Can A Supply Chain Be Really Transparent In A Digital World?

Dr. Martin Kotula

The voice of the customer is a key driving factor for many companies, leaders, and brand or product managers. Albeit customers are willing to pay more for products with full visibility into the supply chain and sustainable procurement, companies struggle to provide such transparency. It is either a technological challenge – just imagine a bill of materials for a product consisting of hundreds of thousands of parts (e.g., the average car can have 30,000 parts) – or it is a core competitive advantage where the manufacturer simply does not want to provide the information.

46% of companies use Microsoft Excel to predict, monitor, record, measure, and report on performance-affecting supply chain disruptions
The Business Continuity Institute: Supply Chain Resilience Report, 2018

Overall supply chain transparency is poor, with 65% of procurement leaders having limited or no visibility beyond their tier-1 suppliers
Deloitte: The Deloitte Global Chief Procurement Officer Survey, 2018

However, full supply chain visibility may be crucial in the near future, and it varies significantly by industry.

To give one example: the food industry has several challenges around sustainability. Just think of the well-being of cows, and going down the chain to the farmer, the milk, cheese, butter or meat producer, and the retailer. Recent scandals and product recalls demonstrate how difficult it is to manage the supply across multiple tiers. Leading German retailers such as Aldi, Metro, Kaufland, Lidl, Edeka, Netto, Real, and Rewe recently recalled milk due to bacteria in the supply chain.

Another dimension is the carbon footprint, where companies committed to carbon footprint neutrality now need to evaluate the CO2 output for their purchased parts, inbound supply chain, production, packaging, and outbound logistics. This is a very tough challenge for many organizations. Just look at the World Economic Forum in Davos, where the leading theme was greenhouse emissions and climate change. Although it may be difficult, companies need to start acting on these challenges, especially since consumers will take this into consideration when making buying decisions.

In a study, the term “chain liability” was established to define “the phenomenon by which consumers hold companies responsible for the unsustainable behavior of their suppliers.”

To summarize, there are two critical dimensions:

  • Consumers want more information about the products they purchase
  • Pre and post-sale, consumers hold companies liable for the entire supply chain

The complexity here is that consumers do not care if the supplier is an A, B, or C-supplier – a classical approach in procurement to segment the importance of suppliers, with procurement usually not focusing on the long-tail suppliers. However, the entire supplier base is extremely critical for brand perception, buying behavior, and a company’s reputation. Procurement and CPOs are getting more responsibility for the right supplier selection and regular monitoring of the entire supply chain; in a worst case, this may include more than 10,000 suppliers. Companies need to think of capturing the supplier experience and ensuring full visibility across their supply chains because it directly influences buying decisions.

There are three key questions leaders have to ask to assess their organization’s and suppliers’ level of maturity:

  1. To what degree does our company have full supply chain transparency across 1st, 2nd, and n tiers – starting from the consumer’s product and going down the bill of material?
  1. What is our company’s strategy regarding supply chain transparency and sustainability, and how do we want to communicate this to our consumers?
  1. Which technologies and capabilities are established to support supply chain transparency?

Another factor is social media: If a packaging supplier is using toxic colors or if a clothing supplier in Asia is causing pollution or using child labor, it immediately causes a significant risk for the company, which, once discovered, might spread around the globe through social media within seconds.

Two examples: A fire killed 70 workers at a textile manufacturer in Bangladesh (Pakistan) causing an immediate discussion about working conditions across the supply chain. And the death of workers at Foxxconn led to conversations about Apple, both immediately and years later, including about violations of labor rights.

In times of real-time communication through social media, companies face significant risk if a misbehavior or law break is discovered. The challenge lies in doing oversight for all suppliers, even beyond the strategic ones. In this case, technology and software become significant accelerators in managing supply chain transparency.

“Supply-chain visibility tools work only when the people who need the data can access it, without advanced database skills or support from IT specialists.” McKinsey

Furthermore, product traceability is highly critical in many industries. We have recently seen many product recalls due to quality issues, production failures, and broken parts. Based on a study by the European Commission, 56.5% of consumers have been exposed to a product recall over the past two years. And the recalls vary by sector, from cosmetics (22.5%) to cars (78.8%), with the top three sectors being motor vehicles, household electrical appliances, and electronic products, which represent almost 80% of all recalls.

“Most brands focus on their tier 1 suppliers and manufacturers, but a lot of the work gets subcontracted out to tier 2 and tier 3 suppliers. So the people putting on the buttons or putting on the soles to your $500 shoes are often trafficked and invisible.” Forbes

Therefore, traceability and supply chain transparency are critical and essential capabilities and a growing business imperative. Here, technology can help companies, for example by leveraging blockchain and AI to ensure seamless and transparent production for contract manufacturing and entire supply chains. For example, Bumblebee turned to blockchain technology to track fresh tuna fish from the ocean to the table, ensuring full transparency and traceability.

“The successful application and adoption of blockchain agriculture supply chain traceability must provide value and benefits to each actor in the supply chain.” Accenture

In an ideal world, we could track every supplier globally, know which parts were manufactured where, enrich our risk management through third-party and real-time insights (e.g., tracking of news and social media), and utilize dedicated partners and providers such as EcoVadis to manage supply chain transparency. Companies should work to ensure sustainable behavior throughout the supply chain to protect them from chain liability.

Conclusion

Supply chain transparency and purposeful behavior are very critical managerial challenges. Consumers are increasingly making buying decisions based on available information and are more willing to change brands if they do not meet their sustainability criteria. Further, there are rising expectations for traceability, sustainability, and supply chain transparency. Many companies lack technology capabilities in tracking their supply chain in real-time. However, it is very important for end consumers. If companies do not act now, they are at risk of these challenges.

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Dr. Martin Kotula

About Dr. Martin Kotula

Dr. Martin Kotula helps customers drive digital transformation across source-to-pay and supply-chain processes. Passionate about digitalization, customer success, new innovations, and technologies, Martin is a known author, publishing several academic and business articles. He has significant experience overseeing cost and efficiency improvement programs, category optimization, organizational restructuring, and operations management. Martin holds a doctorate degree from Aston University, where his thesis focused on risk management in strategic sourcing, and an MBA from Tias Nimbas Universiteit.