What is supply chain transparency?

In an increasingly complex global economy, it becomes more difficult to see all of the steps that are involved in getting a product from creation to consumer. The goal of supply chain transparency is to give greater access to information about each part of the process, for the benefit of both the company behind the product and the consumers buying it.

The concept of supply chain visibility, in which companies have a window on all activities within the chain, primarily applies to the internal ability to see supply chain information. Transparency, however, goes beyond internal knowledge. Supply chain transparency is not just about the company itself accessing information, but also making it accessible to external stakeholders, including customers, investors and regulators.

Transparency across the entire supply chain helps business and consumers act responsibly and make decisions according to their values and goals.

For consumers, supply chain transparency offers information relevant to their purchasing and consumption decisions. In a 2022 survey, more than half of respondents said environmental sustainability was more important to them than it was 12 months ago and nearly half said they paid more for products branded as sustainable or socially responsible. And as more consumers seek brands that adhere to sustainable practices, transparency offers a way to demonstrate that commitment.

For businesses, supply chain transparency can offer several benefits. As governments implement regulations to address human rights issues or environmental impact, transparency helps companies ensure compliance. It can also reduce supply chain disruptions by identifying bottlenecks and inefficiencies and by offering insight into potential disruptions or vulnerabilities. And because transparency is valuable to consumers, adopting it can have reputational benefits that help build trust and brand loyalty.

Finally, transparency can drive more sustainable supply chains. As more companies pursue environmental, social and government (ESG) initiatives, transparency can be useful to achieving their goals.

As supply chains grow in complexity, companies can increase transparency by:

Transparency starts with understanding every part and player. A complete map of supply chain participants, including all suppliers, manufacturers, distributors and retailers involved before reaching the end consumer, can serve as the backbone of any transparency effort. This mapping should not only cover direct suppliers (tier 1) but also indirect suppliers (tier 2 and beyond) to get a full picture of where components and raw materials come from. Full knowledge of each participant can lead to a more resilient supply chain with better visibility and reduced supply chain risk. Supply chain management systems that can accurately track and manage the complexities of modern and globalized supply chain networks can help make transparency easier.

Building strong partnerships with suppliers and providers is crucial. This may involve clear communication of expectations, in-person visits and collaboration to address any issues. Working closely with suppliers helps ensure they are meeting ethical and environmental standards. It also prevents information gaps from undermining sustainability and transparency efforts. Regular audits, either conducted internally or by third parties, can verify their practices. These audits can include checks for labor standards, environmental impact, emissions rates, quality control and other relevant aspects. They can be essential to risk management and provide assurance that operations and activities are meeting expectations.

Technology plays a crucial role in creating a transparent supply chain by providing tools to track and monitor products end-to-end, from raw materials to finished goods. Industry 4.0 practices that embed new tools and analytics into manufacturing infrastructure are driving transparency. Some companies are testing ways to increase transparency through the use of blockchain, or a digital ledger that records transactions in a secure and transparent manner. This can help prevent fraud and ensure that products are ethically sourced and produced.

Additionally, sensors and internet of things (IoT) devices are being used by some companies to add a layer of digital transparency and monitoring. GPS trackers and RFID tags offer real-time location tracking and condition monitoring of shipments, providing valuable supply chain information. Devices may be used to monitor the conditions of products during transportation and storage, ensuring that they are kept at the proper temperature and humidity levels; this traceability can help prevent spoilage and reduce waste as products make their way to end users.

Data analytics and metrics-based tools can help in evaluating supply chain operations and identifying areas that lack transparency. Supply chain data collected from various points can provide insights into operational efficiencies, potential risks and areas for improvement. Artificial intelligence (AI) and machine learning (ML) algorithms can analyze vast amounts of data to identify the most efficient transportation routes, spotlight potential disruptions or inconsistencies and gain insight into environmental impact. Real-time data can help companies adapt and react quickly to issues within the supply chain. A supply chain control tower can connect many sources of data-driven information and improve end-to-end visibility.

Some companies aim to foster transparency in their supply chain by educating people across the organization and its providers about the importance of transparency and how to achieve it. Training programs may focus on ethical sourcing, compliance with regulations, due diligence and best practices in supply chain management and can be integrated into supplier management initiatives. Some companies and supply chain professionals seek out certification programs, which may lend confidence and authority to transparency efforts.

Supply chain transparency hinges on information being available not just within the company, but externally as well. Companies use a variety of methods to help consumers and other stakeholders understand parts of the supply chain. For example, product labeling and packaging may be designed to highlight information about the origin, materials and manufacturing processes. Company websites and other online sources allow for public disclosure of information about the supply chain, including audit summaries and any sustainability or corporate responsibility reports. Some organizations use social media and other forms of marketing to communicate details and stories from within the supply chain.

Achieving complete transparency in supply chains can be challenging. Modern global supply chains span countries and continents, as well as a wide network of individuals and companies—a daunting level of complexity. Different countries also have different laws and standards regarding labor, environmental practices and product safety. Navigating these varying regulations and ensuring compliance at all levels can be an intense and arduous endeavor.

Achieving transparency comes with costs: new technologies, training and hands-on monitoring require financial investment that can sometimes prove too much for smaller businesses to accommodate. It can also come with resistance, as some suppliers may be reluctant to share information due to privacy concerns.