The Transparent Supply Chain

Artwork: Michael Johansson , He Had Been Packing All Night , 2005, boxes, bags, 4.0 x 0.6 x 0.4 m The origins of a company’s products used to be pretty murky. Beyond the supply chain function, virtually no one cared. Of course, all that’s changed. Consumers, governments, and companies are demanding details about the systems and sources that deliver the goods. They worry about quality, safety, ethics, and environmental impact. Farsighted organizations are directly addressing new threats and opportunities presented by the question, “Where does this stuff come from?” Listen to an interview with Steve New. Download this podcast 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 high-profile 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. New Technologies for the Transparent Supply Chain To hear an interview with the author, download a Microsoft Tag reader to your mobile device. Then point it right here. Get the free app at http://gettag.mobi 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. If I’m interested in, say, food safety, the technology can tell me not just about this type of chicken, but this chicken. The History—and the Future—of Product Labels The Bare Minimum Early labels provided little information beyond the brand and the basic contents of the product. How to Use This Product Regulations started to require additional, though still crude, information. Instructions for product use, such as laundering guidelines, became common. Everything but the Kitchen Sink Eventually, labels were packed with data, including environmental and ethical certifications, as well as bar codes to streamline logistics such as inventory management. They still revealed little about a product’s provenance. All in One Next-generation 2D bar codes, such as the Microsoft Tag, instantly link mobile devices to product-inventory and logistics data. The tags can also give consumers web-based access to sourcing maps, live video of manufacturing floors, and detailed environmental and ethical certifications. Click here for a larger image of the graphic. Transforming Marketing As customers take greater interest in the origins and authenticity of the things they buy, providing them with tools to track provenance will become an important part of the marketing mix and will give producers and retailers new ways to capitalize on brand value. A key consideration is how much data to make publicly available, and in what degree of detail. Many firms have made bold assertions about how seriously they manage their supply chains. Transparency, at a granular level, gives credibility to those claims. Retail giants such as Tesco and Wal-Mart have used an innovative service from UK supply chain services firm Historic Futures. The system enables textile suppliers to collect and submit information about cotton products, with a focus on ensuring that products are not manufactured from Uzbek cotton that was harvested with child labor. These data are used internally, allowing the retailers to be more confident in making ethical claims about their products. Asda, the UK arm of Wal-Mart, runs live feeds on its website from webcams positioned at a few of its food and apparel suppliers. Swiss textile company Switcher labels each of its products with a code that consumers can enter at the website Respect-code.org to retrieve information about the firms and factories along the supply chain, as well as from ISO 14000 environmental-performance certificates. Another apparel company, Anvil, uses a system called TrackMyT.com to provide multimedia information about the route of its products from raw materials to finished item. And fine wines from the Blankiet Estate in California’s Napa Valley carry a code that, when entered at a website, can ensure authenticity. Giving online-verification codes to consumers is a fairly simple way to make the supply chain transparent, although the effort required can inhibit widespread adoption. New alternatives radically simplify the consumer’s job and force companies to rethink the function of labels. Mobile-phone manufacturers are developing a variety of RFID readers that, in addition to allowing customers to pay for an item by simply swiping the phone over the tag, will allow them to link to data about the product’s origin, certifications, and trajectory through the chain. Visual-reader technologies for smartphones are already in widespread use. For example, the ShopSavvy app allows consumers to scan for price comparisons, and SnapTell’s image-recognition iPhone app lets users photograph media such as books and DVD jackets, then receive product ratings, compare prices, and link to a wealth of other information within seconds. The latest mobile readers, which can scan new-format QR (“quick response”) and Microsoft Tag codes, are able to instantly link consumers’ phones directly with whatever data—in whatever amount—manufacturers wish to place online. The new formats hold much more data than conventional bar codes do. Strengthening the 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 already 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 batch- and 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, item-level tagging allows accounting and costing to be tuned more finely than they ever have been. At each stage of the chain, a new rule will apply: The only acceptable products are those with a clear, comprehensive provenance. 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.

The Transparent Supply Chain

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