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Transparency. Is It Transformative?

Transparency. Is It Transformative?

Business transparency can connect consumers, build trust, and achieve visibility.

Transparency is a word thrown around a lot. And yet, to most people, it’s nebulous. It is one of those words we know what it means when it comes to glass, but what does it mean for an organisation, business, or supply chain?

The extent to which transparency gets thrown around is more significant in the blockchain world, where it has taken on buzzword status; you go nowhere in blockchain without communicating about transparency. Apart from, or because of, its vague nature, it has started to take on near-mythical status.

Transparency is Not the Same as Visibility

Transparency, in business and supply chains, is widely misunderstood and used synonymously with visibility, despite them not being the same thing. You can have visibility without transparency but not transparency without visibility.

Supply chain transparency is the ultima thule of business. For decades, supply chains have become more opaque and more complex. The darkness, combined with the globalisation of trade and commerce, has allowed all sorts of negative things to occur, including modern slavery, bribery, fraud, smuggling, and all kinds of trafficking.

Why should businesses even embark on the supply chain transparency journey? There is a myriad of reasons. By increasing supply chain transparency, companies can connect with consumers, build trust, achieve better supply chain visibility to drive improvements, and react faster and more effectively when problems occur. But what is supply chain transparency?

What it Transparency and What it is Not?

While several firms, including H&M and Target, have publicly released their list of primary vendors, this is not what we would call real supply chain transparency. It is a token kind of transparency. It sounds cynical, but this step is usually taken by a business that is experiencing a leak of ethical consumers, and they hope to ease the leak by ‘becoming transparent.’

This step is token because primary vendors for a retailer are what is called in supply chain management circles, Tier 1 suppliers. In this reigning supply chain management paradigm, there are 3 tiers. Tier 1 is the smallest set of suppliers of any business; supply chains expand dramatically, exponentially even, as you progress down the supply chain. I say down because it is confusing otherwise; the correct parlance is up, as you move from Tier 1 to Tier 3, but that makes little sense for most readers.

Tier 1 of the Supply Chain Only Shows the Tip of the Iceberg

It is not real supply chain transparency because a retail business with 1000 primary vendors such as Target may have 100s of thousands by the time you get to Tier 3. So, Tier 1 comprises, by any reasonable estimate, less than 5% of the content of a supply chain. To put the number around the right way, that is not 5% transparency as much as it is a 95% lack of transparency. It is token because it is unveiling the tip, and only the tip, of a phenomenal iceberg.

Real supply chain transparency is not always easy to achieve, another reason few if any companies do it. It is a given in a complex world that supply chains have become global. But it’s even more complex where a considerable amount of money and effort has been spent, through the likes of Ali Baba, precisely to make sure transparency is impossible. While you can find almost anything you need in the way of supplies for your business there, you will never find transparency there.

Transparency is Something You Need to Want to Do

Achieving transparency is something you need to want to do. Since slavefreetrade has been operating, the percentage of businesses looking for and genuinely interested in supply chain transparency is in the single digits. Maybe even lower. There is quite some talk about it, and the Tier 1 reveals are part of that, but the genuine effort is tough to find.

Transparency Requires a Leap of Faith

Transparency requires an investment in time, money, and effort, in addition to new employee skill sets and the adoption of new tools. Most importantly, transparency requires a leap of faith; the faith that, while you likely have issues like human rights abuses that reveal, they can be fixed.

These barriers and more pose a challenge that can make it more difficult for those in a business who believe in transparency to convince others in the business to take the steps towards transparent supply chains. The challenge of a believer is always to persuade non-believers.

There are many ways, however, that the case for transparency is made. It is crucial, in this neoliberal economic world that still sees profit as the only measure that matters in business, to prove that action makes financial sense for a business. So that means isolating the myriad concrete ways in which a company will benefit from transparency. It is worth the effort, but how do you convince others of the benefits?

Transparency Leads to Brand Loyalty

There are many facets to a successful business, including good marketing and understanding of consumers, and their next steps. Knowing where consumers were in the past is only of limited use; knowing where your consumers are going is mission-critical.

94% of consumers say they would be loyal to a brand that offers complete transparency, according to a 2016 study from Label Insight.

The study unveiled trends surrounding return on investment (ROI) for transparency, with 86% of millennial moms saying they would pay more for completely transparent food products.

Four out of 10 consumers said they would switch to a new brand if it offered full product transparency.

Consumer Purchasing Power Drives Companies’ Bottom Line

If consumers switched brands based on transparency alone, manufacturers that remain more secretive about their products would see their market share deteriorate in the coming years. This demonstrates the drive to not only respond to consumer demands for social reasons but for economic reasons too.

As more manufacturers try to improve their top lines, transparency may play a larger role than many companies previously realized. Earnings reports demonstrate struggles with sales growth almost across the board for major manufacturers. Still, increased transparency could be a deciding factor in consumers’ purchase decisions to those brands.

Key Factors that Impact Manufacturers Go Beyond Transparency

Aside from top-line impact, other vital factors transparency can impact for manufacturers include portfolio potential, building brand trust with consumers and brand loyalty, according to the report.

Example: Shoppers want to know the origin of their jeans. By discovering more about your denim supply chain, your brand can share valuable insights about a consumer’s jeans, such as the cotton’s country of origin or the suppliers’ sustainability practices.

Good business works to reduce its risk and achieve compliance; failures in risk management or compliance can be life-threatening. Fraud and scandals constitute a significant source of damage to businesses, and time and money spent on reducing risk and achieving compliance are becoming increasingly important to shareholders.

Making sure your brand and products comply with regional and market regulations, including human rights standards, is becoming more, not less, important to everyone with a stake in the business — from investors to your staff.

There is an opportunity cost in doing business with companies that carry liabilities like human rights abuses; you import their lousy management. Deloitte has identified eight different compliance risks shared by most supply chains, including supplier integrity and social responsibility, environmental responsibility, technical regulations, and labor and employment.

Example: More and more countries are enacting official regulations against modern slavery. Transparency enables you to identify which suppliers have received social responsibility certifications to ensure your brand complies with regulations, such as the UK Modern Slavery Act, from source to store.

Data Communicated via your Brand Increases Consumer Trust

Most good businesses get to be good and get to be in demand by being able to demonstrate brand quality. Showing brand quality is done in several ways. Still, an important one can capture and communicate quality data, such as certification and audit results in a supply chain.

Being able to quantify supply chain data means being able to communicate. You cannot deliver what you don’t know. And you cannot guarantee or improve the quality of something you cannot understand. Quality data communicated well means more consumer trust in your products.

In research conducted with over 2,000 consumers:

  • 33% of consumers are less trusting of products and retailers than they were five years ago.
  • Only 9% of consumers are more trusting of products.
  • 42% of consumers are concerned about food fraud, with a third believing food crime will increase in the future.
  • Only 7% of consumers indicate they have confidence in the global food supply chain.

Example: With supply chain transparency, you can identify all your suppliers’ facilities and ensure they have the relevant safety certifications. You’re not sure if your beef suppliers follow best quality practices.

Sustainability and CSR: Making a Case for Transparency

The single most exciting area for making a case for transparency is in your sustainability and corporate social responsibility (CSR) outcomes. There are many ways transparency assists here. But it includes being seen to take real action on environment, social, and governance (ESG) issues in your business. Demonstrating that you’re not harming the people in your business, or the planet, are becoming not just in vogue, but in demand. Consumers, job-seekers, staff, shareholders and investors are all increasingly acting on their preference for corporate responsibility and purpose in business; active transparency provides both.

According to Nielsen, almost two-thirds of consumers (66%) are willing to pay more for products and services coming from companies who are committed to positive social and environmental impact.

Example: Palm oil is a controversial ingredient due to its ethical and environmental implications. With transparency, you can identify your palm oil suppliers to determine whether they are RSPO certified. And then gather data on labour practices – ultimately demonstrating your brand’s commitment to source palm oil more responsibly.

Efficiency and Value Chain Improvement

All evidence on transparency in supply chains points to the fact that transparency is transformative. The more visible your supply chain is to you, the greater the opportunity to optimise supply chain costs, improve your value chain, and achieve business resilience. This visibility means you can capture end-to-end supply chain data, quickly identify inefficiencies, find cost-saving opportunities. And optimise your chain for gougers – those in the chain that add little or no value.

The Business Continuity Institute found that 70% of organizations experienced at least one supply chain disruption in 2016. 34% attributing at least a quarter of their disturbances to their external inbound supply chain.

Example: Use transparency to identify which of your supply chains rely heavily on a single supplier, or depend on facilities located in countries at high risk of a natural disaster. Use this knowledge to optimize your supply chains for improved efficiency and resilience.

Once a company discovers the significant benefits to becoming transparent, there should be no going back. We help companies see their blind spots and inefficiencies in their supply chain.