Business stakeholders, including customers and investors, want greater supply chain transparency. It is a complex challenge that technology can overcome when the organization invests the necessary resources.-By Sharon Ross

It is no secret among procurement leaders that transparency along the supply chain is a major concern. Unfortunately, many organizations still find transparency to be poor, with the majority of them unable to trace products beyond Tier 1 suppliers. This lack of transparency is a problem not just for procurement, but also for customers, investors and suppliers as well. With transparency built on visibility or traceability, it is easier to build trust among stakeholders, which is vital for any organization's success. To meet procurement goals of trust and transparency, it is important to drill down and assess the challenges and opportunities in the supply chain.

Taking the Fragility Out of the Supply Chain

There is a business case for increasing supply chain transparency, and it is based on what can happen when transparency is weak. Supply chain traceability is the ability to identify all the suppliers in the end-to-end supply chain ecosystem, including sources, producers, agents, storage and carrier firms. It can include tracing suppliers upstream and customers downstream. Supply chain transparency is the ability to recognize and understand the suppliers' policies, practices, and performance, followed by publicly disclosing the truth of supply chain operations to all stakeholders.

A lack of transparency makes the supply chain fragile and unable to adapt when a disruption occurs. It creates the possibility of the organization violating human rights, harming communities, damaging the environment, incurring unnecessary costs, and bypassing qualified diverse suppliers. ILO research found that over a third of supply chain disruptions are due to issues with indirect suppliers. The lack of supply chain transparency, traceability, and influence limits the ability of the business to protect the trust of customers and consumers by ensuring its code of conduct is adopted upstream and downstream. Engaging with suppliers end-to-end in the supply chain is vital to avoiding the financial, social, and environmental risks buried in supply chains beyond Tier 1.

Despite the socioeconomic and environmental consequences of a lack of supply chain visibility and transparency, a Deloitte survey found that 65% of procurement leaders have no or limited visibility beyond Tier 1 suppliers. The challenge is scaling up traceability to a level where procurement leaders gain full visibility of the value chain, identify all the suppliers and others influencing the supply chain, proactively engage with them to minimize or mitigate the inherent risks, and then use that information to report transparently. With transparency, customers will trust organizational claims concerning social and environmental processes and practices.

Are Suppliers Following Organizational Policies?

The more complex and longer the supply chain, the more difficult it is to monitor and manage. Unilever has a Responsible Sourcing Policy that addresses labor standards and workers’ rights, and all suppliers are required to adhere to it. It includes ensuring all workers are paid well and treated ethically. Unilever says, “increasing transparency in our supply chain is a priority for Unilever, and we believe transparency and traceability lead to transformation. For instance, we want to know the exact plantations where our palm oil is grown. This allows us to identify and address deforestation, environmental risks and human rights risks – while building trust with our suppliers.” Another challenge is closing labor loopholes that lead to child labor, so the supply system must be regularly monitored to prevent hiring minors.

Adding to the challenge of achieving transparency in supply chains is the fact that they are no longer linear. They are complex networked systems that make achieving traceability and transparency more difficult and sometimes frustrating. “The ability to map and track suppliers, facilities and products down to raw materials will improve traceability and allow an analysis of supplier compliance, ESG credentials, KPIs and supply chain risks,” says PwC. An example is a major UK retailer with an interactive global map tracking key supply chain partners. This transparency has also helped build brand trust, with consumers being able to track the details of where a company sources products from and what the environmental impact is.

An academic research study surveyed 131 retail industry executives and highlighted the monumental challenges of achieving full traceability and transparency. One is the cost of tracking a constantly changing supply network that is nearly impossible to manage with current technology capabilities. Future technology developments could lead to a better ROI on technology investments in supply chain tracking. The researchers identified important reasons why an organization could want to know the supply chain’s full membership, and it is not just about compliance. There are opportunities. For example, companies could identify new business opportunities, which increases competitiveness. Transparency could lead to a more efficient supply chain that produces new customers and attracts new employees and investors. Achieving transparency is more complex than achieving traceability, especially in global supply chain networks.

Always Comes Down to Data Collection and Analysis

Access to high-quality data is crucial to building a visible (traceable) and transparent supply chain. It cannot be a piecemeal conventional approach to data collection. A report produced by Procurement Leaders and Ivalua found that many companies still rely on documents like invoices and contracts to support supply chain transparency, but the data is inadequate. It is insufficient to help leaders make informed supplier decisions and does not support the agility needed to respond to future supply chain shocks. The moderate to severe challenges to obtaining desired transparency were data quality issues and data accessibility, and technology gaps. The senior procurement leaders responding to the pulse survey are planning to invest in new tools and data quality initiatives. They also plan on adopting new data sources and revising the procurement staff’s role scopes.

Data-driven, digital approaches are the ways companies can reach supply chain transparency. Achieving full supply chain transparency and its supporting principle of visibility are only possible with digital technologies. Many supply chain issues lie deep in the supply chain. The experts developing and implementing data-driven digital approaches are turning to technologies like blockchain, artificial intelligence, cloud computing, data-fed platforms, and the Internet of Things via sensors to gain the visibility needed to be transparent.

One of the challenges that business leaders will have to overcome to develop stakeholder trust, though, is the need to protect information that is proprietorial or confidential and needs to stay confidential to remain competitive. As the authors of What Supply Chain Transparency Really Means point out, supply chains were not designed to be transparent, and that has held up moving towards more public reporting. The other two challenges mentioned are a lack of relevant information that is not collected on upstream supply chain practices or is not verifiable as accurate, and the ROI of investing in transparency is long-term, so it may not satisfy current needs.

Must Commit to Building Trust

This discussion only showcases the challenges and importance of building trust with stakeholders through supply chain transparency. They are challenges that must be overcome as more consumers demand transparency in product sourcing, ingredients, and materials, the working conditions of workers, and community impacts. Technologies are being rapidly developed that will enable end-to-end traceability and transparency. Still, the first step is for the CEO and C-suite to commit to supply chain transparency and commit the resources needed to move the supply chain into the future.