In a report, ‘Digital Transformation in the Transportation and Storage Sector’, published this time last year, we identified seven key domains of change in the transportation and storage sector, enabled by disruptive technologies including the Internet of Things, Artificial Intelligence, Data Sharing, Autonomous Robotic Systems, and Edge Computing.
This blog focuses on one of the domains of change, Supply Chain Transparency and explains its drivers and how improving supply chain transparency can benefit business entities.
Supply Chain Transparency (SCT) involves detailed monitoring of supply chains, often achieved through the use of permanently immutable records of goods which move through supply chains. The information (which explains the transparency) can encompass not only the journey of finished products but also details about the raw materials used in the manufacturing of components that are part of the final product. Its focus is more on providing more detailed information to external parties, about the goods in a supply chain.
This section covers the key factors that are driving supply chain transparency.
Increasing demand from customers for more transparency - Customers are becoming increasingly demanding more transparency on the practices followed when a product is sourced, produced, packaged, and transported. A report by the Food Industry Association estimates that 65% of shoppers are likely to switch to a brand that provides greater transparency about the origin and supply chain of its products. It has also been noted that when business entities share information about their supply chain, the trust between them and customers increases, which in turn, increases customer retention and loyalty.
Lack of trust between various parties in a supply chain - In addition to the changing customer behaviour (as mentioned above), there are different parties involved with a supply chain and a lack of trust among them can also lead to the demand for a centralised transparent medium. Supply Chain Transparency plays a vital role in identifying and assigning liability to specific participants in the supply chain in the event of damages. Moreover, it fosters trust, enabling supply chain actors to communicate openly with suppliers, forming enduring partnerships. Additionally, it promotes transparency among various stakeholders involved in transactions. For instance, Walmart created a distributed ledger network called 'DLT Freight' to collect and share transaction-related information. Following its implementation, the percentage of invoices requiring reconciliation efforts decreased dramatically from 70% to just 1%.
Commitment towards ethical and sustainable supply chains - The focus on ethical and environmentally sustainable supply chains is rapidly increasing, and according to CDP (a global environment-related disclosure organisation), environmental risks in the supply chain may cost business organisations around USD120 billion within the next five years. As a result, companies are proactively attempting to reduce their emissions (especially the Scope 325 emissions), which requires them to have a transparent platform, using which they can manage the challenges of logistical complexity, asymmetry of information, and lack of trust among participants within a supply chain.
Blockchain technology can securely record supply chain data using digital tokens since both assets and participants are given digital signatures or unique identifiers to sign the blocks that are added to the blockchain. Although this can also be done by processing information from RFID tags and barcodes (and integrating them with ERP systems), the process becomes lengthy and complex. However, different parties can maintain separate copies of blockchain networks linked to their ERP systems, removing the need for ERP system integration. This setup allows each party to monitor transactions, detect errors, and hold counterparts accountable, creating a more comprehensive, tamper-proof, secure, and coordinated network.
Various industries, especially in retail and FMCG (such as Walmart, Carrefour, Unilever, Kroger, and Tyson Foods) are increasingly investing in blockchain-based solutions. For instance, in 2022, SAP and Unilever collaborated to introduce GreenToken by SAP, aiming to enhance transparency within Unilever's worldwide palm oil supply chain. This innovative solution enables companies to track the percentage of palm oil in a shipment that has been ethically sourced, thereby promoting sustainability and responsible sourcing practices. In a similar vein, Walmart uses IBM's supply chain technology, specifically the Hyperledger Fabric platform, to trace its food items from the farmers' level. This initiative enables customers to verify the provenance of products before they purchase a product.
This section of the blog reviews the advantages of improved supply chain transparency and how businesses can gain from it.
Increases customer loyalty and profits - Supply Chain Transparency (SCT) solutions play a crucial role in nurturing personal connections with brands, ultimately increasing customer lifetime value and ensuring higher profits. Research from MIT indicates that consumers are willing to pay a premium of 2-10% for products offered by companies that prioritise transparency in their supply chains.
Increased efficiency of supply chains - Storing transactions in a decentralised and immutable manner safeguards the integrity of information and transactions, eliminating the possibility of fraud and errors. This streamlined process accelerates operations and reduces the need for recalls to verify product authenticity, leading to lower operational costs. Furthermore, transparency in the system helps identify process inefficiencies, optimising inventory utilisation, and ensuring improved delivery times and product quality.
Improves legal compliance - The demand for a supply chain platform for environmental due diligence is further driven by evolving legislation globally, particularly in Europe. For instance, Germany's Supply Chain Act (which was expected to be effective in 2023) was anticipated to compel large organisations to disclose their supply chains in a digital format. Additionally, the introduction of carbon-taxing regimes such as the EU's Carbon Border Adjustment Mechanism is expected to further accelerate the adoption of supply chain transparency solutions.
Supply chain transparency plays a pivotal role in advancing and digitally transforming the transportation and storage sector. It meets the growing consumer demand for transparency, strengthens trust among supply chain actors, and promotes ethical and sustainable practices. Businesses that invest in supply chain transparency can enhance customer loyalty and profitability, streamline their supply chains, and adhere to legal requirements. Embracing these changes positions companies for improved operational efficiency, greater customer satisfaction, and enhanced long-term sustainability in an increasingly transparent industry.
In a recent webinar, Transforma Insights analysts Suruchi Dhingra and Jim Morrish discussed the key domains of change that are driving the digital transformation of supply chains, including Supply Chain Transparency. A replay is available here: 'Webinar - Digital Transformation in Supply Chains'.
