Supply Chain Agility Requires Mapping to the Nth Tier
Too many brands and retailers are struggling to document the complete makeup of their finished products. A 2021 McKinsey survey found that about half of senior supply chain executives can identify the locations of their tier-one suppliers and the key risks facing those suppliers, but only 2% can do the same for tier-three suppliers and beyond. These companies are operating without end-to-end visibility into their supply chains – a shortcoming that not only puts them on the wrong side of consumer preferences but leaves them vulnerable to disruptions early in the supply chain.
Consumers are demanding more accountability from companies. Shoppers across almost all demographics are increasingly concerned about child labor, dangerous working conditions, deforestation and environmental contamination, and for good reason. With an estimated 16 million victims of forced labor in the private sector, these abuses are more widespread than many realize.
But these shoppers are understandably skeptical about businesses’ commitment to ethical and sustainable sourcing practices. As many as 40% of the environmental promises made about products may be misleading, and shoppers are growing better at sniffing out unsubstantiated claims. Broad descriptors like “free trade” or “green” don’t mean much to these consumers anymore; only one-fifth of consumers say they trust the sustainability claims that brands make. To win their loyalty, brands need to back up their claims about their products. Doing that requires supply chain mapping to document not only their suppliers, but also their suppliers’ suppliers.
Most companies only have complete records of their tier 1 suppliers, but truly responsible sourcing is impossible without visibility into what’s known as tier N, the sub-tier and material-level suppliers that make up the foundation of the supply chain. Because of how nebulous and fragmented the supply chain can be, mapping these Nth-tier suppliers can be a real challenge, but it’s integral for responsible sourcing, since these unilluminated corners are often where the greatest ethical and environmental abuses occur.
Meanwhile, as consumers are requesting greater transparency into the supply chain, governments are requiring it. This summer ; such as the United States’ Uyghur Forced Labor Prevention Act went into effect. It bans the importation of all goods from China’s Xinjiang Uyghur Autonomous Region, the region responsible for roughly one-fifth of the world’s cotton supply. The act requires thorough documentation for all Chinese goods entering the United States to prove they were made without slave labor.
Supply Chain Mapping is Necessary to Navigate Risks
Other laws across Europe have set out to eliminate unethical labor practices from the supply chain, and more are being introduced by the month. Regulations surrounding sourcing will only continue to tighten. But for brands and retailers facing ongoing pressure to bring products to market as fast as possible, the benefits of supply chain mapping go well beyond mitigating regulatory and reputational risks. Businesses that haven’t mapped their suppliers to at least the fourth tier aren’t agile enough to deal with the kinds of challenges that have become pervasive in the wake of the COVID-19 pandemic – among them supply shortages, congested ports, transport delays and surging prices due to inflation.
These hurdles will outlast the pandemic, the latest White House Economic Report warned. That report characterized the supply chain as fundamentally brittle and especially vulnerable to fluctuations in the labor market and natural disasters created by climate change. That should be a particular cause for alarm, given that a recent Harvard Business Review study found that just 11% of suppliers are fully prepared for disruptions due to weather and climate change.
Businesses can navigate these disruptions if they’re agile enough to adjust their procurement and delivery strategies, but that agility hinges on how much visibility they have into their supply lines. When a business encounters a disruption or a problem with production – for instance a supplier that fails a quality inspection – it needs to have the agility to find an alternative quickly.
Supply chain mapping gives businesses the confidence to know whether they’ll be able to meet their quality and compliance targets. And crucially, it helps them address production problems earlier in the process. It’s always easier to stop production earlier as opposed to discovering problems at the end of a run.
Through digitalization, the data that accurate supply chain mapping provides can be used by businesses to conduct in-depth analyses that can identify the root cause of problems during the production process. It can also drive continuous improvement of the production flow, helping to identify inefficiencies, eliminate bottlenecks and speed production. This kind of visibility has always been valuable to brands and retailers, but amid heightened consumer and government scrutiny and mounting concerns about supply chain fragility, it’s more integral than ever.
Eric Linxwiler is Senior Vice President of CBX Software. He has over 30 years of experience in enterprise software and cloud-based service companies with a specialty in supply chain optimization and workflow management.
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