How to accomplish a transparent supply chain?
The California Transparency in Supply Chains Act of 2010 requires certain companies manufacturing or selling products in the State of California to disclose their efforts (if any) to eradicate forced labor and human trafficking from their direct supply chains for goods they offer for sale.
Consider the trouble an opaque supply chain can cause. Most iPhone owners probably don’t think about the provenance of their devices, but worker suicides at Foxconn, one of Apple’s major Chinese suppliers, forced the company to pull the curtain back on part of its supply chain in 2009.
It had to quell claims that it relied on sweatshop labor. Another high-profile case, the “toxic drywall scandal,” led to class-action lawsuits. The offending product was imported into the United States bearing no readily available information about its source other than a “Made in China” stamp.
And a few years earlier, toy giant Mattel faced a tornado of publicity about lead in toys, which raised questions about how much control it had over its supply chain.
There is an ideal 4 step procedure to achieve transparency in the value chain:
- Identifying and prioritizing risks. Prioritizing two sets of risks—one by product category (for example, food, beverages, and linens) and the other by overall risk within the supply chain organization (for example, monitoring adherence to policies and combating fraud).
- Visualizing risks. As the organizations are concerned about product category and cross-product category supply chain risks, the transparency teams must map the organization’s broader supply chain before drilling into individual product categories. After mapping key players and information gaps, the procurement team can emerge as an important gatekeeper that can build added visibility and flag risks within the company’s supply base. Effectively, the procurement team becomes the critical node to manage both product category risks and supply chain risks.
- Using transparency levers to close information gaps. Focusing on the central procurement organization, the transparency team should refine criteria and processes relating to supplier due diligence and ongoing assessments. To build transparency, the team should implement a tool that integrates supplier data, categorizes suppliers into lower-, medium-, and higher-risk areas, and must allow the team to better manage potential risks with the company’s key suppliers.
- Managing and monitoring. Implementing the risk management tool is an important step, but the team should also outlined high-quality code of conduct standards and create a performance improvement plan to facilitate collaboration with higher-risk suppliers and to mitigate risks.