Why is supply chain transparency important?
Organizations have always had an interest in knowing about their supply chain.
Organizations have always had an interest in knowing about their supply chain. The main purpose for understanding one’s supply chain was to drive cost out of the business. This is not a novel idea. However, recently the focus on gaining greater insight into suppliers has risen. Organizations now realize they need to know more about what goes on in their business beyond their own four walls.
There is now a growing movement to understand the total environmental impact of products and services. In order for an organization to do that, they need to understand the product’s impact up and down the supply chain. Take as an example an automobile manufacturer; if we were only to look at the environmental impact of the manufacturing process to put together the car, then we would be missing a large aspect of the overall environmental impact of a car. What about the environmental impact in obtaining all the raw materials necessary to build the car? What about the manufacturing done by all of the suppliers that create the parts that go into the car? What about the environmental impact of shipping those parts from the suppliers to the car manufacturer? What about all of the emissions that are produced by the car once it is in use by the consumer? What about the impact in the disposal of the car when it is no longer usable?
There are new standards forming like the UK’s PAS 2050 or an upcoming global one from WRI that aim to understand the carbon impact of a product through its entire lifecycle. Additionally, the CDP, recognized as the leading carbon reporting program globally also has added a supply chain component to the information it requests.
Another example of this movement is Wal-mart’s recently announced plans to begin a new assessment process for its suppliers as part of a new product labeling effort. It is described in this NY Times article for those that missed it.
Additionally, an organization’s supply chain often contains hidden risks that could have a negative impact on the organization. As quoted in a Sustainable Sourcing article last month Simone Luibi, practice head for green procurement at BrainNet stated. “Many companies are not adequately informed about the time bombs that are ticking away in their added value chains. After all, it’s not just about high standards within their own four walls: overlooked environmental legislation, poisonous substances in product components or suppliers employing child labor can damage the company’s image long term and bring with it serious financial and legal consequences.
One thing that we’ve learned from the financial crisis is that there is a need for greater transparency. Whether or not this has played a role in this shift, there is absolutely an increased focus for organizations to know what is going on in their supply chain. While this may cause additional effort for organizations to build a process to manage this information, the good news is that greater transparency leads to actionable information. This actionable information can help the organization’s identify areas to reduce cost, reduce risk, and also find new opportunities to improve and transform its operations.
Terrence G. Clark – Senior Vice President and GM