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Sourcing For Sustainability: How To Build A Transparent Supply Chain

sourcing-for-sustainability:-how-to-build-a-transparent-supply-chain

In an era of news reports about human rights abuses, climate change, supply chain crises, and food and product recalls, it’s no surprise that consumers are calling for more transparency into the origin of their goods. 

The majority of US consumers, for example, report wanting more than just nutrition facts from food brands. According to a 2022 Food Industry Association report, 65% of shoppers say they would switch from a brand they usually buy to another brand that is more transparent about its products’ origins and supply chain, including values-based information such as animal welfare and fair trade. 

This demand is matched across industries. Recent research indicates that 60% of customers want the ability to trace items they purchase from fashion brands, while 86% of shoppers want more information from beauty brands about ingredient supply chains.

Customers are concerned about the quality, safety, and origin of the products they’re purchasing, including the labor practices used in their production and the overall environmental impact of their purchases. In response, 41% of brands are planning to be more transparent about their social impact in the coming year, according to a commissioned study conducted by Forrester Consulting on behalf of Shopify

But what exactly does “supply chain transparency” mean, what does it look like in action, and most importantly, is it worth the investment? 

We spoke with industry leaders in the sustainability space to find out how they’re transforming their supply chains for good. 

Table of contents

  1. Defining supply chain transparency
  2. The benefits of supply chain transparency
  3. Why supply chain transparency can be difficult to achieve
  4. How changing technology is helping companies achieve supply chain transparency
  5. How to achieve a transparent supply chain
  6. The future of supply chain transparency

Defining supply chain transparency

Supply chain transparency is when companies know where and how their goods are produced, based on reliable data, and then communicate that knowledge both to internal and external stakeholders, including customers.  

While it could be easy to dismiss the push to trace the provenance of goods as a relatively new phenomenon, its roots go back more than a century, when journalist Upton Sinclair published his book The Jungle in 1906. Although it was published as fiction, it exposed real-life horrific details about Chicago’s meatpacking industry at the turn of the century, eventually leading to the Food and Drug Act and the Meat Inspection Act. Both pieces of legislation were—and are—government-mandated calls for more supply chain transparency.

Back when Sinclair’s book was released, consumers were most concerned about the safety of products. Today though, they also want to know about the welfare of workers producing them and their overall environmental footprint. Following tragedies such as 2013’s Rana Plaza factory collapse—which killed 1,134 and injured 2,500—and thanks to increasing consumer access to databases, including Fashion Revolution’s transparency index and EWG’s Skin Deep cosmetics database, there’s a growing understanding that manufacturing can have high social, health, and environmental costs. 

However, how transparent companies choose to make their supply chains—and the levels they’ll go to ensure their operations are ethical—can vary widely.

Canadian Indigenous-owned brand Cheekbone Beauty, for example, considers every element of its product. “To us, supply chain transparency means [knowing and communicating] what goes into our products, where we source our ingredients and products, and possible production and lead times,” says Jenn Harper, founder and CEO of Cheekbone Beauty. “This applies not only to the products themselves, but also to our packaging and even the ink used in printing.” 

The benefits of supply chain transparency

Customers demonstrate more loyalty to brands with transparent supply chains

Cheekbone Beauty wasn’t always committed to sustainability—or to communicating the origin of its goods to consumers. In fact, it wasn’t until 2020 that the company decided to transform its product line to be completely clean and vegan beauty. 

“Since then, actively sharing what our products are made of has become a fundamental part of our company’s marketing strategy,” says Harper. The win? Cheekbone’s customer loyalty has increased. For the nine-month period ending June 2021, 32% of the company’s revenue came from returning customers and by June 2022, it had increased to 48%. 

Likewise, House of Baukjen, an ethical and sustainable fashion brand for women, reports that since it started replacing its product and sales messaging with “purpose messaging” in its welcome program, its conversion rates have increased by 27%. Not only that, but its click-through rate is up 11% and revenue per email is up 70%. 

“Our drive to balance purpose and profit is one of the key factors that keeps our returning customer rate so high,” says Ana Carneiro, House of Baukjen’s Sustainability and Project Manager. “Being open and transparent is more than just a business differentiator—it engages our customers and sets the bar high so they can keep our business accountable.”

The customer retention that House of Baukjen and Cheekbone Beauty have experienced isn’t an exception to the rule—research shows that sustainable practices help customers maintain more emotional relationships with brands, which results in 306% higher lifetime value.  

Consumers are more than four times more likely to trust companies that are purpose-driven and are able to clearly communicate the conditions under which goods are made. They’re also more likely to make a first-time purchase from brands they perceive as more sustainable or ethical, with 40% choosing brands that have environmentally sustainable practices and 37% choosing brands that have “ethical practices.”

Transparency requires develop strong working relationships with your suppliers

Consider the production of a basic white cotton shirt. Making and producing even a staple can be complex and potentially involve a long chain of people all over the globe. There are the designers, the cotton farmers and brokers, the fabric manufacturers, the patternmakers, the garment workers, the sourcing and licensing agents … and that’s not even getting into the distribution, marketing, or fulfillment side of your supply chain. 

To know and understand where your goods are coming from, you’ll need to know who each of these parties are and how they work, and develop lasting relationships with them to ensure fair labor practices. 

It’s not easy—but if you ask merchants who’ve done it, it’s a worthwhile long-term investment. 

“When you pay workers and treat them justly, they make better products and they’re less likely to make mistakes, so you have fewer recalls and repairs,” says Annie Agle, Senior Director of Impact and Sustainability at Cotopaxi, a sustainable outdoors brand known for its colorful and durable gear. “Ultimately, having positive relationships with our suppliers builds resilience into our supply chain and can help protect our bottom line.”  

Developing these relationships and tracing the origin of goods is also easier than ever before. It’s possible to form sustainable partnerships and communicate on a daily basis with suppliers and receive real-time data through WhatsApp, LinkedIn, and cloud-based services.

“We regularly consult with all of our suppliers and visit their facilities,” says Carneiro. “We value the process and know that it’s also helping us build stronger relationships with suppliers.”

Businesses with transparent supply chains attract talent and investors

It’s nearly impossible to read an article about transparent supply chains without coming across a mention of Patagonia, which has become an industry leader in sustainability. It clearly communicates information about its suppliers across the supply chain, so consumers know where and how its clothes are made. This includes being transparent about all of its results, including the less than impressive ones. (For example, as of 2020, 39% of Patagonia’s apparel assembly factories are paying workers a living wage, on average. It’s an impressive state, but also one that could lead to consumers wondering why this number isn’t closer to 100%.) In addition to winning over customers, this strategy has also allowed Patagonia to win over talent and help retain employees—it cites having an employee turnover of less than 4% annually

This reflects research that indicates 56% of professionals are more likely to stay in a company with a sound sustainability agenda. Countless studies show that businesses with good ESG (environmental, social, and governance) scores typically have higher productivity and lower staff turnover. 

Finally, transparent supply chains and good ESG scores are also attractive to potential partners and investors, with a growing number of firms committed to impact investing.

Transparent supply chains can help your business get ahead of regulatory changes 

Investing in supply chain transparency isn’t just a marketing exercise—it’s necessary to future-proof your business for two key reasons:

First, the supply chain crisis that emerged in 2021 is far from over. Disruptions will continue to happen with increasing severity and frequency. Global logistics networks are increasingly vulnerable to natural disasters, regulatory changes, and political instability. (Consider this: According to the World Bank, 80% of global trade now flows through countries with declining political-stability scores.) McKinsey predicts that supply chain disruptions lasting a month or longer will occur every 3.7 years across industries. Understanding where and how your goods are produced is critical to identifying vulnerabilities and withstanding future disruptions—yet, a 2021 report from the Economist Intelligence Unit indicates that more than half of companies still lack end-to-end visibility in their supply chains.

Secondly, making the shift to environmentally and socially sustainable supply chains is no longer going to be a choice. It’s going to be a requirement, with stakeholders, customers, and governments holding businesses accountable. In Sinclair’s day, supply chain legislation may have focused on safety of products, but increasingly, legislation is beginning to focus on the social and environmental impacts of manufacturing and production. 

The UK and Australia now have modern slavery acts, while other new laws are emerging to deal with conflict minerals from war-torn regions (the Dodd-Frank Act). More recent developments (according to Sedex) include:

  • In the EU, the European Commission has published draft legislation requiring some companies to conduct social and environmental due diligence in their supply chains
  • In 2022, Norway’s Transparency Act, the Netherlands’ Child Labour Due Diligence Act, and Switzerland’s Responsible Business Initiative have all come into force.
  • In 2023, Germany’s Supply Chain Due Diligence Act will come into effect. Spain, Luxembourg, Belgium, and Austria are developing similar laws. 
  • As of 2022, the development of supply chain legislation is also underway in Canada, to ensure Canadian businesses aren’t contributing to human rights abuses. 

Now is the time to be prepared for when these laws—and others like them—come into effect across the globe.

“At Cotopaxi, we’re already in a position to meet those regulations and celebrate them as accountability that always should have been in business,” says Agle. “If you can’t deliver products that are well made in safe environments, you’re not going to have a healthy business in the next couple of years.”   

Why supply chain transparency can be difficult to achieve

Supply chains are increasingly complex—and companies are held responsible by consumers for any infractions of inaccuracies in reporting

Unlike in Sinclair’s day, globalization has made tracing the origin of goods a complex task, even for the company’s producing them. Let’s go back to that white cotton shirt. Do you know it will be produced directly by the supplier you’ve contracted—or will it outsource its production? This point is key, as most environment and human rights violations occur within suppliers’ and 3PLs’ own lower tier suppliers.

And even if you are able to prove that a worker sewing that t-shirt is being paid and treated fairly, it may be difficult to determine the same thing about the production of the fabric. In fact, some of the worst human rights supply chain abuses are documented as happening on cotton farms

“It’s challenging to operate in a never-ending onion of supply chains. We’ve tried to grow as responsibly as possible—but we could never make the claim as a smaller company that we can never really ensure that there are no human rights abuses happening somewhere across our supply chain,” admits Agle. “Even if we do everything right and insist on fair labor practices and living wage practices, there can be other brands who use those same suppliers who aren’t insisting on that or who are canceling orders, which jeopardizes work payments.”

But this complexity is obscured from customers, who hold brands increasingly accountable. 

“If something happens in our supply chain that we do not know of, then the perception is that it was our responsibility to know,” says Carneiro. “Admittedly, it stands to reason that we’d know the journey our products go through, but that’s just not how the industry has been set up. We have to educate people on why this area is so complex and difficult to manage.”

This, however, can prove to be an opportunity, points out Harper.

“Transparency from a brand helps to build trust amongst consumers, but also helps manage unrealistic expectations from the consumer regarding the supply chain process and how long the processes may be,” she says.

Changing standards (including government regulations, certification systems and internal goals) can make new product development more difficult

When developing internal standards, it can feel a bit like a Pandora’s box in terms of deciding what information to disclose to consumers. Sure, you might let some light in, but you could also let out some information you’d prefer remained in the dark. 

It can also mean that new product development becomes more complex than it was previously. 

“When we introduce a new product, it must meet a set of standards that are pretty strict, and sourcing the manufacturers and vendors who can meet those standards can be challenging,” says Harper.

How changing technology is helping companies achieve supply chain transparency

AI and blockchain—especially when used to prevent the spreading of fraudulent, stolen, or counterfeit goods—is being lauded as the answer to supply chain transparency. It helps businesses manage data in real time, increase traceability of materials, and improve compliance.

Yet, nearly every ecommerce merchant we spoke with for this article said they’re currently relying on low-tech methods for tracking and managing their supply chains. Single origin spice company Burlap and Barrel, for example, runs its projections through a model built in Google Sheets. The simple system makes it easy to update as new information becomes available, new suppliers are added, and economic conditions change.  

“Everyone thinks that a modern supply chain is run on the blockchain or using algorithms or some kind of ERP or inventory management software. The truth is that our supply chain is built on mutually supporting relationships based on trust between partners,” says Ori Zohar, co-founder and co-CEO of Burlap & Barrel, who adds that the brand manages relationships on WhatsApp and Facebook Messenger, with the help of Google Translate.

Agle agrees: “Blockchain really is a database that is supposed to be available 24/7 for people who don’t trust each other. We have tried to build relationships based on trust with our suppliers that are also held to third-party verification and assurance, including through audits,” she says, adding that there’s an environmental cost to using blockchain, as it requires multiple computer servers running 24/7. 

That’s not to say that technology isn’t a useful tool for tracking and assessing the sustainability of your supply chain. Cheekbone Beauty reports recently switching to an ERP system, to help the company locate batches and lot numbers for more precise internal tracking.

Other emerging tools include LaborLink, which provide confidential surveys for factory, farm, and supplier-level employees to voice concerns via SMS. 

Sourcemap is another comprehensive tool, which helps businesses measure their supply chains against social and environmental compliance metrics. 

How to achieve a transparent supply chain

Deloitte’s recent white paper, The Path to Supply Chain Transparency: A Practical Guide to Defining, Understanding, and Building Supply Chain Transparency in a Global Economy, lists four key areas merchants should examine when developing their transparent supply chains: 

  1. Identifying and prioritizing risks
  2. Visualizing risks
  3. Using transparency levers to close information gaps
  4. Managing and monitoring

Here’s what this could look like in action:

Determine what your existing supply chain looks like, assess risks and set goals

First, visualize and map your existing supply chain. How do you goods flow from ideation to manufacturing and production, and eventually reach your customer’s hands? Make sure you understand the number of suppliers and all the processes within your supply chain. If there are gaps in knowledge (including countries of origin) now is the time to do the research and fill them in. 

Then, examine this chain of events to identify vulnerabilities: Where have past disruptions emerged? What supplier-related issues have you encountered? What new legislation and regulations are coming down the pipe? Where are the areas for improvement?

Only once you’ve done both of these exercises is it time to set goals. When doing so, don’t forget to approach “sustainability” holistically. According to the 2022 Vogue Business Index, an annual ranking of the top 60 luxury brands, consumers have nearly equal concern for social and environmental policies—yet brands continue to prioritize the environment over human rights abuses. 

Create a code of conduct to meet your goals

Determine whether this is a code of conduct that you’ll strive to meet only internally, or if each of the suppliers you plan on working with will be bound to those same terms. 

In order to do so, you’ll need to confer with suppliers to determine their existing codes of conduct and practices and whether they’ll be able to meet your goals. 

How can you work together to address specific issues, such as health and safety, environmental impacts at job sites, and unclear sources of origin? Does it involve creating codes of conduct and stricter procurement policies?

“Create systems for the disclosures you expect your suppliers to make to you, so that everything is part of a process and not an add-on they need to worry about,” advises Carneiro.

Measure your progress

Determine how you are going to measure and report on your progress and what tools you’ll use. Are there any existing tools to help you reach your goals, such as reports suppliers already have to fill out? Will you need to engage the services of a third-party auditor?

Agle says that Cotopaxi relies primarily on the Higg Index, a suite of tools for the standardized measurement of value chain sustainability primarily for apparel brands. 

“We like it because the first aspect for suppliers is self-assessment, so rather than having a Western top-down approach, they can do a self-evaluation first,” says Agle. “Suppliers are seen as partners and we’re going to treat them with kindness and justice.”

She adds that many of the suppliers they work with may not immediately have the ability to pay higher wages or have access to better machines with better safety features. So it’s up to Cotopaxi to step in to support those suppliers with a long-term financial investment if they want to meet their goals. In addition, it relies on third-party verifiers such as Elevate (the makers of Sourcemap) to ensure labor situations are being met. 

“People often think supply chains are built on tech, but they’re built on relationships. The tech helps you manage the movement of goods, but good relationships are at the center of the best supply chains,” says Zohar. “Think of your supply chain in that framing and see how it shifts your thinking about how to manage and strengthen it.”

Whatever systems you choose, remember that supply chains are dynamic and ever-changing, so progress will need to be measured at regular intervals to achieve your goals. 

Disclose your results to stakeholders and customers

In the absence of regulatory mandates or specific compliance issues, it’s up to you as a company to determine what and how much you want to disclose to your stakeholders and consumers. 

Whatever you choose to do, don’t make it complex. Of the consumers surveyed by Forester, 41% said a significant influence on their purchasing decisions in the last year was when a brand made it “easy to understand the actions they are taking to achieve their environmental and/or social impact goals.”

“Your customers are curious about how your products are made, who’s making them, and what the process is. If you don’t know yourself, find out,” says Zohar. 

If possible, he suggests even connecting customers directly to the producers and suppliers along your supply chain. “Customers love it, and producers rarely get to interact with the end customers, so creating that direct line will also lead you to have a higher quality product or even think of new products to introduce,” he says. 

The future of supply chain transparency

From customer demand to forthcoming regulatory changes, building transparent supply chains is far from a fad—and with those regulatory changes on the horizon, it may also soon no longer be optional.

That doesn’t mean that building supply chain transparency can’t or shouldn’t be motivated by the desire to do better for the people you’re working with—and the planet we share.

“Invest in your relationships with your suppliers and rehumanize your approach to your supply chains. Don’t just see them as risk centers or as margin deteriorations,” says Agle.

This originally appeared on Shopify Plus and is made available here to cast a wider net of discovery.

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