Written by Clément Suavet, PhD., Data Analyst at Sustaain
Understanding Traceability and Traceability Risk
Traceability requires producing, collecting, and storing documents that prove the origin of products and their chain of custody. Traceability risk is the risk of mixing or substitution with products of unknown origin along the chain of custody.
The EUDR and other regulations have requirements on traceability: due diligence must be performed to determine that the risk of circumvention by mixing with products of unknown origin is negligible.
The Complexity of Supply Chains and Chain of Custody Documentation
The material reality of supply chains is infinitely complex. A full description is intractable, but some supply chains are more complex than others in their numbers of steps, intermediaries, and branches.
Depending on the specifics of the supply chain and the availability of documentation, the amount of documentary evidence available about chains of custody can range from incomplete to overwhelming.
Operators performing the due diligence, especially small and medium actors, face multiple challenges:
- They have limited access to documentary evidence;
- Their leverage to request it when it is not readily available is limited;
- Their capacity to process the documentary evidence is also limited by resources or competencies.
Modelling the Chain of Custody for Traceability Compliance
How to deal with this complexity? The chain of custody in traceability due diligence is a model of the material reality of supply chains; it is a simplification. This model is built using the available documentary evidence. How to make sure — with limited resources — that the model is good enough (i.e. close enough to the reality it describes, with the appropriate level of detail) to conclude that the risk of circumvention is negligible, and reach compliance with traceability requirements?
This requires identifying what are the non-negotiable parts of regulations, and where are the moving parts, and finding a workable compromise.
A non-negotiable requirement of the regulation is that all entities (businesses and persons) along the chain of custody must be documented.
Among the “moving parts” are the legal value of documentation (a simple declaration vs. a contract/certification), and the level of detail of documentation (a general description of a connection vs. a description of all volumes transferred between entities). These two dimensions together define the “evidentiary level” of documentation
How to set the cursor for these “moving parts”? The answer lies in the context. Traceability risk does not exist in isolation; it is one among other dimensions of compliance risk. The country risk and the supplier risk define a “background risk” level.
With the assumption that traceability risk is correlated with the background risk, the required evidentiary level of traceability documentation can be modulated based on background risk. In a low-background risk context, the evidentiary threshold of traceability documentation can be lowered.
Designing a Traceability System for EUDR Compliance
Based on these principle, we have designed a traceability risk methodology to guide operators through the collection of traceability documentation, and a traceability system that can capture relevant data from the traceability documents, store it in a structured and safe system that is audit-ready, flag traceability issues and advise users on mitigation strategies.
Want to go further on traceability and EUDR compliance?
Watch our webinar series “Data Clarity in a Post-Truth EUDR.” In the first episode, with Sopex, we share a pragmatic approach to supply chain modelling and traceability.