1. Gauge risks and set goals
There are multiple tools available to complete this first step. A company might first take a look at impending risks from regulation, past disruptions, and supplier-related issues. Often, this first step includes a plot of internal and external stakeholder interests called a materiality assessment. Here you can see a materiality assessment disclosed by Danone that charts transparent product labeling and sustainable sourcing of raw materials as high interest goals that fall at the intersection of important stakeholder interests and factors that have an impact on the company’s business success. Once the risks are better understood, a company can identify its goals.
2. Visualize the supply chain
Having identified and prioritized the primary risks, companies can visualize the target supply chain. It will gain a deeper understanding of goods flows, map suppliers and processes, and expose existing information gaps. A basic example is VF’s map of the supply chain of the Vans Checkerboard Slip-on shoe to understand the flows, the suppliers involved, and embedded processes. The cadence of this data collection should align with stipulated goals.
3. Collect actionable information
Having mapped the supply chain, collect information on practices and performance that provides insights about potential risks, opportunities for improvement, and information gaps. A company may need to track and profile units, batches, or lots of finished goods moving through the supply chain to ensure source of origin and chain of custody. As the chain of custody is identified, practices need to be verified. Almost every company has a code of conduct in place — this includes requirements about supplier practices ranging from the labor practices they have in place to respect for the environment. An example is IKEA’s IWAY code of conduct that every IKEA supplier must comply with. Companies generally ask for this information from their direct suppliers, but as transparency becomes more important, companies are increasingly requiring suppliers deeper in their supply chain to comply with codes of conduct and are vetting the information in some cases.
Armed with actionable information, the company can now choose how to engage in the supply chain. This typically involves a program designed with critical KPI’s in mind. The aim is to address specific issues such as labor-related risks, environmental impacts at supplier sites, or unclear sources of origin. The engagement includes supplier contact and collaboration, monitoring, and support. It may also necessitate third-party partnerships to gain expertise that is not available internally. For instance, Starbucks has long partnered with Conservation International to build its ethical-sourcing program for its coffee that covers a wide spectrum of social and environmental issues. The program began with a code of conduct entitled C.A.F.E. to ensure adoption of the code down to the farmer level.
Finally, companies set the level of disclosure they want to establish. This involves deciding how they will meet relevant regulatory requirements and stakeholder demands, and how they will verify the information disclosed. The level of disclosure can range from sharing a code of conduct to disclosing traceability from the raw materials stage of the supply chain as seen with Patagonia’s Footprint Chronicles.
These steps are continuous: supply chains are dynamic, and progress should be ongoing to ensure a better functioning and more sustainable and transparent supply chain. While blockchain and other technologies have been hailed as the solution to supply chain transparency, any viable solution must include the right mix of people, information, and technology to support outlined objectives — a technology cannot solve this issue in isolation. For instance, internal and external stakeholders should be involved, and the technology deployed should include solutions that capture, translate, and disseminate useful data, as well as support appropriate decision making.
Supply chain transparency relies on creating a culture of continuous improvement within the organization and across value chains. The demand for transparency is unlikely to abate. Today, it may not fall under anyone’s job description, but it soon will.