How Supply Chain Transparency Aids a Wider Agenda
Supply chain pros are laser focused on transparency and resiliency, but there are at least three mega trends that are amplifying their importance: climate change, friend shoring, and environmental, social and governance (ESG) practices.
“Procurement used to worry about a one-dimension problem: spend,” said Jag Lamba, CEO and Founder of Certa, which makes an automation platform for procurement and compliance. “A decade ago, a second dimension came into focus: compliance. Now, there’s a third dimension: impact. Fundamentally, everyone has a more complex supply chain.”
Source: Gartner 2022 Emerging Priorities in Supply Chain Survey
By understanding these trends, OEMs may be better able to achieve the visibility and flexibility they need in their supply chains by touting their benefits across business units. “We are seeing a shift in how we think about procurement. It was always focused on cost savings but now it has shifted to continuity of supply as number one objective,” said Bindiya Vakil, CEO of Resilinc, a supplier of supply chain risk management solutions.
For example, transparency is not limited to just the suppliers on your BOM. For the past few years, the pandemic has been blamed as a major contributor of supply chain disruption. Behind the scenes, though, the bigger culprit may be climate change. Extreme weather, including floods, freezes, storms, and wildfires, as well as climate realities including rising sea levels, are passing along climate-induced effects to ports, highways and factories all over the world.
In its Emerging Priorities in Supply Chain Survey, market analyst Gartner pointed to three types of potential impacts related to climate change:
- Transition risks. Market and policy changes driven by movement to a lower-carbon economy which in turn may have financial impacts.
- Physical risks. Whether acute (event driven) or chronic (long-term shifts in climate patterns) all potentially create challenges.
- Climate change opportunities. Climate change may have unknown impacts such as shifting consumer preferences or opening new markets.
Supply-chain mapping can help identify areas that are most vulnerable to the impact of global warming. This, in turn, provides visibility into partners that are located in or near those regions. Adjusting the supply base could reduce sourcing risks.
Secondly, instead of choosing manufacturing sites solely based on geography (as in near-shoring or on-shoring) or to take advantage of cheaper labor, friend-shoring points to a movement toward choosing manufacturing locations or partners based on shared values. “Politics have become a much bigger issue,” said Lamba, pointing to the war in Ukraine as a recent event that caused some organizations to rethink sourcing. Russia is a supplier of a number of critical commodities including copper, nickel and palladium.
“Every single one of our clients is worried about friend shoring,” Lambda added.
Political and trade alliances, for better or worse, do impact business. The Biden Administration warned this year that “the United States cannot make, mine, or manufacture everything ourselves. We must cooperate with our allies and partners to foster and promote collective supply chain resilience.” In short, businesses need alliances and should choose them carefully.
However, OEMs are not necessarily aware of where critical raw materials are sourced. Experts advise companies be familiar with their suppliers’ suppliers to reduce the impact of an upstream supply disruption.
Finally, putting an additional layer of complexity around the supply chain is ESG. Conversations abound about diversity, inclusion, carbon footprint and more. “There’s a huge shift in mindset and training needed [in business],” explained Lamba. “There’s a need to make reactive processes proactive — and to do that we need to have data available at the time of decision.”
For businesses, that could mean engaging with a partner that costs more. “We need suppliers that have programs and understand this journey but at the same time it is also hard to choose a supplier that is more expensive,” Lamba said.
Many organizations have achieved only bare bones compliance with ESG initiatives. Doing a thorough job means digging deep into your partner base, analyzing their practices, and aligning them with your business goals. “Some people have a charter for ESG or sustainability, but a lot of it is still driven by compliance,” said Vakil.
The changing climate, friend-shoring and ESG issues could accelerate corporate efforts toward better transparency and supply chain resilience. All are aided by technologies and solutions that shine light on the supply chain, but historically, businesses look for tangible returns on such investments. There’s little downside to better supply-chain visibility and the benefits can be realized in both in the short term and in the future.