Achieving transparency across international supply chains is more than a commercial necessity
Everyone wants greater visibility over their international supply chain. Why wouldn’t you? It makes perfect commercial sense.
Improved transparency could help your organisation spot wasteful expenditure and identify the source of quality issues you may be experiencing.
If a supplier is consistently airfreighting components at high cost, you can work out how to ensure your manufacturer is placing orders earlier, so more economical shipping methods can be used.
Or if a retailer finds specific products are routinely being returned because of one faulty element, maybe a dodgy zip on an item of clothing, you can root out the problem and resolve it. Thus removing the cost of the returns process and, perhaps more importantly, preventing further damage to brand reputation.
The commercial considerations are easy to fathom. Beyond the more obvious commercial factors however, there are also the ethical and environment factors. These may have less of an obvious impact on corporate profitability, but there are three clear reasons why this is becoming increasingly significant.
The first is the growing amount of legislation mounting up on both sides of the Atlantic. This includes the Transparency in Supply Chains Act in California and, perhaps more notably for UK businesses, the Modern Slavery Act.
Although it was only passed into law last year, our research has revealed that several of the Top 500 retailers in the UK have already missed their deadlines for meeting the requirements of this Act. This includes the publishing of statements outlining the procedures they have put in place to drive modern slavery out of their own supply chains.
As a board member is required by law to sign off this statement, senior executives will now be accountable for the ethical impact of the whole supply chain from top to bottom. Given the Prime Minister’s personal interest in this particular area, it’s highly likely legislation covering supply chains will only tighten.
The court of public opinion
If brands don’t comply with legislation covering their international supply chains, pressure from their consumers is only likely to grow. Recent research, commissioned by Intel, found that 8 in 10 millennials believe that, as consumers, they have a responsibility to make sure the products they buy don’t use resources that harm society or the environment.
For the fashion industry, the issues surrounding international supply chains came to a head when 1,138 workers were killed in the Rana Plaza disaster in Bangladesh. This implicated several UK retailers and as a consequence, many have been forced to sit up and pay attention to working conditions. When the general public now pick up a tee-shirt priced at just £2, they are beginning to question how this is possible.
The impact of NGOs
Finally, non-governmental organisations (NGOs) are making it very difficult for brands that don’t take the environmental and ethical impact of their sourcing seriously. These groups can be very noisy and they will actively encourage consumers to act against brands.
These not-for-profit organisations may focus on a specific material in the supply chain, as in the case of the Better Cotton Initiative, or an entire industry, such as with fashionrevolution.org. The latter is responsible for the #whomademyclothes hashtag on Twitter, which is encouraging consumers to ask questions of brands’ supply chains.
Getting control of your supply chain
Now, it may be that a sourcing director at a fashion retailer looks at this and says, “well, using an international manufacturer is just too risky, I’m going to source closer to home.” After all, it would be easier to visit these factories and check up on working and environmental conditions.
This might be an option but it is unlikely this approach would remove international sourcing beyond the first tier of the supply chain – as, for example, garment manufacturers are themselves very likely to be sourcing their cotton, buttons or care labels from elsewhere in the world.
With the vast majority of supply chains international in nature, brands instead need to seek greater transparency further down the chain. And there are three clear steps that brands are taking to achieve this level of visibility.
Mapping the supply chain
The first step is mapping the supply chain beyond the tier 1 manufacturer. Some brands have started to publish this data publicly in the name of consumer transparency. The leading lights include companies like H&M and M&S, which has published a digitally interactive map online.
As more brands make this information publicly available, it’s only a matter of time before others will be compelled to play catch-up. However, the big problem brands have with mapping is accuracy and completeness - how do they know that the map is real?
Another way brands have sought to gain control is by forcing manufacturers to use nominated suppliers. These are the suppliers that brands have audited for safety, environmental impact and quality.
However, the major problem with this approach is that, in reality, it’s very difficult to police. Suppliers often simply pay lip service to these policies by ordering a minimum amount from a nominated supplier and then sourcing the rest from a low cost supplier elsewhere, unknown to the brand themselves.
Some brands solve this by single-sourcing particular components, although there are issues with this approach too. It’s not great from a commercial perspective because it removes the leverage necessary to negotiate a competitive price from suppliers, and also puts the brand at major risk if there any disruption in the supplier’s business.
Follow the money
To resolve the problems thrown up by mapping and nominated suppliers, organisations are finding one of the best solutions is to follow the money – in other words trace each purchase order as it is transacted down the length of the supply chain. So for example, a PO given to a shirt manufacturer would have several sub-POs associated with it to cover components such as labels, buttons and the thread. By tracking and tracing this information, the precise provenance of every component of every product becomes clear.
Using this approach, supported by automation, it is possible to get close to 100% visibility over the whole supply chain. This won’t happen overnight however. International supply chains are incredibly complex, and brands will need to take a step-by-step approach - gaining visibility over tier 1, and then tier 2, before going further down. This will be a journey for many brands but if they are to start down this road they will need put their first foot forward sooner rather than later.
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