Supply chain transparency: Are you wasting 30%?

What Is Supply Chain Transparency? 

Supply chain transparency refers to the visibility and openness of information throughout the entire supply chain, from the sourcing of raw materials to the delivery of finished products to customers.

It involves sharing relevant data, such as sourcing locations, manufacturing processes, labour practices, and environmental impact, with stakeholders, including customers, suppliers, regulators, and the public.

Supply chain transparency has gained increasing attention in recent years due to growing concerns about social and environmental issues, such as labour exploitation, deforestation, pollution, and climate change.

Consumers and investors are becoming more conscious of the ethical and sustainability aspects of the products they purchase or invest in and are demanding greater transparency in supply chains to ensure responsible and sustainable practices.

What Are The Benefits of Supply Chain Transparency?

It can help identify and mitigate risks, such as unethical labour practices or environmental violations, thereby protecting a company’s reputation and reducing legal, financial, and operational risks.

It can also promote accountability and traceability, enabling companies to track and verify the origins and conditions of their products, and ensure compliance with regulations and industry standards.

Additionally, supply chain transparency can foster collaboration and trust among supply chain partners, and create opportunities for innovation and differentiation, as companies can showcase their responsible practices to gain a competitive advantage. 

Another major benefit is cost management, which we explore in more detail below.

How To Achieve Supply Chain Transparency

To achieve supply chain transparency, companies may adopt various approaches.

This can include the following:

Supplier Engagement

Engage with suppliers to understand their practices, conduct audits, and look to obtain relevant information about their operations, labour practices, and environmental impact.

Develop a consolidated supply chain that helps you to work in partnership, which can lead to supply chain transparency solutions that benefit both organisations.

Traceability & Disclosure

Implementing systems to track and trace products throughout the supply chain, and labelling products with relevant information, such as certifications, origins, and environmental footprint.

This allows for complete traceability and global supply chain transparency.

Both parties should look to publishing regular reports or disclosures on supply chain practices, progress, and performance, to increase transparency and accountability to stakeholders.

Technology

Supply chain transparency required the utilisation of new technologies and data analytics to capture, analyse, and share supply chain data in real time, enabling stakeholders to access information and verify compliance.

Keeping ahead in the technology game is going to be at the centre and the future of supply chain transparency. This is also a major factor in helping organisations ensure cost is also transparent.

Supply Chain Transparency – Costs

Supply chain transparency is often an area procurement teams struggle with because they don’t have the technology or tools in place to get a real-time view of what’s happening, including information about price and stock.

There are many scenarios where buyers are being told that the items they want are in stock when the reality is there are zero. Outdated information is the main culprit here.

As well as being incredibly frustrating, this is also pushing buyers to resort to time-consuming, manual methods whereby they have to email or pick up the phone to clarify the information they’re being presented with. 

This is particularly troublesome for the IT market, which is in a constant state of flux and when you consider the range of products this covers. 

When you consider that more than 30,000 price changes can occur each day, with fluctuation in price as much as 60 per cent at any one time, it becomes very apparent why visibility of these changes is so critical.

Unfortunately, without supply chain transparency being in place the majority of suppliers will not pass on any reductions to their customers but are yet quite content to let them know when prices have increased.

Obtaining quotes just leads to more confusion. They will all be different and it will be impossible to know if any of them provide value.

There is still resistance to supply chain transparency that needs to be overcome. We have previously highlighted 4 factors that can impact on value from suppliers, which you can review here.

Benchmarking Tools 

Benchmarking tools which provide buyers with access to up-to-date and validated trade level information can be a huge help in gaining greater transparency. 

These tools can assist in driving cost of acquisition down by giving buyers the data they need to negotiate harder based on the visibility the tool provides.

Unfortunately, access to these tools and the information they provide is not without significant cost and to generate a decent return on investment an annual expenditure heading towards £100,000 has been found to be required.

One possible solution is to use outsourced service providers like Tech Buyers Club that have decided to make that investment but then use the tool and the information to provide allow organisations with minimal expenditure obtain better value for money and supply chain transparency.

Total cost and supply chain transparency can also assist buyers in developing closer relationships with their suppliers who are at the forefront of latest developments and hold and share this type of data. 

Cost transparency exposes and then prevents excessively high supplier margins on the products that they purchase via their supply chain.

This can generate savings of up to 30 per cent and the resulting value goes straight to the bottom line and improves the overall profitability of the organisation.

Reports compiled by CIPS have shown that at least 81 per cent of organisations are receiving poor value for money and incurring excessive margins.

Some additional benefits of cost transparency are as follows:

Empowerment

Cost transparency and exposing high supplier margins empowers buyers by giving them the information they need to make informed purchasing decisions.

When buyers have access to information about the costs and markup of products or services, they can compare prices and choose the best value for their money.

Drives competition

When buyers within organisations have access to information about the costs and markup of products or services, it creates a level playing field for suppliers.

This encourages healthy competition and forces suppliers to price their products competitively.

Promotes Fairness

The tools used to create cost transparency help to promote fairness in the marketplace.

It ensures that all suppliers are playing by the same rules by the fact that they are fully aware the buyer knows the wholesale cost at the time of the requirement and can quickly identify the margin being applied. 

This ensures that no one supplier is taking advantage of the buying organisation by charging excessively high prices.

Builds Partnerships

By implementing the use of a benchmarking tool or service there is less need to have an expanded supply chain.

While it is important margins are controlled it is also important to ensure the business remains attractive to a supplier.

Therefore, the likely result could be a sole source arrangement, which increases the supplier’s level of business and gives both parties time to explore more cost-effective solutions.

Stops Maverick Purchasing

Once management is aware of supply chain transparency and the cost benefits it is easier to implement procedures to prevent rouge purchases being made with suppliers that have not agreed to the open cost structure.

In the world of IT this is know as Shadow IT and it can be dangerous for an organisation. Find out more here.

Summary

Supply chain transparency is an important aspect of responsible and sustainable supply chain management, and it can help companies build trust, manage risks, and create value for all stakeholders involved in the supply chain.