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Part 1: The Compliance Triangle

Compliance is often seen as synonymous with regulation. While regulations are undoubtedly a cornerstone of any compliance management framework, businesses are increasingly realizing that compliance risks extend far beyond regulatory boundaries.

This multitude of compliance considerations can be broadly separated into three categories — the faces of the Compliance Triangle:

These compliance considerations can be broadly categorized into the three faces of the Compliance Triangle: 

• Firstly, regulatory (regulators, governments, industry bodies) and a company’s obligation to adhere to different jurisdictions.
• Secondly, supplier (external vendors, suppliers, co-manufacturers) and the ability to enforce trading partners to meet contractual and inbound requirements.
• And thirdly, customer (distributors, retailers, franchisees) and the necessity to adhere to different corporate standards and guidelines.

In today’s globalized and decentralized economy — where operations cross international boundaries, organizations, and jurisdictions, and businesses depend on just-in-time and just-enough models — compliance acts as the glue that holds these inherently fragile frameworks together, strengthening a supply chain’s consistency, resilience, and accuracy.

All three categories are growing in prominence as supply chains become increasingly interconnected. To navigate this intricate ecosystem effectively, content and data management must serve as the central pivot point.

Let’s take a more detailed look at three faces of the Compliance Triangle.

The importance of regulatory compliance

Labeling, supported by accurate and reliable data, is essential for regulatory compliance, as it enables organizations to fully trace a product’s lifecycle. Regulatory compliance within the supply chain involves adhering to relevant laws, industry standards, and government regulations across various industries, often on a global scale. Labeling regulations are constantly evolving, and organizations must stay up to date with legislation to ensure that all business processes and data meet legal requirements and uphold consumer safety.

According to Gartner’s 2023 Future of Supply Chain Survey, 72% of high-performing supply chain organizations consider compliance to be a vital component of their risk management strategy ².

Increasingly, businesses must also prioritize compliance with Environmental, Social, and Governance (ESG) standards. This involves measuring a business’s impact on society, the environment, and how transparent and accountable it is, and requires companies to track and trace how materials and products are developed, shipped, and disposed of end-to-end.

Labeling, supported by true data sources as part of an interconnected network, is essential for attaining and maintaining regulatory compliance and enabling full product traceability.

Key obstacles to overcoming regulatory compliance are:

• Constant change – modern global supply chains often span an array of jurisdictions, each with their own regulatory requirements. This variability creates a moving target as rules differ across the world and continue to evolve at differing paces. Businesses, their trading partners, and suppliers must adapt to new laws and embed regulatory updates into their operations before these rules take effect, requiring agility and proactive strategies.
• Data quality and standardization – a lack of standards, reliance on manual processes, and communication gaps between systems and trading partners can lead to continual errors causing lengthy cycles, hindering compliance efforts, and missing regulatory deadlines.
• Product traceability – without robust infrastructure, the ability to track and record key information of a product’s lifecycle at every stage of the supply chain — from raw materials to end products — is challenging, if not almost impossible.

The importance of supplier compliance

Supplier compliance is more than a legal or contractual obligation — it is a cornerstone of supply chain efficiency and business success. And the ability to onboard new suppliers quickly can be a make-or-break scenario.

Suppliers (old and new) need to adhere to contractual agreements, inbound requirements, quality standards, and ethical practices. It requires supplier organizations to regularly conduct audits, assessments, and performance monitoring to ensure agreed-upon conditions are met.

Specifically, within labeling, often suppliers aren’t providing what’s asked for as part of the Advanced Shipping Notice (ASN), creating inefficiencies. Furthermore, some companies either ship labels to suppliers or take a picture of the label/template for them to be recreated to send materials and products back. These approaches elongate timeframes, create waste and add cost, and so prompt identification and resolution are critical to maintaining a reliable supply chain.

Supplier compliance is increasingly difficult for businesses to manage. Despite its critical role in effective supply chains, a recent survey of Loftware customers found that almost 70% of large, global enterprises find supplier compliance challenging ³.

To achieve supplier compliance, interconnected systems are essential for streamlining processes and ensuring seamless communication and data sharing. By leveraging collaborative networks with suppliers, organizations can reduce risk, enhance operational agility, and maintain trust with customers and regulators alike.

Key obstacles to overcoming supplier compliance are:

• Managing a growing number of suppliers – onboarding new suppliers is often challenging and can take significant amounts of time. However, increasingly the volume of suppliers needed to manage growth requires rapid onboarding solutions to avoid delays in time-to-market and preserve supply chain flexibility.
• Lack of standardized documentation – the absence of a uniform mechanism for sharing and applying product identification documentation creates inefficiencies. Managing multiple labeling templates, data formats, and customer-specific rules can become overwhelming, particularly when requirements vary by region.
• Complexity in subcontractor oversight – distribution chains that rely on contract manufacturers and subcontractors often lack direct oversight. Communication gaps and slow change implementation can result in non-compliance issues going unnoticed until flagged by customers or regulators, at an organization’s reputational and financial expense.
• Dynamic and evolving requirements – suppliers frequently change and update processes to accommodate new regulations or customer demands. Ensuring these updates are implemented correctly across the supplier network is a continuous challenge.

The importance of customer compliance

Customer compliance involves meeting complex requirements related to product labeling, marking, and packaging, as well as ensuring that customer interactions and transactions adhere to contractual terms and conditions. This includes maintaining accurate records, labeling end products correctly for delivery, and promptly addressing product complaints, returns, recalls, or other issues.

Ensuring accurate and consistent label data, enabling real-time product identification, and meeting corporate and brand guidelines (especially within intra-company operations) are critical. Compliance with customer requirements and expectations is essential for building trust, preventing fines, and maintaining satisfaction.

Managing customer compliance is increasingly complex, as businesses often need to cater to the unique requirements of thousands of customers. These needs can vary widely based on customer type and market dynamics.

Businesses that address these challenges proactively can better maintain customer satisfaction, protect brand reputation, avoid hefty fines, and ensure operational efficiency.

In a staggering revelation, around 91% of surveyed logistics and supply chain companies agreed that they have paid fine and penalties in the last 12-month period⁴.

Key obstacles to overcoming customer compliance are:

• Regional operations and third-party dependencies – in global operations, meeting customer expectations often depends on subcontractors like delivery companies. While you may have robust communication mechanisms with customers, ensuring compliance across downstream trading partners such as retailers, franchisees, and distributors presents additional challenges. Transparent, single source reliable data with trading partners is essential.
• Proactive vs. reactive management – detecting and resolving compliance breaches before they are flagged is ideal but not always achievable. Consequently, managing returns, recalls, exchanges, and refunds becomes a critical aspect of customer compliance. Labeling and its underlying data are fundamental in organizations satisfying customers while keeping the costs of replacements or refunds manageable.

Part 2: Impacts of non-compliance

Today’s supply chains need to have a consistent, connected approach to function, as complexity, globalization, and expectations from businesses and consumers have vastly increased.

Operators in all sectors must confidently manage compliance requirements around identification, labeling, packaging, and wider supply chain processes. Failing to meet requirements will lead to a range of serious consequences, including risk to consumer safety, brand status, fines for mislabeling and not meeting regulations, consequential delays, inability to enter new markets, and customer dissatisfaction.

According to Gartner Senior Research Director John Blake, the average cost of non-compliance has grown by 43% over the past nine years, with violations in pharmaceuticals alone exceeding $50 billion annually⁵.

The impact of non-compliance can be more wide-ranging than surface appearance may suggest. In fact, serious compliance breaches may result in potentially catastrophic outcomes, including strategic direction, hefty penalties, new market entry, and brand reputation, shaking the foundations of even the most established enterprise.

Overall impacts include:

• Financial – The most immediate, quantifiable results of non-compliance are financial. Failing to meet your obligations can result in large fines and higher operational costs. Whether wasted products, penalties, costly remedial actions, and the manpower it takes to relabel, it can cost companies millions. The consequential knock-on effects result in reduced revenue due to lower sales, contract losses, product waste, and refunds.
• Reputational – While the financial damage of non-compliance can be mitigated through insurance, or simply accepted as another overhead, its impact on your reputation can be far more nebulous and open-ended. Reputational and brand damage is non-linear, making it hard to quantify how much harm it can do. This is particularly acute in sectors like food and beverage, medical and pharmaceutical, and other areas where product non-compliance can have serious outcomes.
• Strategic and operational – Strategically, compliance is a competitive differentiator. It should not be seen as a cost center, but as an investment in sustainable growth, innovation, and competitive positioning. Without compliance, your business can’t scale. Non-compliance can ricochet within your organization, affecting customer attrition, lost sales and revenue decline, increased scrutiny, product launch delays — all with the possibility of becoming less desirable to stakeholders, and investors/merger opportunities.

In the three areas of the Compliance Triangle, specific consequences include:

Regulacyjne

• Hefty fines and penalties
• Consumer and environmental safety issues
• Legal and regulatory actions
• Market entry restrictions
• Increased risk of audits
• Recalls casued by errors
• Delays to market
• Inability to meet ESG initiatives

Supplier

• Costly and time-intensive relabeling efforts
• Supply chain disruptions
• Production and shipping delays
• Product waste
• Increasing operational costs
• Environmental impact

KLIENT

• Increased customer dissatisfaction
• Lost revenue
• Product returns and scrappage
• Failure to manage recalls
• Consumer safety risk and liability issues
• Business disruption

Ultimately, many of these impacts overlap and feed each other. An error in labeling, when detected, could result in a pause of production for remediation or a product recall. Customers may be at risk due to mislabeled products, leading to negative publicity and regulatory scrutiny. Disrupted supply, combined with reputational damage, could see you passed over for a competitor in a certain region. This difficult to control collection of consequences is a compliance cascade.

To undertake potentially limitless impacts, compliance management must be proactive and pre-emptive. To prevent negative outcomes cascading across your operations, compliance management must embrace digital transformation.

Part 3: The solution is thinking beyond the label

A label is a passport of information. To achieve lasting, reliable compliance performance in your labeling, transformation at the information layer of your business is paramount.

A unified collaborative network is key to developing the vital connections your supply chain depends on, driving authenticity, compliance, and traceability at every stage.

By sharing the same universal infrastructure with all your stakeholders — from suppliers to partners, company locations, and customers — you can create the ability to manage content and exchange product identification standards, labels, data, and rules with ease, no matter the size or reach of your operation.

This standardized and centralized approach to label and packaging content allows you to quickly onboard new sites, manufacturers, suppliers, and distributors — typically within days — and integrate them painlessly across your enterprise.

A joined-up approach of your labeling and packaging within the supply chain will support and enhance the multitude of compliance variations occurring, whether upstream, downstream, within your company, or in the regulatory sphere.

A 2024 survey conducted by Loftware across more than 55 countries found that almost 85% of industry professionals are calling for greater connection and collaboration in global supply chains. Respondents agreed on the benefit of joining an ecosystem where partners across the supply chain can share access, data, and standards to ensure compliance, increase efficiency, and cut costs⁶.

Four key benefits of a collaborative network for labeling

1. Improved compliance – by ensuring suppliers, customers and company locations can publish and subscribe to standards, the entire collaborative network achieves consistency, greater agility, reduced manual work, fewer fines, and less risk. Just as the cost of non-compliance goes beyond the financial, so too do the benefits of compliance excellence. Reduced costs and increased productivity can be found in parallel with reputational strengthening and robust ‘connections’ with trading partners of every type.
2. Increased collaboration – an integrated collaborative network creates communities of like-minded supply chain professionals, allowing customers, trading partners, and intracompany to share resources, insights, and best practices to optimize business and supply chain agility, and co-develop efficiencies. By creating a common meeting point across elements of your organization and your global supply chain in equal measure, you’re breaking out of persistent siloing — fostering improved communication and performance across the internal and external faces of your business.
3. Faster time to value – every minute spent getting to value delivery and revenue generation is a moment that costs you. Speeding adherence to product identification standards, both upstream and downstream, will see those points come far earlier. Smoothly onboarding new suppliers, while meeting complex evolving customer requirements, is a transformative way to reduce growing pains, drive success, and improve your top-line.
4. Amplified efficiency – by allowing multiple users or departments within your organization (and across its trading partner base) to access and use common infrastructure unlocks better resource utilization, improved consistency, and reduced complexity, while standardizing processes across the board.

Simplicity goes hand in hand with efficiency, reducing waste, and delivering significant time and cost savings.