Building a culture of supply-chain transparency within your organization is a necessary step towards mitigating all different types of risks—from minor bumps in the road to catastrophic disruption.
Since the onset of the COVID-19 crisis, many organizations have been dealing with supply-chain disruptions they never would’ve expected and exacerbated risks they didn’t even know they had. How did the Coronavirus reveal these vulnerabilities? I would argue it’s because over the past few decades as supply chains have become more efficient from an increasingly interconnected world, they have also become more opaque. As complexity increased, risk grew unobserved until the extreme pressure from the pandemic pushed supply chains to the limits and exposed weaknesses.
MIT’s Alexis Bateman and Leonardo Bonanni insist supply-chain transparency was virtually unheard of 15 years ago. Yet that doesn’t mean it’s de rigueur today. Even though transparency is a popular buzzword in the corporate world, Bateman and Bonanni lament that genuine transparency is actually quite rare.
One reason for this, they point out, is supply chains aren’t actually designed for transparency. It requires companies to know what’s happening up and down their supply chain and to communicate this knowledge both internally and externally. Yet businesses fear that revealing too much information to their suppliers and customers might undermine their competitive advantage. And details of upstream supply-chain practices and other relevant information may not even be collected or could be erroneous. Or businesses just don’t think the return on investment would be there to bother making the supply chain transparent.
Bateman and Bonanni suggest measuring the value of transparency along two dimensions: supply-chain scope (the depth of interaction in the supply chain), and milestones on the path to complete transparency. Have a look at the chart below.
Most companies have a code of conduct and milestones for internal operations—providing a modicum of transparency—but innovative companies will have full disclosure of every facet of their supply chain and even milestones for raw materials. They’ll have data—probably in real-time, feeding into various models and analyses enterprise-wide—on just about everything involving their supply chain.
A recent report from McKinsey & Co. noted that one upshot of the pandemic is companies will renew their focus on better quantifying their supply-chain risks so they can create mitigation and business-continuity plans. But to do this they’ll need a much more comprehensive understanding of their existing vulnerabilities, and this will mean using advanced techniques like probabilistic approaches, scenario planning and modeling, and redesigning their businesses to take into consideration potential losses from another supply-chain breakdown.
Understanding the risks—and building a culture of transparency—requires good data. Procurement dashboards and supplier data will go a long way to helping your organization see through your supply chain with greater clarity. Organizations can use a combination of publicly available data and network analytics algorithms to delve deeper into their supply chain. And once visible, network analytics help you quantitatively diagnose any fragility as well as draw comparisons with your peers and industry benchmarks.
So how do you plan out your road to greater transparency? Here are some ideas from supply-chain and data experts.
In a 2014 report, Deloitte Consulting noted that without effective visibility into their supply chains, executives could have a significant blind spot in their enterprise risk management structure. They counsel organizations to identify and prioritize the specific risks they want to mitigate and to concentrate on unearthing the information needed to visualize those risks. If the information isn’t available, Deloitte says firms need to close those information gaps by working out how they can get that information.
MIT’s Bateman and Bonanni say companies need to look at where risks have come from in the past—like regulatory burdens, past disruptions, and supplier issues—and collect actionable information on how they mitigated them. How your suppliers have behaved, historically, in areas like labor practices and environmental policies, is valuable information. When you contract a supplier directly, you probably acquired some of this intel, but what about suppliers deeper in your supply chain? It’s likely you don’t have the same level of information on them but they can still pose significant risk.
McKinsey recommends collaborating with your Tier 1 suppliers, since they probably have similar concerns as you about supply issues in their own lower tiers. Their help can be invaluable and their insights into your business pronounced.
If you don’t have one, form a supply-chain risk management team to champion transparency and help transition your company away from opacity. Challenge the company’s established investment and process design decisions by reconsidering your steps from the point of view of risk; the likelihood of risk manifesting, the financial impact, and the organization’s ability to mitigate.
The clear message from the experts is that transparency goes way beyond just visibility of the supply chain. It’s making sure the company takes action on any insights gained in order to manage risks more effectively. And none of this can happen without good data and great communication.