Supply chain is a term even most lay people are familiar with due to stories about shortages ranging from infant formula to toilet paper to new vehicles. Taken for granted many times in the past, most businesses and consumers assumed vendors would fill orders for the components and products they make and that goods would always be in stock. The COVID-19 pandemic, however, resulted in supply chain deficiencies in the global economy, which were exacerbated by geopolitical conflicts such as the Russian invasion of Ukraine, factory lockdowns in China and the international energy crisis that includes reduction in crude oil production among OPEC nations that could further hike transportation costs. With all of these related conditions in mind, now more than ever, transparency and effective management of an organization’s supply chain are a must.
Supply chain transparency
Since COVID-19 slowed down the flow of goods in many cases, supply chain has become a buzzword. International crises and social factors (e.g., the use of child labor) in foreign countries mean where parts or finished goods are shipped from is contributing to supply chain issues. Increased transparency about sourcing may be more important to end users for reliability concerns. A research scientist from MIT’s Center of Transportation and Logistics suggests finding a company’s “North Star” to determine what transparency means to the company. Supply chain transparency should include these two elements:
· “Visibility. Accurately identifying and collecting data from all links in a supply chain.
· Disclosure. Communicating that information, both internally and externally, at the level of detail required or desired.”
Evolving regulatory issues, including those from the country of origin, about sourcing and customer trust are good reasons to enhance supply chain transparency, especially since there are accountability concerns with governments requiring more information about where products come from. Heightened supply chain issues may attract investors impressed with a company’s reputation for shipping on time or for meeting their ethical standards. This may give the company a competitive advantage over others in the same business sector.
It’s a new world
Meeting regulatory compliance and benchmark mandates, having putting data collection plans in place that give accurate real time snapshots of the supply chain and placing more emphasis on the supply chain by all employees all the way up to the boardroom are signs that supply chain issues are improving. Lawmakers in Washington D.C., recognized the need to modernize how supply chains can be monitored by setting aside money in the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act) to develop technologies that provide more visibility into issues impacting the flow or components and finished goods. Within the CHIPS Act is funding for the Manufacturing Extension Partnership (MEP) Program, which is designed to better track supply chain disruptions and address the resilience of domestic supply chains. It also supports bringing manufacturing back from overseas for reliability and shipping lead time concerns.
Further utilization of artificial intelligence and machine learning can help with real-time tracking and provide more timely reports when there are supply chain issues. This will address workforce concerns to monitor those supply chain hiccups. Technological advancements with 5G and increased satellite coverage aid in strengthening the lines of communications with remote foreign suppliers.
The depth of supply chain transparency can vary, however, depending on a particular company’s objectives and their public perception. What one fashion designer might disclose about where its clothing is made compared to what a petroleum producer might reveal depends in large part on what the end user is demanding to know. These may be boardroom issues where stakeholders and stockholders are concerned about confidentiality issues. On the other hand, some companies let customers know where products are coming from and how long it should take for them to arrive at their doorstep. Optimizing a supply chain without visibility to all of the key players involved is not a feasible plan.
Governments have stepped in on supply chain issues
California adopted one of the first pieces of legislation in 2010 that focused on transparency regarding issues like modern slavery and human trafficking. The California Transparency in Supply Chains Act was followed by similar laws in Europe and this country’s Uyghur Forced Labor Prevention Act (2021) which set limits on the importation of goods produced in China where forced labor was used, providing an example of why supply chains and countries of origin need to be on the agenda. Expect further involvement at the federal and state government level on supply chain issues as it impacts the inventory of essential goods (e.g., infant formula shortages) and the workforce.
Develop a communication plan
Suppliers and end users must be aware of a clearly defined supply chain transparency plan to assure them of being connected to an organization they can rely on. Suppliers apprised of a 6-month-plus forecast allows them to adjust and react accordingly, perhaps becoming more efficient on their end. If they can’t meet that schedule, it may mean considering other sources, which is better than putting out fires or scrambling at the last minute to find alternatives. During the height of the pandemic, several U.S. vehicle manufacturers reduced orders for semiconductor chips with the manufacturers of cell phones and other digital devices increasing their orders to fill that void. The semiconductor chip manufacturers were not prepared for a surge in orders when the vehicle manufactures resumed production, leading to a dramatic jump in sticker prices due to high demand and reduced inventories. In some cases, it also forced the temporary shuttering of auto manufacturing plants, putting people out of work.
A proactive approach to improve supply chain transparency
Over the past few years, government agencies and lawmakers have increasingly waded into the supply chain world, including passing a bill to produce more semiconductor chips domestically needed for vehicles and to coordinate baby formula airlifts from Europe when one major supplier in the United States was shut down for several months. While supply chains were taken for granted before, it is doubtful after the past two-plus years they will be again. The key is to be proactive as possible to make sure the company’s supply chain management is attuned to today’s business reality. View this as a bottom-line issue and start by identifying the areas that need improvement. No longer should the sourcing of parts and finished goods be taken for granted. Supply chain transparency—if not already an imperative—is an idea whose time has come.