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Two Steps Forward

The art and science of supply-chain transparency

When it comes to supply chains, ignorance is no longer bliss — it’s a liability.

Let’s start with the basics: Almost everything we buy travels a long and winding road to reach us. From carpets to car parts, apples to Apples, the complexities of commerce are intricate.

If you want to visualize that last statement, peruse the website Sourcemap. It offers tools to help companies map their supply chains, tracking where things come from and where they go. The site features maps created by users, showing the routes traveled by the ingredients of such things as toothpaste, coffee, a hair dryer, Nike shoes or the glass used in mobile phones.

All this supply-chain tracking and tracing isn’t mere idle amusement. Increasingly, it’s table stakes for being in business.

All of which leads us to an event we’re producing this week: VERGE Salon London: Supply-Chain Transparency and Traceability. The one-day event April 28, hosted by PwC at its U.K. headquarters and livestreamed globally, focuses on how companies are addressing the environmental and social impacts of supply-chain partners, using technology to increase collaboration and ensure data integrity at every stage.

For the Salon we’ve convened a select group of supply-chain professionals, from companies such as Burberry, Cargill, Hewlett-Packard, Lafarge, SAB Miller, Sainsbury, Siemens, Sodexo, Steelcase, Virgin and Walgreens; and organizations such as the Better Cotton Initiative, Labor Voices, the Marine Stewardship Council and the Sustainable Apparel Coalition. The roundtable format will feature brief “firestarter” presentations followed by guided conversation, facilitated by my colleague John Davies.

(I encourage you to tune in to the free livestream; register here. An archived version of the event will be available after the fact.)

Converging issues and technologies

The subject of supply-chain transparency and traceability is no small matter. A convergence of issues is forcing companies to more fully understand where their products’ materials and components come from and under what conditions they are produced.

Among the issues: conflict minerals; deforestation; ecosystem hotspots; human rights; greenhouse gas emissions; labor conditions; and fisheries depletion; along with traditional supply-chain concerns such as product safety, quality assurance and risk management.

Put it all together and companies that lack a full understanding of their supply chains are finding themselves exposed to a range of social, environmental and economic risks. Ignorance is no longer bliss — it’s a liability.

As we concluded in the 2015 State of Green Business report we produce with Trucost, most sectors’ natural capital costs — the financial value of the resources they extract and the wastes and emission they produce — lie mostly outside company walls.

For 17 of the 19 “super sectors” measured by Trucost, most impacts occurred in their supply chains — more than 90 percent of impacts for 11 of the 19 sectors. (The two remaining sectors, energy and water utilities and "basic resources," which includes forestry and mining, sit at the beginning of most companies' supply chains.)

The vagaries of climate change are another wildcard for supply chains. As my colleague Shana Rappaport noted recently: “The 2014 World Economic Forum called climate change an ‘economically disruptive force,’ and climate-related risks are rising on the agenda of global companies in the past years.”

The Risky Business Project — spearheaded by former New York City mayor Michael Bloomberg; former Treasury Secretary Hank Paulson; and philanthropist and political activist Tom Steyer, retired founder of Farallon Capital — has pointed out in stark terms the potential economic impacts to companies resulting from climate-born supply-chain disruption.

Tracking and tracing where things come from is getting easier, thanks to another convergence — of technologies and systems. As GreenBiz senior writer Heather Clancy noted in State of Green Business:

“New technologies such as sensors, data analytics and the so-called Internet of Things are enabling companies to more easily and affordably account for the environmental and social impacts of their materials and products — all the way upstream to farms, forests, mines and individual factories.”

There are also relatively low-tech techniques to help companies understand and fortify their supply chains. One is commodity mapping, pioneered at the Sustainability Consortium, a tool for matching key commodities with environmentally sensitive ecosystems.

The growth of third-party verification is yet another boon, including a growing army of professionals available to verify the provenance of products and raw materials. Increasingly, global organizations such as Big Four auditors (including our Salon co-hosts, PwC) are among those growing global practices around supply-chain transparency and traceability.

What goes around

And then there are emerging trends, in particular the circular economy, an accelerating meme being embraced — or at least openly discussed — by a growing corps of companies.

Central to that idea is that companies fully embrace the ingredients and manufacturing practices of suppliers to create products that can be disassembled or otherwise turned back into their constituent parts, and either endlessly recycled or turned into benign or beneficial soil amendments.

The goal, as consultant Jessica McGlyn noted recently, is “to generate more value and economic opportunity with less material and energy consumption.”

All of this is nascent stuff. For most companies, supply-chain transparency and traceability to date requires both art and science. And there are limits to the currently available technologies.

As Rappaport noted, “While there are a number of interesting tools and initiatives to help companies engage with their suppliers and manage questionnaire data, such as EcoVadis and SupplyShift, none go past Tier 1 suppliers.”

There’s still much to learn, technologies to discover and practices to propagate. We hope to contribute to the learning curve this week in London.

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