Supply Chain Transparency:
A Reachable Goal?

Supply chain transparency is more important than ever, and so is the need to find transparency solutions that work. It’s not just a matter of appealing to idealistic consumers who like knowing that their purchases of socks or cereal help support a good cause. The coronavirus pandemic has heightened everyone’s concerns about the journey products take before they land in the store or at one’s doorstep.

Granted, certain types of consumers and investors have always been proponents for supply chain transparency. They might have been obsessed with health risks, concerned about ethical or environmental issues – or just curious. But during the pandemic, questioning supply chains became an urgent need for some people who had never given them much thought before. Calamities such as foodborne disease outbreaks and reports of dismal working conditions have also pushed supply chain issues into the mainstream. Given all of these concerns, providing peace of mind about supply chains has become an important business initiative. It can yield substantial rewards, increased consumer trust, investor confidence and employee loyalty, but it does not come without challenges. 

Supply Chain Evolution

Despite popular trends like the “farm to table” movement, the fact is supply chains everywhere are increasingly global and incredibly complex. The world is more connected, and consumers are more demanding. They want mangos in the winter and kale in July. And if they’re observant, they might notice that a new piece of furniture, for instance, had its parts made in one country and was assembled in another country, before being shipped to a third.

Any supply chain glitch or problem may cause reverberations anywhere in the world. An auto parts manufacturer in a small Michigan city catches fire. As a result, Ford F-150 pickup production is halted in three states, shifts are canceled at a Mercedes plant in Alabama, and production pauses for GM vans in Missouri, BMW SUVs in South Carolina and Chrysler minivans in Ontario, Canada.

Whether it’s a home goods manufacturer using lumber, a fashion retailer using fabric or a restaurant using spices, there likely are at least five degrees of separation between a business and its various suppliers. And even with the technical tools available today, supply chains can be hard to track. As supply chain expert Alexis Bateman has noted, transparency was never really a hallmark of supply chains. Today’s complexity makes it even harder to achieve. While the end business, its vendors and suppliers are all documenting transits and transactions, they often use different tracking systems that don’t necessarily “talk” to each other.

These issues matter to a lot of people. Consumers worried about safety, companies protective of their reputations, and at one point in 2020, everyone who was running low on toilet paper. Other interested parties range from government regulators, to human rights activists, to investors for whom supply transparency sends a message about value and integrity. 

What Transparency Means

Simply defined, supply chain transparency involves end-to-end visibility – to the greatest extent possible – showing all of the components of a product or service. It also encompasses the extent to which a business communicates details in a transparent way. Some aspects of a supply chain may be kept proprietary, but visibility all along the production timeline can enhance productivity and quality control, while also meeting the demands of customers and regulators.

More than just numbers on a spreadsheet, transparency details can tell the story of a product or business and can be an integral part of its identity. A prime example is Patagonia, whose website is partly about the outerwear it manufactures but also about fair trade practices, environmental activism and concern for the people who labor over sewing machines to produce T-shirts, fleece vests and other garments. Click on a hoodie that strikes your fancy at Patagonia.com, and you get a supply chain story. It may include details about fair trade certification, the merits of organic cotton and the search for a recyclable alternative to spandex.

Some consumers are strictly looking for the lowest prices, of course, but supply chain transparency can translate to greater sales. According to a study cited in the Harvard Business Review, consumers impressed by a company’s supply chain transparency may be willing to pay 2%-5% more for its products. Bateman and others have cited a low employee turnover rate at Patagonia, reportedly an “incredible” less than 4%. Employee loyalty is seen as another benefit to practicing supply chain transparency. Goodwill – not to mention good publicity – also factor into the potential positive impacts. In a competitive marketplace, a reputation for authenticity can go a long way toward earning people’s trust.

Conversely, a lack of supply chain transparency can wound or even paralyze a business. A notable case is the 2015 outbreak of E. coli in the Chipotle restaurant chain. The Centers for Disease Control and Prevention reported that people in nine states became sick. According to one analysis, the Chipotle outbreak was exacerbated by a muddled view of its supply chain, which didn’t help identify the source or prevent it from spreading. According to the analysis, “Sales fell, and their share price dropped 42% to a three-year low and remained there for nearly two years after the crisis.”

The Search for Solutions

 A 2019 MIT study conceded that working toward supply chain transparency is “expensive, risky and time-consuming,” but stressed that it’s still worthwhile as an important way to reinforce consumer trust and boost sales. It found that the corporate world is out of step with customers’ increasing awareness of and concern for companies’ roles in social responsibility. While 75% of consumers cited transparency as a factor that strengthens their trust in a business, more than half of 1,700 companies polled offered zero visibility into their supply chains. Nevertheless, companies including giants like Amazon and Walmart are making an effort to improve supply chain transparency, using tools such as the cloud and blockchain to get a handle on the details. Just as important as incorporating the right tech tools, however, is taking a big-picture approach that reflects the organization’s overall purpose and priorities.

Businesses looking for transparency solutions need to start with three basic steps:

1. Outline a vision for supply chain transparency that allows for a workable, strategic plan and accurate documentation. Ideally, there should be industrywide standards to offer guidance. In the absence of these, businesses should establish a transparency vision with clear, measurable goals that reflect the company’s priorities and values, in addition to disclosure requirements from government agencies or NGOs.
2. Bring suppliers on board with the transparency vision and goals. A vendor that does not agree to work with the chosen system will be a broken link in the chain. One report found that a major, key challenge is nailing down suppliers’ alignment with business goals and cooperation with supply chain documentation. Communication gaps will lead to slower reporting and a system that’s susceptible to human error. “Not having access to accurate, cross-functional data in real time can significantly hamper a company’s competitive advantage in the market,” an analysis said.
3. Find a way to enable transparency across the landscape of their supply chain. Whatever technology is adopted, people at all levels must be able to put the right information in the right place at the right time. Decisions also must be made about the extent to which supply chain information will be visible. Some details might only be shared internally. 

Tools to Improve Transparency

As supply chain transparency has become more important, businesses have tested various technologies to track the path taken by their components and products on their way to consumers. Tracing a problem back to its source can be difficult, as Chipotle discovered. It works much better when tracking is done all along the supply chain, from the first vendor to the last.

Digital supply chains allow an incremental approach toward transparency. For a while now, foremen have been punching in data on tablets and delivery drivers have been tracked by GPS, to cite a couple of examples. And a cloud-based platform allows companies to aggregate data from multiple suppliers. Internet-enabled technologies have enabled tracking via bar codes that are read by cellphones, microscopic electronic devices used for product labeling and genetic markers that tag agricultural products. Such efforts also translate well to tech-savvy consumers. One Napa Valley winery, for example, marks its fine wines with a code that can be checked for authenticity online.

Blockchain technology is a particularly promising system for improving supply chain transparency – so much so that Amazon has patented its own blockchain system. Blockchain lets multiple users see supply chain entries in close to real time, and the entries cannot be altered. Walmart has been working with blockchain as well, starting with tracking the origins of food product providers.

As with the cloud, blockchain is a distributed system but with data storage within a community of servers. A multiparty system such as blockchain allows for collaboration and trust-building as supply chain data is logged in real time. And the fact that blockchain entries cannot be edited protects each level of data against tampering. Starting in 2016, Walmart has worked with IBM in making its food supply process traceable, the ultimate goal being able to ensure that food sold by Walmart is safe for people to eat. An open-source ledger system helped document each transaction. The process reached all the way to China, where information was uploaded on sources of pork. Sourcing of mangos was traced as well. By 2019, the company was ready to expand the system to trace supplies of leafy greens.

Since vulnerabilities can occur at any point in a supply chain, blockchain transparency efforts also help companies spot potential problems and manage high-risk aspects before they become crippling liabilities. They may avoid the tunnel vision that develops when supply chain partners are not communicating with each other. 

An Investment in Transparency

The coronavirus pandemic has been a catalyst for greater interest in supply chain transparency. People who might not have fretted in the past about issues like child labor in distant lands or sources of “conflict diamonds,” suddenly had to think about how things such as hand sanitizer would reach them, and whether they were safe. In the virtual age, when customers can find all kinds of information (and misinformation) online, supply chain transparency is an important investment. Businesses that improve transparency can bolster their own image and win loyalty from customers, investors and employees. Transparency details, woven together, tell a story about a product as well as the business and its values. It’s an investment worth making, because there’s no substitute for authenticity and trust.