In a business era characterised by a heightened focus on ethical and sustainable practices, the importance of supply chain transparency is being increasingly recognised and organisations across diverse industries are acknowledging the need to reveal the intricacies of their supply chains. This shift towards openness in supply chains is reshaping industries, prompting companies to reassess their supplier relationships and present a transparent overview of their sourcing, manufacturing, and distribution processes. This article discusses supply chain transparency, its importance, and how distributed ledger technologies (often referred to as blockchain) can enable supply chain transparency. Currently, sustainability and emerging legislation are the major drivers for end-users adopting supply chain transparency solutions, although there are significant associated business benefits that can be captured.
Introducing supply chain transparency
Supply chain transparency refers to the close and detailed monitoring of supply chains, potentially using permanent, immutable records of goods that move through those supply chains. The concept of supply chain transparency focuses on providing more detailed information about goods in a supply chain (for instance, raw material sourcing and product quality) to downstream or external parties. The information provided could relate simply to quality parameters of goods, but it could extend to include the ethical practices adopted by any company participating in a supply chain, and, for instance, whether policies exist to avoid the use of child labour when mining for raw materials.
In the context of supply chains, transparency is often confused with visibility. In fact, the two concepts are similar with the main difference being that transparency focusses on providing more detailed information to external parties including end-users. Transparency in a supply chain is enabled through visibility in the supply chain (which is itself generally limited to monitoring the current status of any supply chain).
Distributed ledger, often referred to as blockchain, stands as one of the most important technologies for facilitating supply chain transparency. Utilising digital tokens, a distributed ledger can securely and immutably record supply chain data, thereby ensuring integrity and transparency. Meanwhile, information can be shared between multiple parties within a network and individual parties are able to contribute supply chain information relating to their own activities.
Companies spanning diverse industries (especially retail and FMCG) are making substantial investments in distributed ledger-enabled solutions to enhance product tracking and transparency. Notable adopters of distributed ledger solutions include Walmart, Carrefour, Nestle, Unilever, Kroger, and Tyson Foods. For instance, SAP and Unilever launched GreenToken by SAP in 2022 to increase transparency in Unilever’s global palm oil supply chain. The solution allows companies to know the percentage of palm oil shipments that have been sourced from a sustainable origin. Similarly, in 2019, Ford launched a distributed ledger platform to ensure ethical sourcing of cobalt. The project documented how materials are sourced, produced, traded, and processed.
Sustainability concerns and emerging legislation are driving adoption
Companies are increasingly adopting supply chain transparency solutions to ensure ethical and sustainable supply chains, often actively aiming to reduce Scope 3 emissions (i.e. emissions that the company is indirectly responsible for, both up and down supply chains) , which surpass direct emissions by 11.4 times.
In addition, a range of emerging legislation is also anticipated to drive a requirement for a supply chain transparency. For example, Germany’s Supply Chain Act will force large organisations to provide visibility into their supply chains in a digital format. The advent of carbon-taxing regimes (like the EU’s Carbon Border Adjustment Mechanism) will also drive the adoption of supply chain transparency solutions. Similarly, the EU Sustainable Batteries Regulation also includes a supply chain due diligence program for critical raw materials used in batteries (i.e., cobalt, natural graphite, lithium, nickel, and their chemical compounds), and requires that associated supply chain transparency solutions address the most prevalent social and environmental risk categories.
Business benefits of supply chain transparency abound
However, the desire (or need) to be a good corporate citizen is not the only driver of adoption for supply chain transparency solutions, and there are generally significant associated business benefits to be secured. Indeed, the business benefits of such solutions span a gamut between increasing revenues, reducing costs and reducing risks.
Increasing customer demand for transparency in sourcing, production, packaging, transportation, and distribution practices has fuelled interest in supply chain transparency. A survey by the Food Industry and Association found that 65% of consumers are inclined to switch to a brand that demonstrates greater transparency regarding product origin and supply chain processes. By sharing information about their supply chain, brands foster trust and earn customer and brand loyalty, both reducing customer acquisition costs and increasing customer lifetime value.
For example, a supermarket that can provide customers with full details about the provenance of ingredients in a prepared meal, including the geographies from which ingredients were sourced and associated quality parameters and working practices, together with full condition information (for instance storage temperatures) from the entire supply chain will likely have a competitive advantage compared to a supermarket that cannot provide equivalent information. By extension, support for supply chain transparency is at a premium across the entire supply chain and so is a competitive differentiator for all participants.
Additionally, supply chain transparency can assist with the identification and assignment of liability to individual supply chain participants in case goods are damaged in the supply chain and enables transparency between different stakeholders in transactions. For example, Walmart developed a distributed ledger network ‘DLT Freight’ to gather and share information related to transactions, after the solution had been adopted the rate of invoices that required reconciliation efforts decreased from 70% to 1%.
Accordingly, supply chain transparency solutions can play a crucial role in fostering enduring connections between individuals and brands, consequently increasing customer lifetime values [SD1] and ultimately contributing to increased profitability. MIT research indicates that consumers express a willingness to pay a premium of 2-10% for products offered by companies that prioritise supply chain transparency and associated good practices. Deploying supply chain transparency solutions allows access to more information on how a product has been sourced and processed, which fosters informed consumer choices and builds trust in business practices.
Particularly for early-adopters, companies prioritising supply chain transparency can find that it is an effective way to differentiate their services from rivals, securing a competitive edge in the market. Actively revealing information about supply chain can serve as a distinctive factor, fostering consumer confidence, which also helps organisations attract new customers and retain existing ones who prioritise transparency and responsible sourcing.
Recording transactions in a decentralised and immutable fashion safeguards the integrity of transaction records, which drastically reduces the potential for fraud and errors. A streamlined approach can increase efficiency across an entire supply chain, minimising requirements for audits to verify product authenticity and consequently lowering operational costs. Furthermore, a more transparent system aids in pinpointing process inefficiencies, optimising inventory utilisation and delivery times, and often results in improved quality overall particularly in the case of perishable goods.
Lastly, of course, establishing a transparent supply chain enables businesses to adhere to regulatory mandates and mitigate risk of non-compliance. In turn this helps to safeguard companies against potential legal repercussions arising from infringements of labour laws or environmental regulations. Moreover, a comprehensive grasp of the supply chain facilitates companies in successfully navigating regulatory audits and inspections, thereby averting potentially significant fines.
Jim Morrish 
Suruchi Dhingra 