Supply Chain Transparency: A Change Tool for Successful Global Businesses

Identifying companies’ vast supply networks is challenging, and tracking their sustainability performance even more so. However, measuring data and increasing transparency are powerful tools for managing the risks and grasping the opportunities of global supply chains, contributing to sustainable development and a positive effect on the bottom line.​

In our global economy, the growing pressure on bottom line savings leads companies to outsource operations to regions where labor is cheaper. However, responsibilities and risks cannot be shifted to the same extent.

This has become painfully clear after disasters such as Rana Plaza, where an institutionalized neglect towards work conditions led to the death of over a thousand people. Today, more and more companies are adopting supply chain transparency, as shown by a recent study by the Human Rights Watch, making it a cornerstone of responsible business conduct. Brands and retail chains are beginning to understand that being an ethical business requires them to be fully transparent on where and how their products are being made.

The demand for transparency can be met by widening the boundaries of corporate sustainability reporting. In the past, reports focused mainly on companies’ direct operations, whereas today organizations are expected to report on their material impacts, whether they occur within the organization or in their supply chains. Within the GRI Standards, companies are expected to report the Boundary of each material topic, which is based on the expectation that organizations should disclose, and take responsibility not only for impacts they cause directly, but also those they are contributing to or are directly linked to – for example through relationships with suppliers or customers.

Stakeholders demand supply chain transparency 
Reporting on supply chain impacts, however, is still in its infancy. According to a 2016 Vigeo Eiris report Responsible Supply Chain Management: Where do companies stand?, only a minority of companies are able to demonstrate responsible management of their supply chains.

The lack of supply chain transparency is an obvious risk for companies. Inability to track the origin of products and services may create ground for economic, environmental and human rights violations within an organization’s supply chain, without them knowing exactly where and how.

Controversially, while businesses fail in creating and reporting on transparent supply chains, investors and customers hold a data driven approach in high regard, and expect measurement and monitoring against targets. Public target-setting for material topics is not only the norm in large public companies, but it is nearly universal among companies considered to be leaders in sustainability. A PwC study Sustainable supply chains: Making Value the Priority (2014) found that 39 percent of those leading companies have public commitments in place for sustainable supply chains.

Positive effects on bottom line
The growing trend of responsible consumption places consumers on the front line of creating pressure for corporate transparency. More recently, the investor community has also started to be more vocal about the business benefits of transparent and sustainable supply chain practices. These practices help create, protect, and sustain long-term environmental, social, and economic value for all stakeholders involved in bringing products and services to market, as well as protect the long-term viability of their business, and secure a social license to operate.

Supply chain transparency can have a positive effect on a company’s bottom line through better management of business risks, realizing efficiencies and creating sustainable products, as shown by a study by BSR:

• Companies that manage business risks are better equipped to minimize business disruption from environmental, social, and economic impacts, such as climate change or suppliers’ deficient human rights, labor, environmental, or governance practices. By ensuring suppliers have effective compliance programs and robust management systems, companies can protect their reputation and brand value. In addition, companies can ensure that their suppliers adapt to future environmental and product responsibility legislation, and thus reduce potential future liability.
• Maximizing efficiencies in the supply chain can reduce a company’s supply costs and its environmental footprint. Examples include reducing the energy, water and natural material use, as well as improving worker health, motivation, and productivity. Additionally, better understanding of key processes in the supply chain lead to more efficiently designed processes and systems, which can reduce the inputs required and lower costs.
• Collaborating with suppliers on sustainability issues can result in more innovative products. Many examples show companies improving the performance of products or creating entirely new, more sustainable products thanks to an increased collaboration with suppliers. Sustainable products may bring savings to the company itself, as well as differentiate it from competitors and increase sales.

Sustainability reporting as a tool for change
Some of the most popular business strategies to create sustainable supply chains include supplier codes of conduct, integration of sustainability in sourcing strategies, monitoring and auditing of suppliers, sustainability data collection and participation in collaborative initiatives related to supply chains, as shown by the BSR and Globescan study The State of Sustainable Business 2015.

A key takeaway from the study is that measuring and monitoring impacts and progress are essential for creating and managing sustainable supply chains. Tracking performance against goals, being transparent, and reporting on progress are the only ways to amplify successes, policies, and processes. This applies to all businesses, be they SMEs or giant multinationals.

It is particularly important for SMEs within large supply chains to disclose their sustainability information in order to secure their competitive place and attract new sources of investments. With the GRI Standards, it is now easier for small enterprises to report on their impacts, thanks to the Standards’ modular structure that allows organizations to disclose individual topics in line with their specific reporting needs.

By using sustainability performance data, investors, consumers, business customers and other stakeholders can paint a realistic picture of a company’s activities, performance and impacts, and hold them accountable for their actions. While encouraging accountability, sustainability data also invites reflection, helping companies make changes towards improving their own sustainability performance, and that of their supply chains.

Furthermore, wider adoption of transparency practices throughout global supply chains will have a positive knock-on-effect on the immediate social and economic context where organizations operate, ultimately having a global impact towards a more sustainable world.

In addition to providing the world’s most widely used Sustainability Reporting Standards to track and monitor supply chain sustainability, GRI also offers E-learning courses on the topic. GRI’s E-learning Program is designed to offer an interactive educational experience to participants from beginners to senior professionals in the world of sustainability. Check out our courses on supply chain, gender, corruption and the newly released human rights module. For more updates on GRI, subscribe to the GRI Newsletter here.