11 Sep The Importance of a Transparent Supply Chain
Having a transparent supply chain means being able to see, demonstrate and trace a product – right from its suppliers of raw materials and components, through the manufacturing process, via the logistics of warehousing and distribution, until it reaches the end consumer.
The aim with a transparent supply chain is to ensure that the products you supply adhere to certain quality, safety and ethics standards.
Qualities of a Transparent Supply Chain
The openness of companies to divulge the origins of their products is very much a twenty-first century phenomenon. Before this, providers and distributors kept their cards close to their chest. The providers in their supply chains were carefully concealed in order to preserve competitiveness. If your competitors knew where you were getting your cheap component parts from, for example, then to divulge this could undermine your competitive advantage. But now, it’s accepted that having supply chain transparency is beneficial.
To ensure a transparent supply chain, a company needs to work collaboratively with its suppliers. This may be raw materials providers, components manufacturers or wholesalers supplying a final product. And it’s not just the goods themselves; packaging providers and logistics distributors are open to scrutiny too. It’s imperative to build good relationships with suppliers and encourage them to be invested in your business. Developing these kinds of association also depends on sharing information – both ways – which establishes and fosters greater trust.
The use of technology can be a factor in sharing information. Providing real-time, accurate data means that you and your suppliers can get insight into your supply chain and make informed decisions. Order anomalies can be detected through the use of RFID chips and barcodes, or with EDI for ASN receiving.
Retailers can store tracking and provenance information using RFID tags. There are even some just 2.5mm square, made by Hitachi Chemical Company, which can be used on small items like jewellery or small electrical components. RFID tags can also be used on cargo as an identifier to prove provenance and eliminate counterfeit products from the supply chain.
At the delivery end of the chain, cloud-based tracking can help with customer communication. Allowing customers to see who is delivering their order and when it will arrive is a key part of ensuring that the end of the supply chain is as transparent as the beginning.
Openness within the business culture is the root of transparency in the supply chain. When you keep the public informed, by proactively supplying and publishing information about your company’s supply chain policies, or which standards and ethics you adhere to, or where you source supplies and raw materials from, then you can demonstrate your credentials.
Of course, as a distributor, you need to do your due diligence and ensure you adhere to legislation that affects the supply chain. In the UK, that might mean the Modern Slavery Act 2015. In fact, the UK government is currently consulting on the law, with a view to strengthening the aspects that affect transparency in supply chains and to ending modern slavery by 2030.
Benefits of a Transparent Supply Chain
Consumers want products that meet their values. They want goods with little environmental impact that are made by producers that employ good labour practices. They want to know that their potential purchases are not made by companies that employ sweatshop labour, are involved in human trafficking or modern slavery, or violate other human rights. And in providing transparency in your supply chain, you can demonstrate that your values align with theirs. Customers these days want insight into the supply chains of their favoured products and will choose companies who deliver this transparency. There is considerable competitive advantage to be gained here for companies that supply the sort of openness that their customers are looking for.
For retailers that sell hundreds of goods manufactured or supplied by others, like the big supermarkets, for example, having a transparent supply chain is a huge undertaking. They have to rely on the information provided by their third-party suppliers. These suppliers need to provide accurate and reliable information that ensure their products aren’t being made using child labour, or use ‘conflict resources’.
If you are satisfied with the ethics and legality of how your components, raw materials or products are being supplied, then you can be confident in publishing this information. But not having this sort of transparency can leave you open to lawsuits. Nestlé, for example, has been sued in the US for allegedly using child or slave labour in the production of the cocoa that it buys. Being confident in your supply chain, and ensuring its transparency, means that you can be free of the risk of any damaging lawsuit like this.
Even if you’re not open to legal challenges, a transparent supply chain can help to safeguard your reputation. Companies that breach accepted ethical production standards or conditions do not easily bounce back. The reputational damage can cause financial loss that is often too great to recover from. As an example, the horse meat scandal of 2013 resulted in a drop in sales of frozen hamburgers of 43%, and seriously damaged the reputation of a number of manufacturers and providers.
An ethical, transparent supply chain also appeases the collective consumer conscience. Customers are increasingly wanting to feel that they are ‘doing the right thing’ and they want to display they are doing this through their purchases. For marketing purposes, a message aligned with positive social, environmental and ethical values can be an attractive proposition for both investors and consumers.
The global supply chain
With an increasingly global economy, supply chains have become more complex and more dynamic. Responsible retailers need to work hard to ensure the transparency of their supply chain and take measures to minimise their exposure to risks in the supply chain.
If you would like advice on building more transparency in your supply chain through the use of technology, call us on 020 8819 9071 or get in touch.