Supply chain transparency is being implemented by more and more companies since it is a significant way to gain customer trust, attract talent, strengthen supplier relationships and manage risks. Various regulations now involve companies to reveal forced labour or conflict conditions in the extended supply chain.
“An opaque supply chain can cause many problems. For example: Most iPhone owners probably don’t think about the provenance of their devices, but worker suicides at Foxconn, one of Apple’s major Chinese suppliers, forced the company to pull the curtain back on part of its supply chain in 2009. It had to quell claims that it relied on sweatshop labour. Another high-profile case, the “toxic drywall scandal,” led to class-action lawsuits. The offending product was imported into the United States bearing no readily available information about its source other than a “Made in China” stamp. And a few years earlier, toy giant Mattel faced a tornado of publicity about lead in toys, which raised questions about how much control it had over its supply chain.
Conversely, many firms make a virtue of provenance. International clothing retailer H&M, for example, declares that it strives to improve labor practices and minimize the adverse environmental effects of not only its suppliers, but its suppliers’ suppliers, right back along the chain. Similar claims—once the preserve of a handful of niche retailers—have become widespread. But until recently, customers had a limited view of supply chains. Even companies themselves have often been content not to ask lots of questions about the origins and pathways of the goods they source.” (Source: https://hbr.org/2010/10/the-transparent-supply-chain )
Benefits of Supply Chain Transparency
- Compliance with strict regulations.
- Reduce reputational risk and portray the company as a trustworthy enterprise.
- Attracting and retaining employees who are happy to work for responsible companies.
- Getting more detailed information on supply chain performance allows companies to recognize opportunities for improvement such as unnecessary middlemen and to plan more effectively over the long term.
Here are the five steps to get started:
- Set the scope and targets
Firstly, it is important to have a honest assessment of your current visibility. Find out everything about all your suppliers. Having a baseline survey of your purchasing data will inform the scope and the targets for a phased roll-out of supply chain transparency. The first goal is to reveal the list of strategic suppliers. In the following years, you’ll want to trace key product lines to raw materials and expose critical issues where you have the most leverage. In the end, you will be able to collect data from your extended supply chain automatically and return useful benchmarks to customers and to suppliers along the way.
- Engage early with suppliers
It is important that supply chain transparency is mutually beneficial. In this way, brands can gain the trust of their customers and suppliers can gain worldwide visibility as the best-in-class. A good technique is to include suppliers early in the development and roll-out of supply chain transparency so they have a chance to discuss issues that might arise, and they can take the time to present their brand in the best way possible. Suppliers who are engaged early have been contributing in terms of photos and videos all as part of a customer’s supply chain disclosure.
- Collect actionable information.
It is a good practice to track and profile units, batches, or many finished goods moving through the supply chain to ensure source of origin and chain of custody. Once the chain of custody is identified, practices require verification. Most companies have their codes of conduct. Normally, this includes requirements about supplier practices – labor practices and also environmental concerns. Generally, companies ask for the codes of conduct from their direct suppliers, but as transparency becomes more important, companies are increasingly requiring suppliers deeper in their supply chain to abide with codes of conduct and are vetting the information in some cases.
- Engage and address specific issues
Equipped with actionable information, the company can now select how to engage in the supply chain. This consists of a program designed, taking into consideration critical KPI’s. The objective is to address specific issues such as labour-related risks, environmental impacts at supplier sites, or unclear sources of origin. The engagement comprises of supplier contact and collaboration, monitoring, and support. It may also require third-party partnerships to gain expertise that is not available internally. For example, Starbucks has long partnered with Conservation International to build its ethical-sourcing program for its coffee that covers a wide spectrum of social and environmental issues. The program began with a code of conduct entitled C.A.F.E. to ensure adoption of the code down to the farmer level.
Lastly, businesses set the level of disclosure they want to establish. This includes deciding how they will meet relevant regulatory requirements and stakeholder demands, and how they will verify the information disclosed. Basically, the level of disclosure can range from sharing a code of conduct to disclosing traceability from the raw materials stage of the supply chain.
These steps are ongoing. Supply chains are active, and progress should be continuous to ensure a better functioning and more sustainable and transparent supply chain. There is no doubt that supply chain transparency depends on creating a culture of continuous improvement within the organization and across value chains. The demand for transparency will be more prevalent in the future.