How Can Supply Chain Transparency Make You a More Attractive Business Partner?

For manufacturers in industries ranging from textiles and raw materials to pharmaceuticals and electronics, the 2020s have ushered in an era of heightened corporate accountability. With the passage of environmental laws like the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), ESG and sustainability regulations are on the rise worldwide. Trade laws—including the ULFPA and its ever-expanding roster of barred entities—are enforcing international labor standards and forcing businesses to adhere to fair labor practices. And millions of consumers are evolving their expectations for the companies they do business with. No longer exclusively focused on quality and price, customers today are far more inclined to scrutinize a company’s sourcing, carbon footprint, and treatment of its employees (and, relatedly, to look for the third-party certification seals that attest to sustainable behavior). 

This constellation of new standards and expectations—arising from not only government agencies but also the nonprofit sector and the shifting values of the global consumer base—is imposing a slew of unprecedented demands on businesses. Firms are increasingly responsible for calculating their carbon emissions, ensuring their sourcing practices do not harm the environment, and identifying the full sweep of their supply chain partners. While these may seem at first glance like a collection of disparate obligations, they all actually come down to the same central concept, one that’s grown from a peripheral priority to an organizational imperative: supply chain transparency. 

What Is Supply Chain Transparency?

While the term may seem largely self-explanatory, supply chain transparency is a practice that requires several interrelated steps to be carried out successfully. Alexis Bateman, director of the Sustainable Supply Chains Lab at MIT, breaks the concept down into two crucial elements: visibility and disclosure. Visibility entails “Accurately identifying and collecting data from all links in your supply chain.” Disclosure, meanwhile, requires “Communicating that information, both internally and externally, at the level of detail required or desired.” 

In other words, achieving supply chain transparency necessitates both effective supply chain due diligence and thorough disclosure of the information collected to a variety of stakeholders. And as society continues to further embrace sustainability and more widely adopt the ESG framework, the requirements for fulfilling the disclosure mandate will extend beyond regulatory compliance and the requisite corporate filings. Manufacturers are also going to feel growing pressure to demonstrate supply chain transparency to the public at large. 

How Supply Chain Transparency Benefits Manufacturers 

Achieving the two essential elements of transparency—supply chain visibility and disclosure—might feel like a labor-intensive obligation. There’s phone calls, research, outreach, and the vast, sprawling paper trail that connects vendors and suppliers along their supply chain. But manufacturers that get hung up on the due diligence required to achieve transparency risk overlooking the fact that it can also unlock an array of meaningful benefits. Companies that practice effective supply chain transparency can court new customers, revamp their public profile, and cultivate a stronger reputation within their industry. 

Reach More Consumers

While it’s now generally accepted that a substantial percentage of consumers prioritize sustainability when buying a product or patronizing a business, less well-known is how influential supply chain transparency can also be to customer decision-making. According to market research firm NielsenIQ, a whopping 94% of consumers are more likely to demonstrate loyalty to brands that practice full supply chain transparency. Nearly 40%, meanwhile, say that they’re willing to switch to a more transparent brand if the opportunity presented itself. 

Statistics like these cogently illustrate how supply chain transparency is now more than just a means to regulatory compliance or successful risk management. It’s also an increasingly savvy strategy for demonstrating ethical business practices and attracting consumers who value socially and environmentally conscious corporate behavior. And as ESG-minded Gen Z Americans come of age and accrue greater purchasing power, these qualities are going to start looming even larger in consumer trends and spending habits. 

Master ESG Performance 

The values and expectations reflected in the environmental, social, and governance pillars are manifesting themselves in new government regulations, NGO research and reporting on large corporations, and even the risk assessments rendered by leading risk management firms. The pressure on manufacturers and other businesses to enhance their ESG performance is coming from multiple directions, and their ability to effectively meet these evolving expectations will be a critical factor to their success over the next half-decade. 

Transparency is one of the single-most impactful ways companies can improve their ESG performance. Businesses that gain supply chain visibility into their suppliers and value chains are in a stronger position to calculate their carbon footprint, evaluate their environmental impact, and root out suppliers who mistreat their workers or violate labor laws. Further, transparency is no longer just a means to an end but an end in and of itself. Simply collecting and disclosing supply chain data often improves a company’s ESG rating and enhances its overall sustainability profile. 

Finally, firms that collect thorough data on direct and sub-tier suppliers and communicate that data to relevant stakeholders are giving themselves a decisive head start in the race to adhere to the impending wave of ESG directives. Companies that procure this information and share it before they’re legally required to will be able to navigate the CSRD, the CSDDD, and other upcoming regulations with deftness and dexterity, avoiding the potential compliance crises that threaten less prudent, responsible peers. 

Cultivate Better Supply Chain Relationships 

Because of the way it positively impacts a wide variety of different strategic initiatives and business objectives, supply chain transparency can be seen as a kind of foundational priority. In addition to its advantageous effects on consumer relationships, environmental regulations, and ESG ratings, transparency can also help manufacturers build stronger, more dependable supply chain relationships. This may appear, at first, to be counter-intuitive, even strain credulity. Why would suppliers care about how consistently their customers collect and disclose information on their supply chains? In fact, isn’t there a case to be made that those suppliers would actually prefer less supply chain visibility—which would, theoretically, enable them to operate with less oversight and accountability?

Why Transparency Matters to Your Suppliers 

In the past, the idea that many suppliers would rather operate behind an opaque supply chain—one beyond the reach of NGOs and government agencies and largely inaccessible to regulatory scrutiny—would have been a reasonable assumption to make. Many direct and sub-tier manufacturers didn’t want to devote the resources and expertise to maintaining data on their emissions, suppliers, and labor practices, among other facets of their business. Further, an appreciable contingent of these companies likely preferred to withhold information so that they could continue conducting unethical behavior—whether in their treatment of employees, sourcing policies, or links to forced labor—without any probing or pushback from outside parties. 

But the longstanding status quo of suppliers who balk at supply chain transparency and are loath to divulge data on their operations is changing. This is, in part, because many of these businesses will soon fall within the scope of the same ESG directives compelling manufacturers to pursue greater access and openness along their value chains. Large suppliers for industries like automotive, consumer electronics, and aerospace that operate in the European Union will soon have to report on their emissions scopes, product use, and other “downstream activities” (meaning manufacturing, shipping, and other operations that occur in the direction of the consumer). Over the next few years, In-scope businesses like these are going to need data from their manufacturer customers to achieve regulatory compliance. 

Put differently, in the regulatory regimes taking shape in the EU and—to a slightly lesser extent—North America, supply chain opacity is simply no longer a viable option. Responsible, future-minded suppliers are going to want to cultivate relationships with more accessible, transparent partners so that they can be as compliant as possible. 

This represents a shift in the way many businesses have traditionally interpreted supply chain transparency. In the past, companies often perceived supply chain visibility and disclosure efforts as a one-way street that only moved downstream, from suppliers to manufacturers and from manufacturers to consumers and regulatory agencies. But expanding regulations and a rapidly evolving culture around sustainability are ushering in a new paradigm, one where supply chain transparency is reciprocal. There’s growing demand for supply chain visibility and disclosure to be practiced throughout the value chain, including not only by manufacturers and their vendors but also companies further down the supplier tiers. 

Over time, the hope is that this reciprocity will begin creating a feedback loop that encourages all supply chain stakeholders to be diligent and forthcoming about their materials, manufacturing, sourcing, and emissions. And when all supply chain partners are rowing in the same direction—and striving toward greater transparency—every party is in a stronger position to conform to new environmental regulations, meet heightened consumer expectations, and earn high marks from ESG rating agencies. 

Achieve Leading-Edge Supply Chain Transparency 

While the virtues of achieving comprehensive supply chain transparency are largely unassailable, that doesn’t make it a readily attainable objective for every company. The practice requires manufacturers to carry out a battery of extensive due diligence measures, including mapping their supply chains; determining the type and quantity of data they need from suppliers; and actually procuring that data, whether through direct correspondence, vendor portals, or third-party support. The logistical complexity of these tasks can be enough to discourage even those firms acting in good faith and willing to commit appropriate resources to the project—especially when they’re smaller manufacturers with limited operational bandwidth.

Organizations that want to pursue the supply chain visibility and disclosure integral to transparency but not sure they have the internal wherewithal to do it effectively can reap significant value from a supply chain risk management (SCRM) software. Z2Data, an industry-leading SCRM platform, features comprehensive part-to-site mapping that can help manufacturers visualize exactly where their electronic components and subassemblies are coming from. In addition, the tool provides customers with a global database containing 150,000 suppliers and accompanying profiles that give them unique visibility into financial fundamentals, compliance information, and detailed risk assessments. 

To learn more about Z2Data and the distinctive suite of supply chain transparency tools it offers customers, schedule a free demo with one of our product experts.