Transparent Supply Chain
Content
Assignment 4 MGT 519 “Transparent Supply Chain”
Submitted To: Mr. Himanshu Jindal Submitted By: Amit Singh Roll No.: 32 Section: A17B1
Introduction Transparent supply chain is all about revealing the supply chain to the consumers or in simple words to everyone who is related to that firm or product in any terms. In todays world there is a need for supply chain because the back end of a company remains a secret but now consumers, government, and even companies are demanding details about the system and sources that deliver goods. They are now worried about quality, safety, ethics and environmental impact. The question that arises in consumer’s mind is
Where does this stuff come from?
Idea in Brief Sophisticated technologies now allow companies to gather unprecedented detail about where their goods come from and how they progress through the supply chain. The information can be used to improve product quality and safety, and to ensure authenticity. The new technology which range from miniature radio- frequency ID tags to DNA markers to bar codes can reveal a wealth of data about a product’s provenance and greatly increase the transparency of supply chains. Consumers and other holders want to know more and more about product provenance. Companies that fail to open their supply chains to public inspection will find that others will do it for them. Provenance - a big deal getting bigger Consider the trouble an opaque supply chain can cause. Most iPhone owners probably don’t think about the provenance of their devices, but worker suicides at Foxconn, one of Apple’s major Chinese suppliers, forced the company to pull the curtain back on part of its supply chain in 2009. It had to quell claims that it relied on sweatshop labor. Another highprofile case, the “toxic drywall scandal,” led to class-action lawsuits. The offending product was imported into the United States bearing no readily available information about its source other than a “Made in China” stamp. And a few years earlier, toy giant Mattel faced a tornado of publicity about lead in toys, which raised questions about how much control it had over its supply chain. Conversely, many firms make a virtue of provenance. International clothing retailer H&M, for example, declares that it strives to improve labor practices and minimize the adverse environmental effects of not only its suppliers, but its suppliers’ suppliers, right back along the chain. Similar claims—once the preserve of a handful of niche retailers—have become widespread. But until recently, customers had a limited view of supply chains. Even companies themselves have often been content not to ask lots of questions about the origins and pathways of the goods they source. For many products, origin is an essential feature of what the customer buys, even if it is an intangible or a difficult-to-verify quality. Broadly, halal, kosher, and organic foods are
indistinguishable from the alternatives—the distinctions are important to certain consumers, but in a blind test most would have no way of identifying them. Few people could actually tell the difference between an authentic and a top-end fake Rolex watch or Louis Vuitton bag. Counterfeiting is such a huge problem because, after all, an ethically made shirt looks and feels identical to the sweatshop alternative. The fact that consumers nevertheless care about ethics and authenticity is indisputable: Provenance is already a big deal—and getting bigger. Revealing Technologies Driven by growing calls for transparency, firms such as Wal-Mart, Tesco, and Kroger are beginning to use new technologies to provide provenance data to the marketplace. In time, customers will perceive easy access to such information as the norm. Revealing origins will become an essential part of establishing trust and securing reputation. The key technologies are not fundamentally new, but they are evolving and blending to unleash new opportunities and threats. Product labeling has been transformed by microscopic electronic devices, genetic markers for agricultural products, and a new generation of bar codes that can be read with standard mobile phones. Combine these developments with the reach of the internet and virtually unlimited data storage, and firms can now contemplate more-sophisticated ways to track and to reveal the manufacturing trajectory of their products. Radio-frequency identification (RFID) tags, well established for inventory management and other purposes, are becoming smaller, cheaper, and more flexible. New generations of tags—such as Hitachi’s sand-grain-size mu-chip—can be used, for instance, to label jewelry inconspicuously. It can even be embedded in paper and plastic, making the product’s provenance data part of the material itself. And smaller-scale tags—labeled exotically as “radio dust”—are in development. Just like a paper label, a technology tag can be used in two ways. It can store data directly, in some cases even being updated as the item moves through the supply chain. Alternatively, the tag can simply hold a unique identifier, which acts as a pointer to a vast amount of web-based supporting data. The ubiquity of such mobile devices means that consumers can readily access this “internet of things,” gathering provenance information not just at the generic level of the item category or type but for the specific item. Strengthening the supply chain Provenance is relevant both up and down the chain, of course. Just as tracking technologies enrich the downstream relationship with customers, they also shape what a firm expects of its upstream suppliers. End consumers may be concerned with the authenticity and the ethics of the products they buy, but companies also seek reassurance about the goods they procure. The new technologies of provenance will be as important for supply chain operations as they are for marketing. At each link in the chain, data accumulate and can be passed on, at a low cost, to the next stage. For some safety-critical industries, assuring provenance is lready standard practice, despite the cost and complexity. Sophisticated and regulated systems exist
for ensuring the pedigree of aerospace components, pharmaceutical ingredients, and medical equipment. But the new technologies are also changing the economics of tracking, as batchand item-level analysis becomes possible in more industries and for more purposes. First, such tracking can help ensure that suppliers are not substituting inferior alternatives for approved sources of materials. One aspect of the Mattel case, for example, involved a supplier that used an unapproved vendor to overcome a temporary shortage. Second, traceability is essential for firms, such as Tesco, that seek to measure the environmental footprint of their products. Finally, transparency is a safeguard against the entry of counterfeit components and materials into the supply chain. Although conventional batch tracing enables companies to work backward and piece together the source of a problem, new tracking capabilities allow firms to load every detail of the production process into an item’s record. These data can then be used to analyze quality, safety, durability, reliability, and so on. Provenance and traceability data constitute a gold mine that companies can exploit for continuous improvement. What’s more, secure tagging and labeling for instance, using the new technology of DNA laced ink can address product counterfeiting. When integrated into enterprise resource planning systems, itemlevel tagging allows accounting and costing to be tuned more finely than they ever have been. Until now, efforts at chainwide assurance have faltered because of logistical and financial barriers to seeing beyond the first tier of supply. Although firms have directed huge, laudable efforts in auditing and certifying their immediate suppliers, the real reputational and operational risks may lie further upstream. Companies will increasingly mandate traceability from their suppliers. At each stage of the chain, a new rule will apply: The only acceptable products are those with a clear, comprehensive provenance. Anticipating the Risks New technologies will provide unprecedented visibility into the industrial system. Even if firms opt to keep their provenance data under wraps, they will have no guarantee that activist and campaign groups or even competitors will be so coy. The explosion of global electronic communication empowers those who wish to pull down corporate reputations just as it offers firms the chance to build trust. Of course, access to data would be more limited to outsiders than to the companies themselves, but probably not limited enough to make firms feel completely safe. YouTube, Twitter, and other social media have already transformed how activists launch campaigns against supply chain practices. Witness Greenpeace’s recent exposé of one of Nestlé’s palm-oil suppliers, whose practices were damaging Indonesian rain forests. Webcams are cheap, and iPhone apps are easy to develop. If firms don’t release provenance information themselves, others will do it for them. Scan the code, and customers will be able to see the sweatshop, the factory farm, or the unsafe working conditions—live. Some companies have built reputations for ethical practices in one arena—for example, certain apparel retailers celebrate the working conditions at their first-tier suppliers. But all firms will find that consumers’ interest can stretch farther back up the chain. As Tesco and Wal-Mart have discovered, there is little point in trumpeting the excellent conditions for the stitching of jeans if the cotton is being harvested unethically. Companies certainly should exploit the marketing and operational opportunities that sophisticated tracking offers, but they’d also be wise to reveal what they find before outsiders do.
Submitted To: Mr. Himanshu Jindal Submitted By: Amit Singh Roll No.: 32 Section: A17B1
Introduction Transparent supply chain is all about revealing the supply chain to the consumers or in simple words to everyone who is related to that firm or product in any terms. In todays world there is a need for supply chain because the back end of a company remains a secret but now consumers, government, and even companies are demanding details about the system and sources that deliver goods. They are now worried about quality, safety, ethics and environmental impact. The question that arises in consumer’s mind is
Where does this stuff come from?
Idea in Brief Sophisticated technologies now allow companies to gather unprecedented detail about where their goods come from and how they progress through the supply chain. The information can be used to improve product quality and safety, and to ensure authenticity. The new technology which range from miniature radio- frequency ID tags to DNA markers to bar codes can reveal a wealth of data about a product’s provenance and greatly increase the transparency of supply chains. Consumers and other holders want to know more and more about product provenance. Companies that fail to open their supply chains to public inspection will find that others will do it for them. Provenance - a big deal getting bigger Consider the trouble an opaque supply chain can cause. Most iPhone owners probably don’t think about the provenance of their devices, but worker suicides at Foxconn, one of Apple’s major Chinese suppliers, forced the company to pull the curtain back on part of its supply chain in 2009. It had to quell claims that it relied on sweatshop labor. Another highprofile case, the “toxic drywall scandal,” led to class-action lawsuits. The offending product was imported into the United States bearing no readily available information about its source other than a “Made in China” stamp. And a few years earlier, toy giant Mattel faced a tornado of publicity about lead in toys, which raised questions about how much control it had over its supply chain. Conversely, many firms make a virtue of provenance. International clothing retailer H&M, for example, declares that it strives to improve labor practices and minimize the adverse environmental effects of not only its suppliers, but its suppliers’ suppliers, right back along the chain. Similar claims—once the preserve of a handful of niche retailers—have become widespread. But until recently, customers had a limited view of supply chains. Even companies themselves have often been content not to ask lots of questions about the origins and pathways of the goods they source. For many products, origin is an essential feature of what the customer buys, even if it is an intangible or a difficult-to-verify quality. Broadly, halal, kosher, and organic foods are
indistinguishable from the alternatives—the distinctions are important to certain consumers, but in a blind test most would have no way of identifying them. Few people could actually tell the difference between an authentic and a top-end fake Rolex watch or Louis Vuitton bag. Counterfeiting is such a huge problem because, after all, an ethically made shirt looks and feels identical to the sweatshop alternative. The fact that consumers nevertheless care about ethics and authenticity is indisputable: Provenance is already a big deal—and getting bigger. Revealing Technologies Driven by growing calls for transparency, firms such as Wal-Mart, Tesco, and Kroger are beginning to use new technologies to provide provenance data to the marketplace. In time, customers will perceive easy access to such information as the norm. Revealing origins will become an essential part of establishing trust and securing reputation. The key technologies are not fundamentally new, but they are evolving and blending to unleash new opportunities and threats. Product labeling has been transformed by microscopic electronic devices, genetic markers for agricultural products, and a new generation of bar codes that can be read with standard mobile phones. Combine these developments with the reach of the internet and virtually unlimited data storage, and firms can now contemplate more-sophisticated ways to track and to reveal the manufacturing trajectory of their products. Radio-frequency identification (RFID) tags, well established for inventory management and other purposes, are becoming smaller, cheaper, and more flexible. New generations of tags—such as Hitachi’s sand-grain-size mu-chip—can be used, for instance, to label jewelry inconspicuously. It can even be embedded in paper and plastic, making the product’s provenance data part of the material itself. And smaller-scale tags—labeled exotically as “radio dust”—are in development. Just like a paper label, a technology tag can be used in two ways. It can store data directly, in some cases even being updated as the item moves through the supply chain. Alternatively, the tag can simply hold a unique identifier, which acts as a pointer to a vast amount of web-based supporting data. The ubiquity of such mobile devices means that consumers can readily access this “internet of things,” gathering provenance information not just at the generic level of the item category or type but for the specific item. Strengthening the supply chain Provenance is relevant both up and down the chain, of course. Just as tracking technologies enrich the downstream relationship with customers, they also shape what a firm expects of its upstream suppliers. End consumers may be concerned with the authenticity and the ethics of the products they buy, but companies also seek reassurance about the goods they procure. The new technologies of provenance will be as important for supply chain operations as they are for marketing. At each link in the chain, data accumulate and can be passed on, at a low cost, to the next stage. For some safety-critical industries, assuring provenance is lready standard practice, despite the cost and complexity. Sophisticated and regulated systems exist
for ensuring the pedigree of aerospace components, pharmaceutical ingredients, and medical equipment. But the new technologies are also changing the economics of tracking, as batchand item-level analysis becomes possible in more industries and for more purposes. First, such tracking can help ensure that suppliers are not substituting inferior alternatives for approved sources of materials. One aspect of the Mattel case, for example, involved a supplier that used an unapproved vendor to overcome a temporary shortage. Second, traceability is essential for firms, such as Tesco, that seek to measure the environmental footprint of their products. Finally, transparency is a safeguard against the entry of counterfeit components and materials into the supply chain. Although conventional batch tracing enables companies to work backward and piece together the source of a problem, new tracking capabilities allow firms to load every detail of the production process into an item’s record. These data can then be used to analyze quality, safety, durability, reliability, and so on. Provenance and traceability data constitute a gold mine that companies can exploit for continuous improvement. What’s more, secure tagging and labeling for instance, using the new technology of DNA laced ink can address product counterfeiting. When integrated into enterprise resource planning systems, itemlevel tagging allows accounting and costing to be tuned more finely than they ever have been. Until now, efforts at chainwide assurance have faltered because of logistical and financial barriers to seeing beyond the first tier of supply. Although firms have directed huge, laudable efforts in auditing and certifying their immediate suppliers, the real reputational and operational risks may lie further upstream. Companies will increasingly mandate traceability from their suppliers. At each stage of the chain, a new rule will apply: The only acceptable products are those with a clear, comprehensive provenance. Anticipating the Risks New technologies will provide unprecedented visibility into the industrial system. Even if firms opt to keep their provenance data under wraps, they will have no guarantee that activist and campaign groups or even competitors will be so coy. The explosion of global electronic communication empowers those who wish to pull down corporate reputations just as it offers firms the chance to build trust. Of course, access to data would be more limited to outsiders than to the companies themselves, but probably not limited enough to make firms feel completely safe. YouTube, Twitter, and other social media have already transformed how activists launch campaigns against supply chain practices. Witness Greenpeace’s recent exposé of one of Nestlé’s palm-oil suppliers, whose practices were damaging Indonesian rain forests. Webcams are cheap, and iPhone apps are easy to develop. If firms don’t release provenance information themselves, others will do it for them. Scan the code, and customers will be able to see the sweatshop, the factory farm, or the unsafe working conditions—live. Some companies have built reputations for ethical practices in one arena—for example, certain apparel retailers celebrate the working conditions at their first-tier suppliers. But all firms will find that consumers’ interest can stretch farther back up the chain. As Tesco and Wal-Mart have discovered, there is little point in trumpeting the excellent conditions for the stitching of jeans if the cotton is being harvested unethically. Companies certainly should exploit the marketing and operational opportunities that sophisticated tracking offers, but they’d also be wise to reveal what they find before outsiders do.
