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4 steps to improving supply chain transparency

by | October 18, 2018

How important is it to know the origin of the products you consume? 15 or 20 years ago, we would reply “not that important, as long as the quality is good”. However, this is not valid in today’s society. The origin and the events surrounding a product’s provenance is as important as the quality of the product itself and often it can make or break a product.

Over time a lot of the world’s biggest companies have confronted themselves with defectuous and opaque supply chains. And have been severely penalised by their customers.

One of the most popular stories of this kind is about the worker suicides at a factory in China which was one of Apple’s top suppliers. This forced Apple to expose part of its supply chain in 2009 whilst also having to rebuild its reputation about relying on sweatshop labour.

In the last global CPO survey Deloitte revealed that supply chain transparency remains a top business strategy for procurement leaders, alongside cost reduction and new market development. The survey also found that at the moment supply chain transparency is considered to be poor, with 65% of procurement leaders having limited or no visibility beyond their tier 1 suppliers.

What to watch out for?

We live in a society that is more and more globalised, and companies need to make sure their business caters to all the parties involved, from buyers and employees to suppliers and the wellbeing of their suppliers’ employees.

In the past, quality (combined with cost) was considered the main factor in choosing one supplier over the other. In today’s world companies need to make sure their suppliers score high on 4 elements:

  • Quality – this is well known and spoke about a lot
  • Safety –  it’s important to keep your employees safe and ensure safe working conditions. But are your suppliers doing the same thing? do your suppliers know what they should be doing to adhere to health and safety rules that you in-turn apply to your own staff?
  • Ethics – can be a very sensitive topic, as it can ruin a company’s reputation forever, no matter how high-quality the goods or services offered. Are you aware of the ethical issues your suppliers are facing and the risks associated to them? This can imply a number of things, from suppliers being suspected of child labour to the reputation of the country they are operating from. Companies need to make sure that their suppliers comply to their company’s values and principals.­

–  Just imagine how it would look if a company engaged in CSR activities, by helping children from undeveloped countries have access to education, had one supplier engaging in child labour. Or even one of their supplier’s supplier.

  • Environmental impact – many companies are trying to constantly reduce their waste. From going paperless, to recycling and finding alternative non-polluting materials. However,  are they taking the time to make sure their suppliers are doing the same?

Taking into account these 4 elements, companies need to cut off their non-compliant suppliers and make sure their existing suppliers are aligned to the same norms and principles.

How can supply chain transparency be improved?

Working in a transparent way implies open communication and accountability across supply chains and with the public.

There are multiple elements that can reduce risk and increase transparency in your supply chain. Being informed regarding potential risks and knowing what to look out for should be the first step. After that companies need to continually assess and improve. There’s no single element that can improve transparency across your entire supply chain; it usually takes a combination of factors. We’ve tried to summarise these factors into the following areas:

  1. Well established policies – this refers not only to internal policies designed to protect employees and the company’s reputation but also to policies aimed at qualifying the kind of suppliers the company engages with and the process of onboarding these suppliers. These policies should even go beyond tier 1 suppliers, giving companies visibility deeper into their supply chains
  2. Visibility – the better visibility there is over the supply chain the better companies can protect themselves against risk. Companies should consider what kind of relationships and business agreements exist between them and their suppliers. In order to have a good overview of the origin of your products or services you need to also understand how and from where your sub-tier suppliers are operating.
  3. Technology – technology can help improve transparency over your supply chain as it can speed up a number of tasks from data cleansing and supplier assessment to spend consolidation and sourcing. In addition to this a transparent supply chain also means treating your tier 1 suppliers as partners who help implement plans, collect data, and promote your transparency standards to their suppliers. Thus, it’s important to communicate expectations to your suppliers and help fix pain points. The right technology solutions can ease communication and improve processes with your suppliers.
  4. Audit – to ensure transparency and reduce risk over your supply chain, periodical audits need to be run and issues be immediately fixed. This will ensure procedures are followed and the supply chain is meeting compliance with policies, international standards and local laws. It also allows companies to decide what actions to take regarding suppliers that fail to meet these obligations.

Why should companies maintain a transparent supply chain?

Your supply chain weighs a lot on your company’s reputation and how it chooses to do business. Making sure you run a transparent supply chain ensures that you keep up a good reputation with your stakeholders by providing greater visibility to your practices.Your supply chain can work towards building your brand story, as your company can become a promoter of social responsibility matters, which can inspire loyalty from your customers.

Do you have a good visibility over your supply chain? Do you know the risks your supply chain is facing and the steps you need to take to ensure its transparency? Running a transparent and low risk supply chain can take a long time to achieve but the first step is being aware of the faults in your processes and implementing a step by step process to overcome them. We can help you embark on the journey to a low risk transparent supply chain! Just leave us a message here.