teams at all — compliance tasks tend to be spread across separate departments including Quality, Compliance, Supply Chain, Procurement, and Engineering. This makes it difficult not only to operate with the necessary coordination, but also to implement new technology solutions.

Although many companies cannot accurately state how much compliance costs them, research indicates the number is significant and is quickly growing. The following compliance trends include the average true costs for compliance in 2020, as well as their expected increases by 2023:

  • Mid-sized: $119,825 (expected to increase $24,564 by 2023)
  • Large: $397,973 (expected to increase $81,584 by 2023)
  • Enterprise: $6,802,797 (expected to increase $1,360,559 by 2023)

These figures represent a projected ~20% increase in cost in just three years. Neglecting the need to modernize compliance programs could be adding untold thousands or millions to a company’s operating costs.

As regulations are predicted to grow steadily in the short and potentially long terms, compliance is an increasingly crucial ingredient for success. Failure to adopt new solutions will impede companies from managing compliance effectively, especially with rising complexity and costs of compliance. Disruptions are also predicted to occur more frequently, with one to two months of production disturbance likely every 3.7 years, according to Consultancy. Leveraging technology to gain visibility, oversight, centralized data, and AI-generated analytics is the only way to adequately prepare for the coming compliance challenges.

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Using technology to implement better compliance programs

In today’s world, excelling at compliance offers a powerful competitive advantage. Global Response notes that compliance generates better trust with customers, better employee engagement, more compelling marketing and storytelling, trustworthy data, substantially higher efficiency, and scalability. And indeed, making your compliance operations more resilient can mean the difference between continuity and halting production when a disruption occurs.

Inspectorio is a global leader in compliance and quality control software, with its Rise platform offering a sound strategy for alleviating compliance pains among organizations of any size. According to Footwear News, supply chain traceability software like Inspectorio Rise allows users to keep track of each phase in manufacturing, ensuring each stage is compliant with relevant commitments or regulations. Such technology also lets brands follow the manufacturing journey of their products, granting them more effective risk management — as well as more information for customers “to help maintain brand authenticity.”

Deloitte writes that big data analytics can “perform real time monitoring of high-risk areas and transactions” and “enhance the efficiency of compliance testing.” Beyond product traceability, technology solutions address one of the most pressing challenges in promoting compliance: the rising workload. Rise eliminates several sources of resource drain at once. Instead of manual data processing and collection, AI centralizes all data and produces comprehensive results on demand. Instead of spreadsheets coming via email from various inspectors, all data is centralized and updated in real time. And instead of needing to manually issue CAPAs for noncompliance, our supply chain data management software can be automated to issue them appropriately.

Inspectorio software also streamlines compliance questionnaires across complex supply chains. This lets companies keep track of data in a consistent format, even across multiple supplier countries, product lines, and more. There is no constraint to the types of standards and questionnaires that can be configured and implemented on Rise — it is fully customizable and can adapt to any use within the industry.

The visibility created by Inspectorio Rise creates resilient supply chains by increasing the capacity of organizations to adapt and embrace increasing regulations and workloads. According to McKinsey, big data is providing “improvement across every area of the supply chain” — but companies must take proactive steps to reap the benefits. Despite expecting compliance departments to shoulder the lion’s share (59%) of extra work resulting from increased demand, only 5.4 in 10 report feeling confident in being able to meet such workload. Companies relying on manual processes reported planning to manage the workload by “repurposing staff from other departments and/or functions toward compliance, or else reporting they would make no change to their existing programs.”

Those using third-party technological solutions? They plan to simply scale up their usage with demand.

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Inspectorio Rise is changing the face of compliance

In the global supply chain, addressing radical changes requires a radical solution. Mounting regulations, complexity, vulnerability to disruptions, and the overall cost of compliance necessitate a leap in supply chain management.

Inspectorio Rise revolutionizes quality and compliance by centralizing and connecting all of the industry’s core processes. The benefits of Inspectorio Rise include:

  • complete visibility over a supply chain of any size, including compliance audits
  • monitoring compliance in real-time
  • a centralized communication platform
  • automated CAPAs and education to fix non-compliance issues
  • delegating traditionally resource-intensive processes to software
  • streamlined, customizable questionnaires
  • high resilience to disruptions, as evidenced by high adoption during the pandemic
  • continuous data collection
  • robust data analytics powered by AI

Visit our website to learn more on how Inspectorio software is helping companies leapfrog the competition in compliance.

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