As a company executive, you probably know plenty about the need for visibility into your supply chain, as well as the challenges of improving supply chain transparency. However, your primary concern probably relates to supply chain transparency in the context of speed, responsiveness, efficiency, and the ability to keep your customers continuously informed.
There’s aspect of supply chain transparency though—one that’s fast gaining importance in the eyes of your customers, and of anyone with an interest in how and where products and materials are sourced and manufactured. This is the supply chain transparency that you need to protect your company’s reputation and market share, in an era when provenance and ethics are receiving attention from an ever growing audience.
The Rise of Product Provenance
Over the course of the last decade, as supply chains have grown and become more complex, any number of big-name brands has suffered scandals relating to product sourcing. You’re probably familiar with many of them, such as:
- The 2013 horse meat scandal in Europe
- Nike’s supply chain labor practices
- Worker suicides at a Chinese plant supplying Apple
- Mattel’s scandal over the use of lead-based paint in toy manufacture
In all of these cases, the brand-owners appeared to have been blissfully unaware of the ethical trouble brewing until it was too late. Other companies have experienced well-publicised setbacks in other ways, such as those impacted by the 2011 earthquake in Japan and flooding in Thailand.
These examples all serve to deliver one simple message:
Supply chain transparency means knowing where your goods come from as well as tracing where they are.
While many business leaders have come to understand the returns on investment in supply chain transparency and product provenance, few firms have the necessary access to accurate and detailed data for sufficient visibility.
In complex global supply chains, transparency is not something that can be managed as a side issue. There is in fact, a compelling case for assigning human and other resources to directly target supply chain transparency.
The Benefits of Supply Chain Transparency
While there are tangible benefits to be had from mapping the entire value chain, these are secondary to the reality that supply chain transparency is becoming a necessity, driven by consumer demand. Not only do you need to know about product provenance to lift internal performance—you must be prepared to share it with your customers too.
Market Share: Being able to illustrate verified histories and origins of your products, will help you to position your organisation among the leaders in product provenance. That in turn may create opportunities for growth. Such opportunities may not last for too long though. As companies that can’t achieve transparency start to fall by the wayside, the rest will raise their game as a necessary condition for survival.
In the meantime, traceable products and materials can justify higher prices and improved margins, although of course the margin depends upon the cost associated with gaining full supply chain transparency.
Cost Savings: Internal benefits of increased supply chain transparency can include savings in production costs and other operational expenses. For example, if your company is involved in manufacture, you may receive components or materials which pass through more than one step in the supply chain before they arrive in your plants.
In this case it’s important to gain visibility into the operations of your suppliers’ suppliers. If you can clearly see when changes occur in material batches or other elements of components and materials way upstream, your company may be able to preempt any impact on your products, thereby improving “right first time” performance.
The Challenges of Supply Chain Transparency and Provenance
Acquiring the benefits of supply chain transparency is no small task. You may have recognised some of the challenges to be surmounted, but if not, the following overview will help you think about the steps involved in getting visibility of product origins.
Attaining Sufficient Visibility: Just how far do you need to go to gain full transparency of your products’ origins? A lot will depend upon how many first-tier suppliers you deal with and the complexity of the products you manufacture or distribute. If you have many first-tier suppliers, your second, third and fourth tier suppliers may number in the hundreds.
Your supply chain may also be prone to frequent changes as well as complexity. The more fluid the supply chain, the harder will be the task of maintaining transparency. Therefore a highly systematic and disciplined process will be necessary to ensure continued visibility from end-to-end.
Obviously, reaching the highest levels of supply chain transparency will require the collection of detailed data. However, the collection process will need to be planned with certain considerations in mind, such as:
- How to gather the data
- What data to gather
- How to verify the data
- How to store and manage the data
- How much of a cost burden the process will place on suppliers in each tier
- What evidence you will require each supplier to provide about things like ethical practices
Strategy for Sharing Provenance Data: Having worked out how to acquire supply chain transparency, you must think about how you will share it publicly, without exposing your company to competitive risk. If your organisation has been historically reticent to share supply chain data, it might be tough to shift the culture to one that’s more open.
In selling the business case for product provenance then, you may need to remind your colleagues that in this day and age, anyone who really wants to find out about your suppliers can do so, as long as they are prepared to put in the necessary research. On the other hand, an open approach, offering customers and investors a degree of supply chain transparency, can go a long way towards engendering trust.
Still, there is little doubt that sharing supply chain data can make it easier for your competitors to seek an edge, so as an executive, you have to consider the pros and cons and determine just how much information can realistically be made accessible.
Dealing with Discovery: When you go looking for trouble, it’s unusual not to find it. The challenges in developing a transparent supply chain aren’t limited to making discoveries. They also relate to what you will do when you uncover risk in one of your levels of supply.
If you make such a discovery, you’ll need to assess the level of risk in the context of your new approach to openness. Obviously letting things lie will not be an option once awareness exists. Some possible responses might include:
1) Terminating a commercial relationship with a supplier.
2) Insisting that the supplier makes changes to its own supply chain as a condition of continued business.
3) Collaborating with the supplier to eliminate or mitigate the risk.
4) Increasing the supplier’s brand profile (for example, by naming the supplier on your product’s packaging or labels. This might help to shift any reputational harm in the event of an issue resulting from your supplier’s practices.
It’s not always easy to find out bad news, but at least when you do, you have choices available to protect your company from supply chain disruption or connections to unethical commercial behaviour. When it comes to product provenance, unfortunately, what you don’t know can almost certainly hurt you.
Solving the Problems of Supply Chain Transparency
You might have noticed that this article provides no real answers for attaining the depth of transparency needed to avoid ethical issues and disruptions originating far upstream in the supply pipeline. That’s because there are no generic answers. If there were, you would probably already know them.
Decisions about provenance will be yours alone to make and will depend on the characteristics of your supply chain and your organisational culture. However, it’s a topic that many other supply chain executives will either be pondering or will have begun to address.
That’s why supply chain transparency is a great subject to learn about through networking with professional peers. You could do this by attending corporate events or participating in an executive peer group, such as The Supply Chain Leaders Boardroom, soon to be launched by the team at Logistics Bureau.
After all, supply chain transparency and product provenance is all about sharing information and being open. What better way to practice, than to brainstorm solutions with other executives and share ideas to surmount the challenges involved?
Best Regards
Rob O’Byrne
Email or +61 417 417 307