How transparent is your supply chain? Our guide to reach the new customer expectations

While the concept of supply chain transparency was relatively unknown 15 years ago, it has now become a real “thing” that companies must meet. What exactly does the term “supply chain transparency” mean?  It is the need for companies to not only know what is happening upstream & downstream in its supply chain (from the supplier's supplier to the final customer) but also to communicate this information both internally and externally.

It can be compared to the times where companies were pushed to disclose audited financial data and requirements today cover broader spectrum, including those relating to the supply chain:

• End-to-end product traceability (including storage and transport) to guarantee integrity and safety
• Employee wellbeing; rights & conditions
• Environmental responsibility

If it is not yet clear who in the organization is responsible to map the supply chain and reveal its transparency, it is clearly now on the agenda of the C-levels.

Transparency is a business must

First, because of (or thanks to) consumers. Consumers are requesting it and they want to buy in accordance with their principles, and they are willing to pay for it, 2% to 10% more, as a study^[1] from MIT Sloan School of Management showed.

As consumer demands have shifted increasingly towards “responsible buying”, companies started to face a growing stringent scrutiny of their supply chain practices from employees, business partners, media and NGO campaigns. And with the internet now virtually everywhere, companies can’t hide anything anymore. Evidence of this scrutiny is visible through numerous scandals and high-profile global cases that have occurred in recent years (climate and social crisis due to intense production of palm oil in Indonesia^[2], nitrous oxide emissions cover up at Volkswagen^[3], or more recently Covid unsafe work conditions at Amazon warehouses in France^[4]).

In turn, this has resulted in a wave of new regulations and laws regarding transparency.
The United Kingdom implemented the Modern Slavery Act in 2015 so that big businesses will be forced to make public their efforts to stop the use of slave labour by their suppliers^[5].  
New social rights were granted to drivers and deliverers in France through the 2019 LOM act^[6].
The new regulation on transparency and sustainability of the EU risk assessment in the food chain will become applicable on 27 March 2021^[7].
In this context, transparency becomes the mandatory process of managing risks by accessing, learning from, and acting on supply chain information. More than a regulatory constraint, transparency is an increasingly important capability for companies as it is essential to build a broader supply chain resilience.

(False) barriers to reach transparency

Alleged barriers to transparency	Why it can and should be overcome
‘’Information is power and cannot be disclosed’’ is often the answer as disclosing internal data is usually regarded as a gift to competition or an invitation to external criticism.	First, transparency does not mean divulging every bit of information a company possesses. Second, transparency can actually boost a company’s market share as consumers will be more eager to support a business that showcases its values.
Originally not build to be transparent and today’s supply chains’ have become much more complex than in the last decade, and not built to ensure data continuity along the steps of the value chain.	It is true that ensuring data continuity along the supply chain can be quite complex. But the establishment of growingly cheaper and reliable product tracking and labelling technologies such as RFID, genetic markers and new generation bar codes as well as the reach of the internet and virtually unlimited data storage makes it easier for companies to achieve it.
Too costly! The Return On Investment is not worth it and estimated benefits are too long term.	The transparency business case does only show as a negative one if you do not consider the qualitative and quantitative impacts on the brand image, its capabilities to manage risks along the supply chain, the powerful impact it has on employee attraction and retention and how the company is viewed by the consumers, which in turn will lead to more sales. It is a short-term vs mid-term tradeoff to reach.

How then to overcome these barriers and guarantee an adequate level of transparency in the supply chain? The journey begins with a thorough assessment of your current transparency level.  

Assessing your transparency level

BearingPoint has developed a framework to help you identify how transparent is your supply chain internally and externally throughout your products’ life cycle.

This methodology will help you answer questions such as:

What do the firm and managers know, and what is shared with the public? Are you as transparent as your best customers want you to be? Do data governance policies and processes make information simpler, easier, and more accessible throughout the enterprise? How are you promoting visibility culture inside and outside the organization? How confident are you with the information you collect and share? On what technology do you rely on to secure the information?

To do so, we believe that this analysis should be carried out on every stage of the product life: Source, Make, Deliver, Use and Recycle, in order to have a global overview that does not focus only upstream.

Milestones on the path to total transparency

1. Information is visible - First step of the transparency begins with how much of your supply chain ecosystem do you know, and what sustainable conditions do you set for the firm all along the product life cycle.

      For example, how many suppliers and tiers can you identify?
      Do you know the cost breakdown structure of your products or services?
      Do you know how the product is delivered to your end-customer (retailer, transportation, …)?

2. Information is evaluated - Then, being able to evaluate these conditions in your ecosystem, on your production stages as well as your suppliers all the way up to raw material-sourcing, as well as all the way down to final usage of your product and recycling.

     For example, do you have a code of conduct for your suppliers and what does it contain?
     Do you evaluate your suppliers and distributors to assess their compliance?

3. Information is reliable - Step 3 consists of securing the information you collect. You should be able to ensure the quality of the data collected, thanks to people and technology.

     For example, do you implement third-party auditing? Do you report all cases of non-compliance?
     What technology do you use to authenticate and identify your products (traceability)? How do you secure information throughout your entire supply chain? Do you rely on blockchain technology?

We can consider so far that achieving all these steps will make you a transparent supply chain … internally. The firm is confident with the level of information collected and its reliability. But the question is: are you as transparent with the outside world?

4 & 5- Information is shared with the public - To assess external transparency, we believe that a firm should be able to communicate clearly, easily and simply the information collected. The more you manage to transform your internal transparency into understandable, manageable information for your customers and stakeholders, the more transparent your supply chain is.

More and more third-party certifications such as B-Corp label tend to assess the social sustainability and environmental performance standards of the firm and their level of transparency to the public on the scores received. This demonstrates a growing interest from companies to the subject, but greenwashing must be avoided at all costs if credibility is at stake. Therefore, we think that the assessment of your Supply chain transparency should be thorough, on the key focus areas covered but also on the entire value chain upstream and downstream as well.

Next step is to fix your north star

Great! Now you have identified your grey area of transparency throughout your supply-chain. This assessment will become truly powerful if you set for your company goals regarding those grey areas. What are your priorities in terms of transparency and why? Eliminating child labor, becoming carbon neutral across your supply chain, better traceability of raw materials extraction…?

Thanks to a thorough analysis and a north star you be able to identify and take actions, and to build your roadmap to transparency.

• Implement supplier dialogue, collaboration, support
• Define and set up the technologies that will allow monitoring of these elements: IOT / RFID, blockchain...
• Establish partnerships with trusted third parties…

Supply chain transparency has been mostly the matter of B2C companies for the last decades. But each industry has an end-consumer, and these end-consumers are demanding more and more transparency, which makes supply chain transparency not only a requirement for food, clothing or other B2C actors, but an opportunity for all industrial sectors.

Beyond any mandatory regulatory compliance, businesses today have a vested interest in evaluating how transparent their supply chains are and having a clear understanding of the risks associated with their supply chains. However, rather than viewing transparency as a challenge or a constraint, companies can leverage the opportunity to identify potential operational improvements, promote good corporate citizenship, reinforce the strength of their brands, and potentially minimize the impact of future crises.

As the Covid-19 has significantly raised collective awareness towards becoming more sustainable in the future, perhaps will it also drive companies to accelerate their shift to supply chain transparency?
 

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Authors:

• Ambre Fischer, Manager
• Sami Belkadi, Manager
• Ewoud Huig, Partner