Supply Chain Transparency Defined: Why It Matters and Its Benefits

Millions of students have read “The Jungle” by Upton Sinclair, a grisly description of the meat packing industry circa 1900. Besides leading to major reforms, such as the Pure Food and Drug Act of 1906, the book sparked an interest in supply chain transparency. People suddenly wanted to know how their products were made.

More than a century later, people still want to know. Some want to know if their laptops contain tungsten mined in countries that allow forced labor. Some avoid foods with genetically modified ingredients. Some want evidence that their chosen brands are taking steps to reduce waste and lower their carbon footprint. This kind of consumer pressure, coupled with increasing regulations, forces companies to be transparent about their supply chain and manufacturing practices.

What Is Supply Chain Transparency?

Supply chain transparency is the practice of sharing information, or conducting business openly, so that consumers as well as companies know where and how goods are produced. Transparent supply chains verify the origin and flow of materials, parts, and finished products. In doing so, companies keep their stakeholders informed and comply with laws that protect the planet, workers, and human rights.

In a 2022 Food Industry Association report, 65% of shoppers said they would switch from a brand they usually buy to another brand that communicates more openly about its supply chain, including information on animal welfare and fair trade. Research from Avery Dennison shows that 60% of customers want the ability to trace items they purchase from fashion brands, while 86% of shoppers want more information from beauty brands about where product ingredients come from, according to the British Beauty Council.

Supply Chain Transparency vs. Supply Chain Visibility

People sometimes confuse the two, as they’re closely related.

Visibility refers to a company’s ability to see activities throughout its supply chain. Lack of supplier information reduces visibility. This could include data on daily production, quality control, raw material sourcing, shipment locations, and compliance with laws on worker safety, human rights, and environmental impact.

For example, Cano, a maker of sustainably sourced Mexican huaraches, a kind of sandal, uses blockchain technology to track suppliers and materials. Doing so helps Cano avoid unethical suppliers, whose behavior could result in bad press, consumer outrage, and loss of sales.

Transparency means something different. While supply chain visibility refers to what companies see, transparency refers to what they do and communicate after seeing it. Are they transparently reporting what they discover in their supply network? Without truthful, verifiable communication, transparency doesn’t exist.

Example: A laptop maker that sources minerals from Central Africa learns that a supplier is using forced labor. Ignoring or hiding this information poses a business risk. If the supplier’s abuse becomes public knowledge, the company would need to explain its inaction, possibly pay a fine, and likely lose customers.

Experts note that transparency isn’t possible without visibility. A company can’t be transparent about things it doesn’t see or know. But the converse is also true: Transparency creates visibility. If a supplier is unwilling to be transparent about its operations, it’s difficult for the supplier’s customers to have any visibility. The two conditions are intertwined.

Supply Chain Transparency vs. Supply Chain Visibility

Supply chain transparency starts with visibility. Some examples include verifying that food meets organic standards, conducting a factory audit, viewing a quality control report, or delaying production to repair faulty machinery.

Key Takeaways

• Because supply chains are so complex, making them transparent is an ongoing challenge.
• The key to meeting the challenge is gathering accurate data from both primary suppliers and those that operate further downstream.
• To ensure supply chain transparency, companies must manage enormous amounts of data. Companies are starting to rely on blockchain, AI, and advanced analytics to share and organize that data to track, trace, and report the provenance of goods.

Supply Chain Transparency Explained

Supply chain transparency is hard, but it’s worth it.

It’s hard because a company may buy parts, materials, or services from thousands of suppliers. As James McGregor of consultancy APCO Worldwide told The New York Times, “Supply chains are like a bowl of spaghetti. They get mixed all over. You don’t know where that stuff comes from.”

For instance, consumer goods manufacturer Proctor & Gamble, which owns brands such as Tide, Gillette, and Head & Shoulders, has nearly 50,000 direct suppliers (known as Tier 1 suppliers). Each of those suppliers may in turn buy materials from hundreds of other suppliers (Tier 2, Tier 3, and so on, depending on how far removed they are from the manufacturer).

Downstream suppliers may not collect or share information that upstream companies need for transparent reporting. For instance, a Tier 3 supplier may use minerals mined in only a handful of countries, one of them known to permit forced labor. If that supplier won’t share data on where it sources minerals, transparency becomes impossible.

To be fair, some downstream suppliers are small businesses or farms, many in poor countries. Without guidance and even resources from manufacturing customers, they may lack the expertise and resources to operate more ethically or sustainably.

With governments, nongovernmental organizations, and consumers watching, manufacturers want to avoid reputational damage. The UK and California governments were among the first to require companies doing business in those locations to verify there is no human slavery in their supply chains. The Dodd-Frank Act, passed by Congress in 2010, forbids the use of “conflict minerals”—gold and tungsten, for example, mined in countries that allow forced labor and use the profits to finance armed conflict.

A company may also simply wish to run an ethical business and avoid using unsafe ingredients or substandard components, so it won’t source goods from companies with a poor environmental track record or that have anything to do with worker or animal abuse.

Supply Chain Transparency Benefits

When companies require transparency throughout their supply chains, they can operate more compliantly, reduce business risk, improve brand loyalty, and enhance efficiency.

• Improved legal compliance. Companies that proactively share supply chain information can more easily comply with a growing number of regulations. Many use cloud-based platforms to collect and standardize supplier data. Without such data, it’s impossible to measure compliance, especially on the scale of global supply networks, each answering to various domestic and foreign regulators. The UK and Australia, for example, have passed modern antislavery acts. In the United States, the Dodd-Frank Act requires companies to ensure that their suppliers aren’t sourcing minerals from nations that tolerate human rights abuses. Since 2022, Norway, the Netherlands, Switzerland, Germany, Austria, Spain, and Luxembourg have passed similar laws.

  In New York, the state legislature is debating the Fashion Sustainability and Social Accountability Act (Fashion Act), which sets forth legally binding environmental and labor standards for that industry. The EU’s Corporate Sustainability Reporting Directive, which takes effect in 2023, requires companies to use common standards when they measure how supply chains affect the environment, workers, and communities.

• Improved supply chain resilience and risk management. Because supply chain transparency is grounded in collecting, verifying, and sharing data, it improves a company’s ability to track parts, components, and products at every stage, including in its own inventory. All of this adds up to a more efficient operation by revealing bottlenecks, quality issues, and potential disruptions that can be averted.

  With a clearer understanding of who their suppliers are and how they operate, companies can also lower their risk. For instance, knowing that a supplier is violating maritime laws by overfishing in certain waters lets a maker of canned tuna take corrective action before it becomes a regulatory or public relations issue. If the manufacturer demands that all its suppliers comply with laws and report on matters truthfully, it reduces its own business risk.

• Enhanced brand loyalty. Consumers are four times more likely to trust companies that are purpose-driven and clearly communicate the conditions in which goods are made, according to a 2020 survey by communications firm Zeno. They’re also more likely to make a first-time purchase from brands they perceive to be more sustainable and ethical than others.

  Some companies make transparency a key part of their brand. Chipotle touts brand values such as sustainable sourcing, healthy ingredients (organic, no hormones added), and meat suppliers’ humane treatment of animals. Consumers can fact-check Chipotle’s marketing by clicking on its annual Sustainability Report, where they’ll learn the company is on track to meet targets for waste reduction and locally purchased produce.

• Stronger partnerships and better operational efficiency. Supply chain transparency strengthens trust between manufacturers and their suppliers, creating a culture in which companies work together to solve problems. For example, when suppliers see that their own transparency and honesty are rewarded, they’re more likely to come forward about production or other problems instead of settling for substandard work or taking unethical shortcuts. In turn, manufacturers help suppliers by clearly communicating production, quality, and sourcing standards, plus recommending or participating in compliance training. Over time, a business can attract like-minded suppliers that will go the extra mile to meet expectations. Supply chain transparency can even help improve the industry’s reputation for proactively tackling issues instead of waiting to react when something goes wrong.

Supply Chain Transparency Technology

Blockchain creates a digital ledger of supply chain transactions, shared by companies and suppliers and updated in real time. The ledger becomes a virtual path partners can trace. Intelligent track and trace combines blockchain, Internet of Things (IoT) sensors, and analytics to automate tracking, making it fast and easy to trace products through every step of their journey. Companies can even give consumers and other end customers access to the same information via QR codes on product labels. Once entered into a blockchain, data is immutable—nobody can change it, reducing the likelihood of fraud.

Some companies have started using DNA testing. For example, a supplier ships an order of Pima cotton shirts. Upon receiving them, the manufacturer uses a testing service to analyze the cotton, sequencing its DNA or examining isotopes that reveal place of origin by reflecting rainfall levels, temperatures, and even latitude. Did the cotton come from Pima-growing regions of California—or from the Xinjiang region of China, which is banned for permitting forced labor? Science provides the answer.

Other technologies support transparency by gathering data at different stages. For example, cloud supply chain management (SCM) platforms connect data across functions such as procurement, production, order management, and inventory management. Product lifecycle management (PLM) applications collect and share data from a product’s design and development through product launch.

Planning and analytics applications, including “what if” scenario modeling, let supply chain managers understand the implications of future scenarios—for instance, huge spikes in demand or a weather catastrophe that closes factories and ports. IoT technologies collect data in factories, from trucks, and in distribution centers, monitoring everything from the origin and location of shipments to shop floor working conditions.

How to Achieve Supply Chain Transparency

More than anything, better information sharing between manufacturers and suppliers enhances supply chain transparency. These best practices can help.

The Future of Supply Chain Transparency

In the coming years, manufacturers will make supply chain transparency an even bigger priority. They won’t have a choice. Following the 2010 Dodd-Frank Act and the more recent UK and Australian bans on forced labor, lawmakers and regulators worldwide are poised to mandate further transparency. Consider the Fashion Act under debate in the New York legislature and similar proposals in various EU countries. Likewise, consumer interest in where and how products are made continues to grow. A 2020 McKinsey & Company study revealed that sales of products that carry claims of being sustainably produced and ethically sourced rose 28% on average in the past five years, versus 20% for products carrying no such claims. But consumers now want evidence to support those claims.

As corporate leaders set new policies to illuminate their supply chains, managers will need to gather enormous volumes of data, captured using cloud SCM and PLM applications. IoT technologies will become more pervasive, collecting and analyzing data in factories, trucks, warehouses, and other physical spaces. Blockchain, too, will grow in use, letting trading partners more easily track and trace supply chain activity.

The Future of Supply Chain Transparency Is Oracle

Oracle Cloud Supply Chain Management and Manufacturing (SCM) supports transparency with applications that connect every aspect of the supply chain—demand planning, inventory management, manufacturing, equipment maintenance, order management, logistics, procurement, and PLM—gathering data required by regulators and consumers. Oracle Fusion Cloud Internet of Things Intelligent Applications capture sensor data from connected devices in factories, warehouses, and trucks, providing real-time updates on the safety of shop floors and the location of shipments. Oracle Intelligent Track and Trace uses blockchain technology to help companies and suppliers share data securely, making it easier to track the origins of materials and the practices of partners.

Supply Chain Transparency FAQs

Why is supply chain transparency difficult to achieve?
Transparency is hard to achieve because supply chains are complex. A large multinational manufacturer has thousands of suppliers, which in turn may have hundreds of their own. Transparency requires each supplier to provide data on where it sources materials and under what conditions.

Why is transparency important for successful supply chain management?
Supply chain management isn’t solely an exercise in sourcing the best materials at the lowest price. Consumers and governments insist on knowing where goods came from and how they’re made in order to comply with regulations and meet customer demands for products that are ethically sourced and produced.

What are the challenges in supply chain transparency?
One key challenge for manufacturers is working with suppliers to gather the supporting data: where suppliers sourced their materials, who their downstream partners are, and whether they’re in compliance with numerous laws and regulations. Another challenge is ensuring all that data is accurate and complete, which requires constant updates and regular audits.