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Staples, Inc., the world’s largest reseller of office products, is in the midst of adapting its sourcing practices to ensure that its products meet not only its own sustainable procurement policy, but the requirements of the U.S. Lacey Act. Under the Lacey Act, it is illegal to trade forest products in the United States if they are of illegal origin, and importers are required to report the make-up and origin of the raw materials used to manufacture the products. Lacey Act violations can result in significant fines and jail time (U.S. Department of Justice, 2012; EIA, 2009).

Staples’ overall strategy to meet both the U.S. Lacey Act requirements and its own Sustainable Paper Procurement Policy is to increase transparency in its supply chains. With the assistance of the Rainforest Alliance’s SmartSource Program, Staples is deploying the tool Smart- Source360 to trace the origin of its products and manage the risk of sourcing unwanted or illegal materials. SmartSource360 is an internet-based supply chain management system designed to compile, analyze, store, and manage supply chain information and documentation directly from suppliers and subsuppliers.

This issue brief documents the pilot testing of SmartSource360 to trace the supply chains of five private label products that originate from China, the United States, and Brazil, through four suppliers.

The pilot testing revealed five key lessons:

• Position in the supply chain matters. The longer the supply chain, the more difficult it is for companies to obtain information about the origin of the raw materials. Pulp and paper manufacturers, or integrated paper companies, are better prepared to quickly answer specific questions about the origin of their raw materials. Paper converters often source from multiple suppliers and brokers who could be vertically integrated pulp and paper manufacturers or non-integrated paper manufacturers. In both cases, paper manufacturers may source wood from different suppliers, including on spot markets, at lower prices and without asking questions about the origin of the raw materials.

• Buyers’ and suppliers’ priorities need to be aligned. High-level, direct, and consistent communication between the buyer and the supplier is critical to align the supplier’s priorities with the priorities of the buyer. Obtaining accurate, detailed, sufficient supply chain information and active supplier participation in a data disclosure process takes time and effort. This is especially true if supply chain transparency is not a priority for the supplier, and in markets where there is no history of tracking the origin of the raw materials or supply chain transactions.

• It is critical to overcome concerns about the use of confidential supplier information. Direct suppliers or their sub-suppliers, who are asked to provide the most information about the origin of the raw materials, may be suspicious of the buyers’ motivation in requesting information. Suppliers and sub-suppliers may consider the information confidential, or may believe the data could be used to circumvent them. Buyers need to overcome this mistrust, communicate directly with their suppliers where needed, and incentivize supplier participation.

• Direct communication with suppliers is important. Relationship-building and trust can take years to develop and is influenced by cultural differences. Direct, high-level communication with suppliers can be key to overcome concerns about the use of the supply chain information being disclosed and align the corporate priorities.

• Intermediaries can play a role supporting the implementation of a procurement policy. An intermediary actor who supports the implementation of a procurement policy is useful in cases where the company does not have in-house expertise on forest issues. Intermediaries can also provide independent third party verification and validation of the supply-chain information submitted by the suppliers. However, completely outsourcing implementation is not advisable because direct involvement from the buyer is critical to reinforce the importance of the policies, ensure that policy requirements are well understood, and encourage suppliers to fully disclose information.

The 2008 amendments to the U.S. Lacey Act are changing the way Staples sources its paper products. While Staples has long recognized the connection between corporate responsibility and business profitability, the Lacey Act amendments, and the emergence of other regulations, such as the European Union Timber Regulation, have helped accelerate the implementation of Staples Sustainable Paper Sourcing Policy. With the pilot testing of SmartSource 360, Staples’ managers gained a better understanding of the complexity of their supply chains. The pilot test also informed next steps in the SmartSource 360 deployment. These steps include continuing to reach out and educate suppliers and sub-suppliers, requiring new suppliers to participate in the program, and implementing incentives to improve disclosure.

This issue brief draws on relevant documents and interviews with key stakeholders. The FLA did not systematically review all the documents and information related to the products discussed in this brief, nor did it audit the supply-chain control system highlighted here.