Transparency and Integrity: They’re prerequisites for supply chain sustainability

As increasing awareness of environmental and social concerns pervades business operations, firms are responding to customer, competitor and regulatory pressures to enhance their sustainability efforts. Corporate citizenship extends beyond the confines of any single firm, however, to include the entire supply chain network — both upstream and downstream.

Sometimes these sustainability efforts are driven by adverse events that negatively impact a firm's reputation or share prices. Stories of collapsed factories, child labor utilization, polluted waterways and contaminated products are but a few events that have signaled to companies they need to have better control over their extended supply chains to protect their brand. Other companies have proactively initiated sustainability efforts, as revealed in Patagonia's Footprint Chronicles, because they are in the company's strategic DNA.

Regardless of the motive, environmental and social supply chain sustainability requires a level of transparency, and ultimately integrity, that is only beginning to be recognized. The notion of supply chain transparency dates back to the latter decades of the 20th century, largely driven by regulatory and right-to-know advocacies. More recently, customer and public transparency concerns have been driving the need for increased transparency across supply chains.

Transparency essentially refers to the disclosure of information, which was originally seen in corporate sustainability reports and required for product sustainability certification. Increasingly, however, information about upstream suppliers and downstream customers is also being disclosed. While these efforts can be somewhat controversial, because of the potential for coercion within asymmetric power relationships and the potential for disclosure of competitive proprietary information, supply chain transparency can also ensure accountability of supply chain partners, engender legitimacy among constituents and build trust with customers.

Certainly, supply chain relationships will need to be carefully navigated to strengthen relationships rather then to sour them while creating more transparent supply chains. But transparency for the sake of transparency is not what's at stake. Instead, supply chain transparency is of strategic importance to companies seeking to ensure their own economic sustainability — and that of their supply chains — in an environment where customers increasingly ask for information about the behavior of the companies with whom they trade, as well as the environmental and social impacts of the products and services they buy.

Ensuring economic sustainability is also critical in a world of growing concerns over resource scarcity. Companies need to understand the entire flow of goods and information within their supply chains to manage risk associated with resource availability. Conflict minerals provide a case in point. Companies require a significant level of transparency across their supply chains to ensure traceability, including the provenance of their mineral supplies. For companies facing other forms of resource scarcity, understanding supplier (and suppliers' suppliers) capabilities and processes will be vital to ensuring ongoing supply of needed inputs.

The ability to receive early warning signals from the upstream supply chain may be critical in securing alternative sources of supply in highly competitive and contested markets. For example, as climate change continues to wreak havoc for agricultural sectors, downstream processors will need to manage demand while seeking alternative supply sources, all within the confines of growing seasons that constrain supply timing. Firms that monitor weather patterns as they work with upstream suppliers will have a competitive agility brought about by the transparency within their supply chains.

Whether for risk management purposes or for purposes of meeting customers' growing demands for environmentally and socially responsible products/services, companies efforts to create transparency within their supply chains will require significant levels of effort. The idea is easy, but execution will be challenging. People and technology will be needed to collect vast amounts of data and turn them in to meaningful insights quickly so that firms can respond to changing factor markets and provide appropriate information to customer markets.

Customers and investors are increasingly expecting the firms with which they engage to act with integrity, and transparency ensures that corporate behaviors will be increasingly visible to all stakeholders. The concept of supply chain integrity is only beginning to emerge, but will play a large part in the decisions companies make with respect to environmental and social sustainability efforts. Supply chain integrity reflects the moral compass of firms, but also the underlying structures within their organizations and supply chains to enable actions and decisions that reflect such integrity. Ultimately, supply chain transparency will not only enhance a company's ability to act with integrity, but will also require organizations to behave accordingly. Both supply chain transparency and integrity will be cornerstones of companies' sustainability efforts; sustainability leaders have already embedded transparency and integrity into their strategic efforts.

Diane A. Mollenkopf is the McCormick Associate Professor of Logistics at the University of Tennessee’s Haslam College of Business.

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