Supply chain transparency has become a strategic priority as global supply chains grow increasingly complex. For example, Apple‘s supply chain encompasses over 200 suppliers across 43 countries. Such expansive networks make achieving true visibility quite challenging.
However, transparency has proven to be a competitive necessity rather than just a point of differentiation for businesses today. Let‘s examine why transparency has become critical and best practices that leading organizations follow to enable ethical, responsible supply chain management.
Why Is Transparency so Important?
Supply chain transparency entails sharing detailed information about suppliers, sourcing, manufacturing, distribution, and overall management of environmental and social impacts. It provides visibility into key aspects across the multi-tier supply chain.
Here are some key factors that make supply chain transparency vital today:
Rising Consumer Demands for Sustainability
73% of consumers expect companies to publicly demonstrate their environmental and social responsibility, according to research by Cone Communications. 91% say they will switch brands to one associated with a good cause, if price and quality are equal.
Transparent supply chains enable consumers to make informed purchasing choices based on a company‘s ethical sourcing, fair labor practices and overall ESG performance. For instance, fashion brand Everlane provides details on its factory partners and sustainability initiatives – which resonates with its ethical, Gen Z consumer base.
Evolving Global Regulations on ESG
Governments and regulators globally are enacting an array of new laws focused on environmental, social, and governance (ESG) performance and disclosures:
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The EU Corporate Sustainability Reporting Directive will require companies to perform due diligence across their value chain including on human rights and environmental impacts.
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The US SEC is expected to finalize rules requiring public companies to disclose climate-related risks, greenhouse gas emissions, and diversity data.
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The UK Modern Slavery Act requires businesses to report annually on their efforts to eliminate forced labor from their supply chains.
Maintaining thorough, accurate transparency will be vital for compliance as regulations continue to evolve. Non-compliance could lead to significant fines and business restrictions along with reputation damage.
Mitigating Disruption Risks
The World Economic Forum‘s Global Risks Report 2023 ranks environmental risks including biodiversity loss, natural disasters and climate action failure among the top threats worldwide.
Supply chain transparency allows companies to identify and mitigate various risks before they result in disruptions, compliance issues, or reputation damage. Analysts predict that supply chain disruptions will cost businesses $4 trillion by 2023. Proactive risk management enabled by transparency is crucial.
Competitive Differentiation
According to research by McKinsey, attaching sustainability claims to products or services can enable faster growth – by more than 20% for consumer goods and retail companies. Supply chain transparency provides credibility to companies‘ ESG initiatives.
Leading companies across industries are prioritizing transparency as a key element in their ESG and sustainability strategies. Transparent supply chains can help attract ethically minded talent and investors as well.
Challenges in Achieving True Supply Chain Transparency
However, making entire supply chains transparent poses some unique obstacles:
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Complexity – Supply chains now encompass many tiers of suppliers across multiple geographies. For instance, General Motors works with over 30,000 suppliers globally. Capturing ethical sourcing details across so many entities is an enormous challenge.
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Lack of collaboration – Suppliers may be unwilling to share details about their operations, capacities, and sub-contractors. C-level executives surveyed by PwC reported that 52% of their suppliers were reticent in providing transparency. This reluctance impedes gaining a comprehensive view.
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Data gaps – Many businesses still lack mature systems, standards and processes to efficiently collect and integrate supply chain data across functions and locations. For example, only 25% of retailers get data from suppliers in an automated manner, per Retail Dive. Disparate information impedes getting insights.
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Non-compliance – Suppliers may fail to meet standards due to capacity limitations. For instance, small farms may lack capability to obtain sustainability certifications, or factories may fail audits. Negligence, ignorance and other issues also contribute towards compliance failures. Rigorous monitoring is essential.
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Resource intensity – Deploying technology, auditing suppliers, analyzing data and undertaking corrective actions requires significant investment. The costs and effort often deter companies, especially SMEs, from prioritizing transparency.
A strategic approach encompassing the best practices discussed next can help businesses overcome these barriers.
7 Best Practices for Achieving Supply Chain Transparency
Here are the recommended guidelines and actions that organizations across industries should take to improve transparency across their supply network:
1. Map Your Supply Chain
The first step is to develop an in-depth map of your supply chain including all suppliers, sub-contractors, logistics channels, manufacturing sites, and other relevant entities.
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Conduct supplier surveys to gather details on locations, capacities, certifications, workplace policies, sub-suppliers used, etc for each node on the supply chain map.
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Leverage supply chain mapping software to get a visual representation of your network. Include supplier tiers, relationships between entities, product/material flows.
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Analyze the data to understand potential risks, transparency gaps, and priority areas across your supply chain. Identify suppliers in high-risk categories or geographies.
2. Implement Integrated Software Solutions
Access and integrate supplier, logistics, and operational data across the supply chain into a centralized data platform. Choose solutions that:
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Provide end-to-end visibility spanning sourcing, orders, production, inventory, shipments, and beyond.
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Allow seamless integration with existing enterprise systems like ERPs and CRM via APIs. Avoid fragmented information in silos.
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Equip users with intuitive analytics dashboards, alerting, and reporting for supply chain insights.
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Offer robust collaboration features like supplier portals for information sharing.
For instance, Microsoft Dynamics 365 Supply Chain Management, SAP Ariba, and similar platforms provide integrated end-to-end capabilities.
3. Define Transparency Goals and KPIs
Develop clearly defined goals for improving supply chain transparency aligned to your overall business objectives. Some examples include:
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Achieve 95% supplier compliance with sustainability certifications by Q4 2023.
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Reduce sourcing from high-risk regions according to ESG criteria by 50% within three years.
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Audit all Tier 1 suppliers annually and other tiers biannually starting 2024.
Track progress using relevant key performance indicators (KPIs) like percentage of high-risk suppliers, responsible sourcing rates, supplier audit results, certified material usage rates, etc.
Here are some sample supply chain transparency KPIs:
| KPI | Formula | Target |
|---|---|---|
| % of suppliers audited | No. of suppliers audited / Total no. of suppliers | 80% |
| % of materials traceable to origin | Materials with origin data / Total materials | 90% |
| % of high-risk/non-compliant suppliers | No. of high-risk suppliers / Total suppliers | <5% |
4. Collaborate Closely with Suppliers
Getting suppliers across all tiers to openly share details about their operations, workplace practices, and sub-contractors network is vital for transparency. Some tips:
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Provide training to suppliers on compliance requirements, codes of conduct, and expectations around information sharing.
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Incentivize transparency by integrating it into supplier selection criteria, procurement contracts, and award programs.
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Undertake joint initiatives like responsible sourcing projects and capacity building.
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Share best practices and offer technical guidance/support to improve their capabilities and compliance.
5. Audit and Monitor Suppliers
Evaluate supplier compliance through regular assessments:
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Self-assessment questionnaires for suppliers to report on their policies, processes, certificates, and performance.
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On-site inspections and audits either by internal teams or third-party auditors to validate supplier data.
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Analysis of sustainability certifications like ISO, Fairtrade which indicate compliance with ESG standards.
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Reviews of labor policies and workplace practices to ensure alignment with human rights commitments.
Follow up quickly on any non-compliance to take corrective actions. Continue monitoring and annual audits to ensure improvements are sustained.
6. Leverage Advanced Technologies
Emerging technologies can enable greater supply chain visibility, automation, and data sharing:
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Blockchain provides an immutable record of transactions, improving traceability and transparency.
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IoT sensors allow remote monitoring and tracking of products and assets in storage or transit.
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Control towers integrate and analyze data from multiple systems and suppliers in a central dashboard.
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AI can rapidly analyze supplier data to identify anomalies, risks, and patterns indicative of non-compliance or lack of transparency.
7. Disclose Transparency Practices
Communicate your supply chain transparency efforts through sustainability reports, websites, product labels, press releases, and other channels. Proactively disclose:
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Program scope – categories of suppliers included, goals and policies
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Initiatives undertaken – supplier training, audits, certifications, use of emerging tech etc.
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Key performance data – % of materials traced to origin, audit results, high-risk suppliers converted to low-risk etc.
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Progress made against targets and future roadmap
Such transparent disclosures indicate your genuine commitment to stakeholders and ethical, sustainable value delivery. Independent certifications like B-Corp can provide further validation.
The Bottom Line
A transparent supply chain is no longer just a competitive edge, but a must-have capability for companies today. While the path to achieving true end-to-end visibility involves considerable effort, the long-term benefits for risk management, compliance, reputation, and purpose-driven branding are well worth it.
By taking a systematic approach focused on supplier collaboration, leveraging technology, rigorous monitoring, and proactive communication, businesses can realize their supply chain transparency goals – and build a resilient, agile, and ethical supply network. The time to embark on the transparency journey is now.