Openness vs. Transparency

It made me think of one of the publications I read with great interest in preparation for the Transparency in the Supply Chain project was “A view on sustainability? Transparency in supply chains investigated” (“Zicht op duurzaamheid? Transparantie in productieketens onderzocht”), by MVO platform and it combines transparency research on specific products (gravestones, gems, cobalt, T-shirts, MP3 players and several tropical agricultural products) by several Dutch organizations.

The writers make the distinction between openness, which is, roughly, opening your shop being cooperative and providing information and clarity and transparency, which means that there is enough information available with the company on the sustainability aspects of a product including where and how all the components have been sourced. Where openness is a matter of attitude, transparency is a matter of capacity and the latter would appear to be a development of the former.

In that light it makes sense that some of the participating investigators found that SMEs were as open as larger companies questioned but that they were not as transparent. They are externally motivated to share the information that they have, anything really, to help them sell their products and/or services.

But clearly capacity is ultimately a function of demand. As long as transparency is asked for by buyers, be they larger companies downstream from the SME or (end) consumers, an SME or any supplier will see the case in obliging its client by building the capacity and providing sustainability information.

Initial indications from the project are that this is certainly one of the early motivations for companies, but that they see the value of reporting for their company’s internal operations and stakeholder management after a while. In the project transparency builds a more intrinsically motivated, open, attitude. And yes, I would consider this intrinsic motivation is a more favorable basis for supply chain transparency.

Supply chain: trust, openness and collaboration

One of the premises of the Transparency in the supply chain project is that MNEs partner up with their suppliers to assist them in making their reports. The MNE buyers, as experienced reporters, one of the main stakeholders and important client are seen as ideal candidates to fulfill this role.

Whereas the 90’s saw a huge wave of outsourcing, of operations and risk, we are currently seeing something of a reverse trend. Companies are integrating again. They’re not internalizing the tasks they rid themselves of, but they are increasingly only sourcing them to a tighter circle of trust suppliers and subcontractors and communicate with them more intensively.

Conceptually the project is based on this trend among leading companies to consolidate their chains and communicate with them more intensively. Sustainability performance is becoming more important for an MNE to communicate on, so it aught to become more important for its suppliers to communicate on as well.

To pick one example from our project, the Otto Group, has buying houses in Bangladesh, Hong Kong and Istanbul. There are people responsible for CSR in these offices and they work closely with Systain, the sustainable business consultant also involved in the project, which itself was formerly part of the Otto Group.

This consolidation is more than just a longer term commitment to certain suppliers. In another example, Nike’s Hannah Jones points out that they had sourced from the soccer ball factory in Pakistan for ten years before they terminated the contract when they found violations. Genuinely engaging with the supplier and trying to build some openness and trust in the relationship can work for both the buyer and the supplier.

The trust built up between key suppliers and Otto is part of what convinced some of these small companies to join in the project in the first place and they are starting to recognize its value along the way!

Deloitte highlights systemic risk in supply chains

When Deloitte’s Consumer Products Group recently surveyed consumers, 855 indicated being aware of the recent recalls and the supply chain scare, 33% indicated paying more attention to labels and packaging since then. More importantly 18% indicated they had actively started looking for additional information on the internet and elsewhere.

Deloitte categorizes the recent recalls as a new type of systemic risk that can seriously damage brand value. It further says that most companies are completely unprepared to deal with this kind of risk.

In the article, Pat Conroy, vice chairman and U.S. consumer products group leader at Deloitte & Touche USA LLP is quoted as saying: “Companies must now decide how they will compete in a much more transparent future (…)They have an opportunity to create and maintain trust by adhering to the highest standards of quality and transparency. On the other hand, in this new age of transparency, there will be immense consequences for missteps, which will directly affect consumers’ trust.”

It seems that in the age of increasingly aware and active customers, companies will have to be completely open on how they’re doing. Companies have to go out on a limb and explain themselves preemptively; describe the risks of their business and their supplier choices before something goes wrong.

When it does, and millions of consumers start browsing for details, it helps if there is a trusted, reliable, and brutally honest sustainability report available to pop up in their queries (as well as reports from key suppliers).

Foodmiles taking off

The Dutch newspaper Trouw ran an article today stating that the French supermarket company Casino will start informing its customers about the foodmiles (or kilometers) of their house brand through labels (Trouw, September 4th 2007). The labels will be color coded and the recyclability of the packaging will be stated as well. They expect to have all of their 3000 products labeled by end of 2008 and have already taken action on some products: a cod filet that traveled 27.000 (!) kilometers before arriving at the store was taken out of the range. I haven’t been able to find any confirmation of this initiative in other news sources.

Several other supermarket chains and retailers are exploring similar schemes, Tesco announced an initiative to start reporting the carbon footprint of the 70.000 products they carry back in January (The Guardian January 29th 2007), but have not implemented it yet due to the complexity of the measurement. Another illustration:Timberland, the US shoe brand, has looked into reporting the carbon footprint of their products. The difficulty they encountered was that they’d have to measure all the way down to the cows, which the real base of their supply chain and the largest contributor to the carbon footprint (Environmental Leader, March 28^th 2007). One advantage Casino has is that they own their own distributor, Easydis.

With these labeling initiatives care should be taken to distinguish between foodmiles, being the distance a product (including all the separate components) traveled and the carbon footprint, which takes into account emissions of a particular mode of transport as well as the bulk and weight of the product. Laudable as they are in providing some much need transparency for consumers, the way in which such a label is implemented and what it will cover will be something to keep a sharp eye on once the system is in place.

These initiatives are a sure sign that green consumption is on the rise and major players see it as having great market potential, with Tesco accompanying their January 19^th announcement with a £ 500 million (€ 740 million) pledge to turn “the fringe green lobby into a mass consumer movement” (The Independent, January 19^th). And, coincidentally, today is the annual Dutch “Sustainable Tuesday”, a reference to the 3^rd Tuesday in September when the cabinet budget for the year is traditionally announced. The theme? Putting Sustainable Consumption on the Menu.