How supply chain visibility can help to minimize your supply chain risk
In today’s hyperconnected world, is supply chain visibility the Holy Grail of business operations?
Supply chain visibility — the ability to track items through your entire supply chain, from manufacture to ultimate destination — is a core consideration for businesses today.
Increased disruption, a more varied range of supply chain threats, and a focus on ESG (environmental, social and governance) concerns make more robust and trackable supply chains more critical than ever. Is greater supply chain visibility the answer?
What Is Supply Chain Visibility?
When seeking a supply chain visibility definition, it’s important to define the supply chain. End-to-end supply chain visibility demands that you oversee your entire supply chain, not just your immediate suppliers but also their suppliers. Something that’s not always simple in a world of global sourcing.
Visibility in supply chains relates to your ability to track and evidence the provenance of your goods and components from procurement to fulfillment.
What Is Lack of Visibility in Supply Chains?
Conversely, a lack of visibility means the inability to track your supply chain. You do not have full sight of the journey your parts, goods or stock take from manufacturer to endpoint. You do not have the data to show where your supplies are, how much stock you hold or how the items you’re purchasing are made, and by whom.
All of this exposes your organization to significant risk relating to sustainability and human rights issues, supply chain disruption and inefficient, uneconomical operations.
Why Is Supply Chain Visibility Critical?
There are several reasons why real-time supply chain visibility is crucial to today’s organizations. Supply chain visibility benefits include more robust and agile supply chains, better performance against ESG metrics and reduced risk.
We’ve identified the following six benefits of supply chain visibility:
1. It makes your supply chain stronger. The world is volatile; conflicts spring up, natural disasters happen and climate-related weather events are increasingly common. Suppliers can go out of business, threatening your ability to deliver. Having a line of sight across your entire supply chain lets you pick up on potential threats sooner and respond quicker.
2. It enables you to manage your logistics and operations more effectively. Lack of supply chain visibility jeopardizes your control over stock levels, lead times and ultimately, your customer service. The impact of COVID-19 lockdowns brought the fragility of supply chains into stark relief. If you don’t have full sight of your supply chain, you endanger your ability to react to interruptions, leading to costly supply issues due to too much or too little stock.
3. It gives you greater control. This may be via managing costs more effectively due to smoother supply chains. It might be via increased confidence in your ability to meet regulatory requirements because better supply chain visibility enables you to build more reliable audit trails.
4. It improves your ESG performance and reporting. Environmental, social and governance considerations are more high-profile than ever. As organizations seek to monitor, improve and report on their sustainability credentials, and as investors, purchasers and consumers place more importance on ESG factors, your supply chain is in the spotlight.
Whether it’s societal issues like modern slavery or environmental ones like sustainable sourcing, ESG plays a growing role in reporting, due diligence processes and buying decisions.
Confidence that you are achieving your ESG objectives requires you to have visibility of your entire supply chain.
5. It benefits your risk reduction strategy. Third-party risk can be significant, with substantial reputational and financial implications from failing to assess your suppliers. Just look at some of the damaging publicity businesses have received from continuing to work in Russia and with Russian suppliers during the Ukraine war. The war in Ukraine has put renewed focus on issues like sanctions screening, with businesses hastening to review their governance, risk and compliance processes in light of the conflict.
6. And Russia isn’t the only area in the spotlight. This week, the New York Times described how “reports of forced labor of Uyghur people in Xinjiang have made retailers rethink their supply chains.”
For all the reasons above — the risk of too much or too little stock; poor financial control; potential for regulatory breaches and supply chain disruption; the threat of supplier behavior derailing your ESG efforts — the risks associated with a lack of supply chain visibility are many and varied.
Benefits of Supply Chain Visibility
If the importance of supply chain visibility and the risks of a lack of visibility are clear, then so too are supply chain visibility benefits.
- Stronger supply chain
- Increased agility and ability to respond to unexpected events
- More cost-efficient stock control
- Reduced risk of supply issues
- Improved ESG performance, confidence and reporting rigor
- Overall, increased ability to identify, mitigate and minimize risks relating to your supply chain
Supply Chain Visibility Examples
Some examples of areas you might need to monitor to achieve supply chain visibility are:
- Order location. Where is the cargo you have purchased? For stakeholder management (keeping clients and customers apprised of their order status, building trust and satisfaction), operational efficiency (arranging storage, transport or delivery) and financial planning, understanding cargo location is vital.
- Costs. You need to understand the rates you incur to transport cargo, but this is becoming more complex as global sourcing becomes the norm and purchasing journeys grow more complex. To track and manage spend and improve cost-efficiency, you need comprehensive and accurate information on where in your supply chain you incur spend.
- Paperwork and audit trail. Having a robust paper trail is a necessity in a world increasingly governed by the need for regulatory compliance. Supply chain visibility means transparency in your records and the ability to access detailed data on costs, freight movements and customs declarations.
Supply Chain Visibility and Risk Management
From the issues we’ve covered so far, it should be clear that supply chain visibility and risk management are inextricably bound together.
In a report released in May 2022, McKinsey point out that procurement departments need a “comprehensive view of their supply chain vulnerabilities, organised around their companies’ product lines” if they are to avoid three key sources of risk that every organization will face “in one way or another.”
Supply chain visibility can reduce your risk in any number of ways:
- Better communication leads to greater oversight and improved collaboration. A highly-transparent supply chain enables you to communicate more positively, frequently and confidently with suppliers and purchasers, reducing the risk that minor issues become major problems. You can scale your operations in response to spikes in demand or forewarn customers of delays or shortages. Either way, the risk of reputational or financial penalties reduces.
- Transparent supply chains mean greater assurance of provenance, improving ESG performance and reducing the risk of an investor or customer’s due diligence uncovering an association with unethical suppliers. A desire for end-to-end supply chain visibility means your entire supplier network is in scope. Better supply chain visibility improves your ability to carry out robust vendor risk management throughout the chain.
- Provides quicker and smarter decision-making with a basis in data. Supply chain visibility equals a wealth of data, which you can use to inform your decisions. Optimizing operations and maximizing efficiency demands that you act on robust, complete data. Supply chain visibility delivers this data from procurement to fulfillment, putting you in the driving seat.
- Threats are identified and mitigated faster and with all the facts at your fingertips. The risk of supply chain disruption is ever-present — but improve supply chain visibility, and you can identify issues before they cause significant trouble. Any problems can be flagged to the relevant team early, enabling timely and effective interventions.
- Regulatory compliance is improved — having sight of the entire supply chain means you can ensure you’re compliant with local regulations and legislation in all relevant jurisdictions.
How To Achieve Supply Chain Visibility
Data is critical to supply chain visibility. Data is the foundation on which you build a picture of visibility in supply chains. But this data can be challenging to come by. The types of data you need to monitor for proper supply chain visibility and agility include:
- Order status and cargo location
- Compliance-related records — freight documentation, invoices and other documents needed for a compliant audit trail
- Supplier ESG metrics and documentation
- Real-time data on the movement of goods
Supply Chain Visibility Software
While supply chain data may be challenging to capture, supply chain visibility solutions can help. When choosing supply chain visibility software, it’s essential to select a solution that can achieve some key objectives:
- The solution must be able to capture data throughout the entire length of the chain
- And it has to be able to catch any data within the chain — from a variety of sources and across different systems
- It needs to be adaptable. Your data needs tomorrow may not be the same as today; any supply chain software has to be sufficiently agile to cope
- It needs to join the dots. Rather than collecting data in unconnected silos, a good supply chain visibility software solution will bring together information to provide a 360-degree view of your logistics
Supply Chain Visibility and Risk Management — Inseparable for Success
You probably have a sense that supply chain visibility and risk management are closely connected, with improved supply chain visibility having the power to positively impact your ability to manage risk.
You hopefully also have a clearer picture of what supply chain visibility means and some new ideas on how to achieve it.
If taking a more proactive approach to risk management is on your priority list, you may be interested to read more about how Enterprise Risk Management from Diligent can enhance your modern risk strategy. Read more about Enterprise Risk Management from Diligent and consider how ERM fits with the supply chain visibility imperative.
