For so many organizations, the ability to effectively keep track of who they do business with is a major challenge. As firms continue to expand across the globe and the competition to be first to market intensifies, there is a greater risk of disruption somewhere along the supply chain.
The risk of supply chain obscurity
Lack of supply chain visibility not only creates cost implications, both direct and indirect, but it also threatens to compromise the ethics of the company. Reputations are at stake. And in an age where a company’s reputation can make or break your progression in the market, your business as a whole is at stake, too.
There are many cautionary tales in recent years, but clothing ‘fast fashion’ retailer Primark’s child labor scandal of 2010 is one of the more egregious. An investigation by the BBC’s Panorama program revealed children as young as fourteen working in Primark’s supply chain. The program tracked products made using child labor all the way to the racks in UK stores. Primark claimed they didn’t know of these practices, but this is precisely the point; why didn’t they know? The company has made great strides forwards since, but questions over the practices of fashion retailers remain.
There is an ongoing ethical issue with supply chains in the ‘fast-fashion’ industry. The clue is in the name. These companies need to be fast to market and because of this, they lose visibility of their suppliers. As Julie Niederhoff, associate professor of supply chain management at the Whitman Business School at Syracuse University, points out in our report, “There’s a trade-off between perfect visibility and the slower pace of bringing people on board.”
The inverse can also be true; the quicker you can get a product to market from your suppliers, the less visibility you have of the practices of those sub-contractors. Fast fashion, as a prime example, does not allow the time to properly investigate supply chains, and is ultimately why Primark lost visibility.
Global execs push for a “culture of transparency”
Our study, commissioned through the Harvard Business Review Analytic Services (HBRAS), found that global executives believe a culture of transparency is overwhelmingly important as organizations move to demonstrate more ethical practices.
Not only is it deemed important, the report also finds that the most successful firms are nearly twice as likely to be effective at evaluating suppliers. Visibility into the flow of money, goods, and services is a defining characteristic of successful businesses. This means businesses must take responsibility not only for the quality of goods and services, but also the manner in which they are produced.
Executives are keen to do more to ensure ethical best practice amongst suppliers. However, many organizations lack the ability to effectively monitor their business partners and a lack of visibility is a significant source of risk. Our study found that 65% of procurement officers have limited or no visibility beyond their immediate suppliers. This is due to a number of factors such as:
a lack of electronic connectivity to suppliers,
no access to analytic tools, or
insufficient expertise to implement visibility systems.
But these problems aren’t impossible to solve.
The price of supply chain visibility
Another challenge is that consumers are not willing to pay more for the product, so retailers face the challenge of ramping up their ethical practices while keeping the end price for consumers consistent. In Drapers’ Sustainability Survey, published in June 2019, 60% of the retailers who responded said the main barrier to becoming more sustainable was that it drives up costs. However, there is growing evidence that consumers are willing to pay a premium for ethically sourced products.
Our report’s conclusion is similar; despite the importance placed on ethical considerations, the most common factors for evaluating suppliers remain economic. 60% of respondents cite “value for money” and 54% call out “cost savings” as their top criteria. But if businesses continue to prioritize cost, the risk of a blind spot in the supply chain causing a crisis intensifies.
Business leaders would do well to remember that short-term cost-cutting is not a sustainable approach to supply chain risk management. It should instead be pursued in strategic terms.
Take the advice of the experts in our report – the firms that take a long-term view, encompassing both the costs and the reputational risks of supply chain management, will be the most successful. Blind spots can always be removed. So long as you are willing to shine a light on them.
Strengthen your supply chain – read the report
Download the HBRAS report, “Using Transparency to Enhance Reputation and Manage Business Risk,” to explore how a total of 779 respondents are using supply chain transparency to mitigate risk, create business value, and hone their competitive edge.