Trust and transparency in supply chains

We are currently experiencing a strong global trend towards restructuring supply chains based on corporate transparency and trust.

Essential and emerging technology supply chains face a large and growing scrutiny after two related disruptions – one precipitated by the Covid-19 pandemic and the other by tensions between the world’s two largest economies: China and the US.

These disruptions have led to a paradigm shift in the narratives around the global supply chain.

Decades of efficiency-driven changes that gave rise to the global supply chain have also made it weak and fraught with bottlenecks. At the same time, the need to verify the “trustworthiness” of suppliers has created an additional layer of scrutiny.

While discontent with globalization is by no means a new phenomenon, the urgency around so-called “trusted supply chains” has intensified over the past two years.

What does the concept of reliable supply chains mean?

The concept of trust in supply chains is a relatively new addition to the global geopolitical vocabulary, but it has a history in defense and industrial management.

In this context of evolution, depending on “who” or “where” they are linked to this issue, trustworthy can mean, in a variety of ways, safe, transparent, adaptive, ethical or stable.

In a national security context, trust has typically been defined in very narrow terms. As an example, we can cite the US National Defense Authorization Act of 2003, which implicitly defines “reliable providers” as those who are based in the US and, by extension, easier to audit and control.

Technological partnerships, in turn, defined trust along two parameters: capacity and commitment (or intention). In this context, trust is built through a consistent ability to fulfill obligations (transactional trust), complementary strengths (relational trust), and strategic alignment, where partners see the capacity and empowerment of others as an extension of their own (collaborative trust).

 

What is a technology partnership?

Technological partnership can happen in different ways. One of them is through the integration between systems, a model in which different solutions come together in a layer not visible to the user to exchange information and even execute commands between products. It is an excellent alternative to deliver a more complete offer, with greater agility.

Another way is to incorporate a product from one company into another’s portfolio.

The use of the term trusted supply chains (and its variations) within its current contours has really taken off in the last couple of years. Among technology multinationals, the term is used to reassure customers and signal reliability to regulators.

With varied definitions, what do reliable supply chains mean, then? Four topics emerge with this question:

• Safety

The ability to predict, monitor and respond to threats that can affect the continuity of supply chains. Security is sometimes confused with trust, but it is only one element of trustworthiness.

• Transparency

Transparent decision processes, regular audits and the ability to respond to requests for information are the basis of the concept of reliability.

• Resilience

The ability of chains to recover from shocks, whether from natural disasters, changes in the security and economic policies of supplier nations, etc.

In cases where security and transparency can impose specific obligations on providers, resilience is a quality of the network as a whole.

• Tuning of Ideas (Like mindedness)

Being the least clearly defined topic, the syntony of ideas, which we can also call “similarity” here, seems to capture two broad meanings.

The first is the similarity in ideologies and, by extension, in legal and political systems. Australia and the US, for example, emphasize democracy and open societies as a requirement for building credible supply chains.

The second is common goals, which ignore the sensitive issue of the nature of a regime and the disagreements that partner countries may have, and instead emphasize common ends.

The ambiguity of “similarity,” particularly in the latter case, brought together unlikely partners. Notable among these is the Quadrilateral (or Quad) Security Dialogue, composed of Australia, India, Japan, and the US, which began as a coalition adapted to defend freedom of navigation in the (now) Indo-Pacific, and has since expanded its scope to connectivity, critical and emerging technologies and supply chains.

The concept of trust is still being created. To define a reliable supply chain, we will depend on the actors and spatial factors that define it. Reliable sources can be broadly defined based on places of origin that allow the government to audit and control the supply chain.

 

Transparency in the supply chain and its importance

Supply chain transparency increases business value. Increasing the visibility of supplier practices takes work, but it can lead to new market opportunities.

A study by KPMG, one of the largest companies providing professional services in the areas of Audit (audit), Tax (taxes) and Advisory (consulting), entitled Transparency in supply chains, lists internal transparency, honesty, and clarity as key elements for such a goal.

The internal transparency process is focused on enabling efficient decision-making within the company, reducing waste and providing better operating income.

Clarity throughout the value chain is related to providing better service between customer and supplier, generating increased revenue and greater operational efficiency.

Another important point refers to ensuring peace of mind for interested parties, internal, external and related to the reliability of data, practices, and processes.

The search for transparency, in addition to involving all sectors of the company, encompasses some elements highlighted by the study. They are:

• Consumer and growth: through user trust and loyalty, brand awareness, increased quality and investor confidence;
• Risks and compliance: through compliance with legislation, due diligence of human resources, increase in food stocks, growth in social and environmental responsibility and reduction of social impacts;
• Operational excellence: with the reduction and elimination of waste, optimization of stocks, control of currency exposure, reduction in recall costs and improvement in the appearance of products.

Therefore, in order to obtain transparency in the supply chain, it is necessary to understand it from beginning to end.

 

Defining transparency:

As already seen, there are many concepts that are relative, and the word “transparency” is no different. The first step in creating a transparent supply chain is to decide what transparency means for your company.

It is important to consider some points such as the sector of the company, which regulations apply, the code of ethics, the corporate culture, who are its suppliers, their experiences with past problems and the level of risk the company is willing to accept.

Companies often start with an assessment of internal and external stakeholders called a “materiality assessment”.

This helps you determine at least the basic information requirements you want from vendors and serves as a guide on how to proceed from there.

 

Conclusion

Reliable and transparent supply chains will become a pillar for building new coalitions centered on critical and emerging technologies. However, observers should not assume that this term captures the same ideas among the myriad of actors who have begun to use it.

The use of the term “trust” in this context can serve as an abbreviation for reliability, resilience or continuity, called for strengthening process security.

While the quest for efficiency and lower costs has led to the globalization of supply chains over the past three decades, their contours in the 2020s are being shaped by the evolution of understandings of “trust” and “transparency”.