Supply Chain Transparency, Ethics, and the Use of Technology for Due Diligence
09 May 2023 13:00
For decades, consumers have steadily increased their prioritization of buying goods from companies that value human rights and environmental sustainability—this includes every step of the supply chain.
Ethically sourced food involves a wide range of sustainability initiatives, from responsible packaging and energy efficient transportation to environmentally sustainable growth practices and efficient returns management programs.
In this article, we’ll discuss how to maintain and increase consumer loyalty through greater supply chain transparency and due diligence to increase your ability to track each link in your supply chain more quickly and efficiently.
Defining transparency in supply chain ethics
Consumers, governments, NGOs and other stakeholders consistently request greater transparency across the whole of the supply chain. They want to see the specific due diligence processes and sourcing strategies companies employ to address environmental concerns and human rights violations, including child and forced labor.
But what does supply chain transparency really mean and why does it matter? Supply chain transparency is the public and accurate knowledge of what is happening from the beginning of the supply chain to the destination of the product. It includes information from working conditions and product ingredients to product origins and the environmental effects of their production.
How supply chain transparency has become more important
Transparency demands have increased as the media landscape has filled in the informational gaps in supply chain design. Discerning consumers want to fully use the given information to decide which products and companies they want to engage with, not wanting to inadvertently support a company that engages in environmental and human rights violations by buying their products.
On the company level, lack of supply chain transparency can stop businesses in their tracks. For example, if a shipment is missing its origin documents, it can be held up in customs or even turned away at ports, creating costly disruptions that flow across entire supply chains.
MORE: 3 Ways Third-Party Data Helps Manufacturers Identify Supply Chain Red Flags Faster
Supply chain legislation and regulation
The demand for supply chain transparency is unlikely to end any time soon. Legislation and regulation of global supply chains that increase operational, environmental and human rights transparency continue to be created worldwide.
For example, Global Supply Chain Acts from California (2010) and Germany (2023) are designed to keep consumers and businesses informed about companies' efforts to address slavery and human trafficking, as well as environmental sustainability, in the supply chain. This allows them to consider all the information when making their purchasing decisions.
There are benefits to company compliance with progressively stringent rules and regulations, including: reduced repetitional risk, enhanced company trust, retention of employees and consumers and clearly identifiable areas of improvement.
However, businesses must do thorough due diligence to avoid repetitional damages, illegal practices and violations, sizable fines and, in some cases, even jail time.
Consumer trends also call for increase supply chain transparency
The creation and enforcement of these laws is just one step in improving customer satisfaction, reinforcing customer loyalty and increasing company profits.
A 2021 OpenText Survey of over 25 thousand consumers from across 12 countries looked into the extent to which the pandemic shifted consumer attitudes toward ethical sources and product costs. When asked if ethical sourcing mattered, 81 percent of post-pandemic onset respondents replied yes, though only 25 percent of them claimed they had always prioritized ethical sourcing and environmental sustainability.
The same survey went further and inquired if respondents would pay more for products if they were ethically sourced. Over 83 percent of the participants said yes with over 17 percent of them saying they would pay up to 50 percent more for these items. On average, respondents stated they would be willing to spend roughly 17 percent more to buy products from companies that met their expectations for sustainable, ethical business practices. They are also more and more willing to give up some convenience to reduce their carbon footprint and promote human rights through their purchase power.
Given the threat of losing loyal customers, it is imperative that your business be informed about all of the links in your supply chain, in order to give clarity and confidence to your consumers. Consumers with a clear vision of your company’s values, ethics, and commitment to the environment and human rights, are customers who will remain vital and vocal supporters of your products and services. Secure consumers amplify fiscal abundance.
MORE: Strengthening Consumer Loyalty Through Ethical Supply Chain Practices
The role of technology in supply chain transparency
The strategic use of technology to identify and manage supply chain risk becomes more effective every day.
Blockchains help organize supply chain data
One of the main sources of technological improvements are blockchains as they use secure, single source, decentralized and immutable data to give real-time transparency of supply chain actors and practices.
As such, supply chain due diligence using blockchain technology, allows greater transparency of supply chain actors, a traceable flow of goods, the incentivization of continued due diligence across the supply chain and accurate assessment of risks.
These blockchains help businesses identify and assign roles of actors in supply chain, digitize assets and related properties, send digital settlement of asset delivery against payment, digitize manufacturing and production workflows, link outputs to inputs, illustrate verifications and risk profiles and create greater access to due diligence information.
That said, challenges can occur in blockchains as modern supply chains are often fragmented, complex and rely on a significant number of suppliers who may or may not have access to this technology.
Other technology helpful for supply chain management
Other technology, including supply chain mapping, aids businesses in risk-assessments and allows them to better understand potential compliance vulnerabilities.
Keep in mind, consistent record keeping and maintenance of audit trails of due diligence investigations helps to spots risks sooner and mitigates costly contractor failures and violations. In-depth paper trails also capture an historic view of supplier risk and demonstrate company compliance intent across supply chains.
Staying on top of all supply chain risks
Keeping up with supply chain transparency is the ethical and practical business move, but there is so much more to think about than just technology in the supply chain. For a deeper dive into all the necessary components of supply chain due diligence, take a look at our recent e-book "Supply Chain Transparency: Food and Beverage Regulations". In it, we cover increasing supply chain regulation, the impact of regulation on food consumption, businesses covered by increasing legislation, and other ethical considerations. Download the e-book now to begin your exploration into food and beverage manufacturing transparency and make sure your business is compliant.
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