How to improve your supply chain transparency

How to improve your supply chain transparency

In light of recent events such as the Covid-19 pandemic and the global supply chain crisis, companies need to be more aware of what is happening upstream in their supply chains. As global supply chains become more and more complex, companies are under increased pressure from governments, customers and various NGOs around the world to have increased transparency into their supply chain. At the same time, companies are also aware that having more transparency in their supply chain will help them design and implement effective contingency plans in case unforeseen events disrupt their operations. 

There are significant upsides to having an increased transparency in the supply chain: companies can comply easier with government regulations; they can improve their relationships with their suppliers and their customers will be happier because they will be more aware when their deliveries are delayed.

As companies are under increased pressure to disclose more and more information about their supply chain, failing to do so may have severe consequences on those companies’ reputations in the long run. For example, a few years ago IKEA was accused of child labor because the rugs and carpets that they were importing from Pakistan were manufactured by children under the age of 14. Romania has more than 525,000 hectares of virgin primary forests, more than any other EU country outside Scandinavia. Excessive and illegal logging is becoming a major problem in the country, the European Union having already threatened them with legal action for failing to address the problem effectively. Major furniture manufacturers around the world would need to know where their raw materials are coming from exactly so that they can put increased pressure on their suppliers to comply with government regulations and abide by the law.

What does supply chain transparency mean?

Supply chain transparency means that companies need to know exactly what is happening upstream and downstream in their supply chains and communicate that information with all stakeholders.

How can companies improve their supply chain transparency?

In order for a company to achieve a high level of transparency, there needs to be a combined effort across the company to map the entire supply chain: collect extensive information about their suppliers, identify exactly where each product is coming from and where it is going, communicate with their suppliers and map out where their suppliers are buying their materials from and make all the information available to anyone inside and outside the organization who needs access to it.

How to track progress?

When starting to map out the supply chain, the scope has to be clearly defined. The initiators of the project need to clearly set the end goal – how deep they are aiming to go when mapping out the supply chain, and they also need to set clear milestones and document the steps.

Why aren’t there a lot of companies with transparent supply chains?

Well, for one, disclosing too much information might expose their trade secrets and thus damage their competitive advantage. Therefore, some companies may even need to have an incentive to actually put in the effort to map out their supply chains. Another reason might be that the task would be too time consuming and expensive, since companies would have to allocate resources to gather the data. And yet another reason might be that the task is too difficult to tackle and not worth spending the time doing it. Technology has improved significantly in recent years and it is now easier than ever before to improve transparency in their supply chains. However, it is a difficult task and it will take time to get there.

What are some of the benefits of having a transparent supply chain?

There are significant benefits to companies having a transparent supply chain. For one, they will be in compliance with increased government regulations. Transparent supply chains also improve the company’s reputation in the market. Another benefit would be increased customer satisfaction and yet another one would be attracting valuable employees who are increasingly eager to work for trustworthy and responsible companies. Finally, one of the most important benefits, if not the most important, is that companies can respond better to supply chain disruptions and they can proactively tackle issues in their supply chain. They can quickly identify alternate suppliers and they can also keep their customers informed of any disruptions and explain the alternatives to them.

Conclusion

In the long run, the benefits of having a transparent supply chain far outweigh the drawbacks. Companies need to create a culture of continuously working towards achieving a high level of transparency in their supply chain. In essence, the entire world will benefit immensely from these efforts once we face the next black swan event.