How supply chains can be more resilient, sustainable and transparent

In the wake of the pandemic, it may have been expected that supply chain leaders would focus ever more keenly on traditional priorities: taking costs out and optimizing delivery.

EY research paints a different picture, consistent with MIT’s findings. The disruption that supply chains suffered for months on end seems to have lodged itself deeply in the minds of supply chain leaders. Making long-term good of the lessons they’ve learned, they’re choosing to maintain and dial up their focus on resiliency and agility.

Sustainability also remains at the top of the supply chain agenda. Many people equate sustainability simply with being “green” — emissions reduction, fewer miles and so on. But resiliency and sustainability go hand in hand. In fact, you can’t truly have one without the other.

There is a third part to the story, too. Sustainability also marries up with the traceability of products, components and ingredients, which satisfies compliance requirements and evolving consumer preferences and enables efficiencies, thereby adding competitive value.

All of these priorities are front of mind for supply chain leaders. Together they add up to significant value. And to achieve them means reshaping relationships with partners across the supply chain ecosystem.

Following consumer preferences

Let’s start with transparency trends. Growing consumer interest in “farm-to-table” narratives and being able to trace back the origins of their food, legislative ambitions for “farm-to-fork” overhauls of the entire food production and supply system, and smartphone apps that enable consumers to scan products and see where the ingredients come from and whether they contain potentially harmful substances — all point to an appetite for transparency, particularly in the food and consumer products sectors.

Retailers and producers alike are getting onboard, enabled by technologies and digital innovations such as blockchain. For example, in the UK, retailer Marks & Spencer has built an interactive global map that locates and gives details of all their key supply chain partners, from garment manufacturers to fruit growers. In New Zealand, one dairy brand enables consumers to pinpoint where in the world its products are, or can trace where the products have come from, all the way back to the farm gate. Also in New Zealand, an app encourages consumers to track their purchases so they can understand and reduce the carbon impact of their choices.

These initiatives allow businesses to minimize risk and meet compliance, but also create true competitive advantage and gain consumer trust. Even more than that, they deliver against ESG and ethical sourcing transparency goals and, because of the underlying systems and technology, they simultaneously drive resiliency.

Digital tracking and real-world resiliency

Technology today enables total transparency within operations and can proactively flag any incoming or potential disruptions to the supply chain, ranging from extreme weather to political unrest.

This kind of digital tracking can alert supply chain managers to the precise components, ingredients and products that may be affected by disrupted delivery, and enable them to respond, reroute and re-source if necessary.

All of this happens in real time. And a truly resilient supply chain is one that’s ready for any disruption, which is why scenario modeling is invaluable — imagining any combination of scenarios and theoretically stress-testing the supply chain. A digital twin of the whole supply chain can also enable optimization at any time based on insights and inputs, and increase agility.

New transparent relationships

These examples apply to supply chain analytics within the organization, plus top-tier suppliers. But the next horizon is end-to-end supply chain visibility, integrating multi-tier suppliers’ systems and data.

To deliver the full potential of transparency, resiliency and sustainability, cross-tier supplier collaboration should be the long-term goal. And this needs supplier relationships to change fundamentally.

To put it simply, supplier relationships are generally negotiated on low cost and immediacy of supply. But to enable the three top supply chain priorities, suppliers must be segmented based on their impact on the company’s business and then have the right relationship management to match, whether strategic or transactional. Broadly, suppliers must become members of an organization’s ecosystem — levelling the playing field through mutual benefit and trust.

One way to achieve this is through the Vested® approach articulated by Dr. Oliver Williamson and Kate Vitasek, and Dr. Alex Miller of the University of Tennessee. Multiple organizations have put this into practice, starting with a major fast-food chain that has built relationships on a “what’s-in-it-for-we” basis for over 50 years. Some principles of the Vested approach include a focus on outcomes not transactions, transparent and sustainable pricing, and agreements and promises rather than heavily caveated contracts. Although on the face of it these principles might sound easy to achieve, they require companies to reinvent and reimagine their supply chain operating models and accompanying services (legal, risk, etc.) to truly allow innovative and collaborative partnerships to foster.

Whether or not Vested is the right route for redefining relationships, there are, of course, challenges to making ecosystem-based partnerships work:

• Trust: Opening up systems and data can be very exposing. All parties have to feel they have their houses in order before letting someone else in. And it’s essential for everyone to feel confident that their critical data is in safe hands, both from a commercial and cybersecurity standpoint.
• Criticality: There should still be guarantees around the most critical or highest priority aspects of supply.
• Agreements: Transparency should be introduced into contracts or agreements over the long term, and eventually made mandatory if the relationship is to continue.

This enhanced form of relationship management ushers in a new era for supply chain, moving from cost and delivery to sustainability and traceability. And it has benefits for everyone involved — increasing stickiness, driving resiliency and freeing up time to add value.

Delivering on all three priorities

Organizations now need to try and deliver sustainability, transparency and resiliency simultaneously. The good news is, they’re interdependent.

Resiliency in the supply chain can be defined as the ability to respond on time, effectively, based on timely information, and having the agility to respond and change course. All this comes from data and intelligence, which are the source of supply chain transparency.

In the past year, some areas of supply chain sustainability, such as human rights protection, worker welfare and safety; and energy savings and renewable energy have increased significantly. Knowing how to identify and measure such levers, and change them, is an indicator that all three priorities are being addressed.

The questions for supply chain leaders, and all of their partners and suppliers, is now: can you see through the whole of the supply throughout your tiers, and can you adapt when the inevitable disruption starts to shake your supply chain? Answering “yes” to these questions can yield immediate value — and before investors and regulators start asking them.

Dave Lubowe, Managing Director, Supply chain, Ernst & Young LLP, also contributed to this article.