《供应链管理 Supply Chain Management》课程教学资源（研讨资料）What’s Your Strategy for Supply Chain Disclosure?

MITSloan Management Review What's Your Strategy for Supply Chain Disclosure? WINTER 2016 Thanks to social media and an increasing flood of data,the capacity to generate causes and controversies almost instantly has become the new norm in today's "super-transparent society."Most business leaders have not yet come to grips with the new reality-and what it means for their organizations. Donna Marshall Lucy McCarthy Paul McGrath Fiona Harrigan Vol.57,No.2 Reprint#57219 http://mitsmr.com/1NIH2w0

WINTER 2016 Donna Marshall Lucy McCarthy Paul McGrath Fiona Harrigan What’s Your Strategy for Supply Chain Disclosure? Thanks to social media and an increasing flood of data, the capacity to generate causes and controversies almost instantly has become the new norm in today’s “super-transparent society.” Most business leaders have not yet come to grips with the new reality — and what it means for their organizations. Vol. 57, No. 2 Reprint #57219 http://mitsmr.com/1NlH2w0

THE AGE OF SUPER-TRANSPARENCY:SUPPLY CHAINS What's Your Strategy for Supply Chain Disclosure? THE LEADING With pressures to increase public disclosure of supply chain QUESTION information mounting,executives need to appreciate the diverse How much information forces and actors driving and enabling this trend-and learn should a com- how to cope with them. pany disclose BY DONNA MARSHALL,LUCY MCCARTHY,PAUL MCGRATH,AND FIONA HARRIGAN about its supply chain? FINDINGS The demands for transparency in WE LIVE IN AN ERA in which many organizations operate highly complex and globalized supply chain infor- mation are growing supply chains.While these supply chains are now required to be lean,agile,and sustainable,they are Once a brand leader also the focus of growing attention from a variety of external stakeholders seeking information that opens up its supply chain to public includes and frequently exceeds what the company is legally obliged to disclose.(See"About the scrutiny,it's difficult for others in the Research,"p.38.)However,many companies have limited visibility of their supply chain informa- industry to have a tion,have a poor understanding of their capabilities for capturing and reporting this information, different position. and have not overtly considered their supply chain information disclosure strategy. Companies should anticipate the In this article,we discuss the pressures on companies to disclose supply chain information,the information de- mands of external drivers and impediments to supply chain disclosure,and the types of supply chain information stakeholders. PLEASE NOTE THAT GRAY AREAS REFLECT ARTWORK THAT HAS BEEN INTENTIONALLY REMOVED. WINTER 2016 MIT SLOAN MANAGEMENT REVIEW 37 THE SUBSTANTIVE CONTENT OF THE ARTICLE APPEARS AS ORIGINALLY PUBLISHED

WINTER 2016 MIT SLOAN MANAGEMENT REVIEW 37 WE LIVE IN AN ERA in which many organizations operate highly complex and globalized supply chains. While these supply chains are now required to be lean, agile, and sustainable, they are also the focus of growing attention from a variety of external stakeholders seeking information that includes and frequently exceeds what the company is legally obliged to disclose. (See “About the Research,” p. 38.) However, many companies have limited visibility of their supply chain informa￾tion, have a poor understanding of their capabilities for capturing and reporting this information, and have not overtly considered their supply chain information disclosure strategy. In this article, we discuss the pressures on companies to disclose supply chain information, the drivers and impediments to supply chain disclosure, and the types of supply chain information THE LEADING QUESTION How much information should a com- pany disclose about its supply chain? FINDINGS The demands for transparency in supply chain infor￾mation are growing. Once a brand leader opens up its supply chain to public scrutiny, it’s difficult for others in the industry to have a different position. Companies should anticipate the information de￾mands of external stakeholders. What’s Your Strategy for Supply Chain Disclosure? With pressures to increase public disclosure of supply chain information mounting, executives need to appreciate the diverse forces and actors driving and enabling this trend — and learn how to cope with them. BY DONNA MARSHALL, LUCY MCCARTHY, PAUL MCGRATH, AND FIONA HARRIGAN THE AGE OF SUPER-TRANSPARENCY: SUPPLY CHAINS PLEASE NOTE THAT GRAY AREAS REFLECT ARTWORK THAT HAS BEEN INTENTIONALLY REMOVED. THE SUBSTANTIVE CONTENT OF THE ARTICLE APPEARS AS ORIGINALLY PUBLISHED

THE AGE OF SUPER-TRANSPARENCY:SUPPLY CHAINS typically made available to the public.Finally,we Pressure also comes from what we term"critical identify the broad disclosure strategies companies events."Such events-for example,the 2013 Rana can use to release supply chain information and Plaza garment factory collapse in Bangladesh,in offer managers guidance on designing the optimal which more than 1,000 people died-often act as disclosure strategy for their company. tipping points,bringing about a fundamental shift in public opinion and major changes in industry Pressures to Disclose disclosure practice.NGOs and activist groups can Supply Chain Information play a critical role in pushing this process.Through To understand how best to strategically manage effective use of traditional and social media,they public supply chain information disclosure,it is undertake sophisticated media campaigns to ex- important that managers appreciate the diverse pose poor supply chain practices.The campaigns(a forces and actors driving and enabling this trend. good example was global environmental organiza- Aside from internal governance and risk concerns, tion Greenpeace's campaign against Nestle S.A.'s external pressure has come from government regu- palm oil supplier's deforestation practices in 2010) lations,best practices of peers,and changing can have potentially serious implications for brand expectations from salient stakeholder groups such reputation. as nongovernmental organizations. Recent examples of new regulatory pressure in Enablers and Barriers the United States include the 2010 Dodd-Frank to Transparency Wall Street Reform and Consumer Protection Act With pressures to increase public disclosure of sup- and the California Transparency in Supply Chains ply chain information mounting,key enablers and Act of 2010;in Europe,examples include the Re- barriers will determine the extent to which a com- striction of Hazardous Substances Directive and pany can effectively respond to the demands.The the Registration,Evaluation,Authorisation,and adoption of new information and communication Restriction of Chemicals regulation.At the same technologies,particularly in the areas of tracking time,leading companies in many industries are and tracing,such as radio frequency identification, shifting the boundaries of supply chain informa- has facilitated tremendous transparency potential. tion disclosure.We have seen this in the apparel For example,Switcher SA,a Swiss clothing com- and electronics industries,with companies such as pany,lets customers trace the T-shirt they are Nike Inc.leading the field in supply chain infor- wearing back to every participant in the produc- mation disclosure and other companies following tion process.The information systems can also their lead.Once a brand leader begins to open its facilitate other types of information collection, supply chain to public scrutiny,it is difficult for such as employee welfare and working hours.De- others in the industry to resist without a good spite the potential of these technologies to create commercial reason. almost complete transparency within supply ABOUT THE RESEARCH annual and corporate social responsibility re- fashion,food,and pharmaceuticals)to enable us For this paper,we conducted three levels of re- ports and the relevant content of their websites to explore varying transparency practices across search.First,we did a literature review around to explore what they were saying about supply different industries.The specific cases draw on the topic of supply chain transparency,review chain transparency practices and trends. publicly available information and are used for ing 179 academic articles on the topic.We We also conducted 20 in-depth case studies illustrative purposes rather than as evidence of then set about identifying companies that were (separate from the companies mentioned above) empirical support for the arguments made.The likely to be relatively advanced in their supply of selected exemplars and nonexemplars of sup- identity of the companies in the case studies re chain disclosure practices,choosing the top ply chain transparency practice.In these cases, mains confidential,as required under our research 20 companies by revenue across five selected we focused our interviews on supply chain,pur- protocol and research ethics guidelines.From the industries groupings (electronics,medical chasing,and corporate social responsibility research and associated analysis,we developed devices,fashion,food,and pharmaceuticals). managers.The cases,following a grounded the and,through the empirical case studies,tested using the Forbes Global 2000 list.We undertook ory research design,are representative of five the tools and frameworks presented in this paper a detailed content analysis of the companies' industry sectors (electronics,medical devices, for relevance,validity,and robustness. 38 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU

38 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU THE AGE OF SUPER-TRANSPARENCY: SUPPLY CHAINS typically made available to the public. Finally, we identify the broad disclosure strategies companies can use to release supply chain information and offer managers guidance on designing the optimal disclosure strategy for their company. Pressures to Disclose Supply Chain Information To understand how best to strategically manage public supply chain information disclosure, it is important that managers appreciate the diverse forces and actors driving and enabling this trend. Aside from internal governance and risk concerns, external pressure has come from government regu￾lations, best practices of peers, and changing expectations from salient stakeholder groups such as nongovernmental organizations. Recent examples of new regulatory pressure in the United States include the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act and the California Transparency in Supply Chains Act of 2010; in Europe, examples include the Re￾striction of Hazardous Substances Directive and the Registration, Evaluation, Authorisation, and Restriction of Chemicals regulation. At the same time, leading companies in many industries are shifting the boundaries of supply chain informa￾tion disclosure. We have seen this in the apparel and electronics industries, with companies such as Nike Inc. leading the field in supply chain infor￾mation disclosure and other companies following their lead. Once a brand leader begins to open its supply chain to public scrutiny, it is difficult for others in the industry to resist without a good commercial reason. Pressure also comes from what we term “critical events.” Such events — for example, the 2013 Rana Plaza garment factory collapse in Bangladesh, in which more than 1,000 people died — often act as tipping points, bringing about a fundamental shift in public opinion and major changes in industry disclosure practice. NGOs and activist groups can play a critical role in pushing this process. Through effective use of traditional and social media, they undertake sophisticated media campaigns to ex￾pose poor supply chain practices. The campaigns (a good example was global environmental organiza￾tion Greenpeace’s campaign against Nestlé S.A.’s palm oil supplier’s deforestation practices in 2010)1 can have potentially serious implications for brand reputation. Enablers and Barriers to Transparency With pressures to increase public disclosure of sup￾ply chain information mounting, key enablers and barriers will determine the extent to which a com￾pany can effectively respond to the demands. The adoption of new information and communication technologies, particularly in the areas of tracking and tracing, such as radio frequency identification, has facilitated tremendous transparency potential. For example, Switcher SA, a Swiss clothing com￾pany, lets customers trace the T-shirt they are wearing back to every participant in the produc￾tion process. The information systems can also facilitate other types of information collection, such as employee welfare and working hours. De￾spite the potential of these technologies to create almost complete transparency within supply ABOUT THE RESEARCH For this paper, we conducted three levels of re￾search. First, we did a literature review around the topic of supply chain transparency, review￾ing 179 academic articles on the topic. We then set about identifying companies that were likely to be relatively advanced in their supply chain disclosure practices, choosing the top 20 companies by revenue across five selected industries groupings (electronics, medical devices, fashion, food, and pharmaceuticals), using the Forbes Global 2000 list. We undertook a detailed content analysis of the companies’ annual and corporate social responsibility re￾ports and the relevant content of their websites to explore what they were saying about supply chain transparency practices and trends. We also conducted 20 in-depth case studies (separate from the companies mentioned above) of selected exemplars and nonexemplars of sup￾ply chain transparency practice. In these cases, we focused our interviews on supply chain, pur￾chasing, and corporate social responsibility managers. The cases, following a grounded the￾ory research design, are representative of five industry sectors (electronics, medical devices, fashion, food, and pharmaceuticals) to enable us to explore varying transparency practices across different industries. The specific cases draw on publicly available information and are used for illustrative purposes rather than as evidence of empirical support for the arguments made. The identity of the companies in the case studies re￾mains confidential, as required under our research protocol and research ethics guidelines. From the research and associated analysis, we developed and, through the empirical case studies, tested the tools and frameworks presented in this paper for relevance, validity, and robustness

A 2013 survey of Australian fashion companies revealed that 93%of the companies surveyed didn't know where their raw materials came from. chains,certain industries,including fashion,often this facilitates tailored data gathering,it can still be have limited knowledge of their supply chains and costly.What's more,it is unlikely to foster a collabor- engage in limited public disclosure.For example,a ative engagement with suppliers and may create an 2013 survey of Australian fashion companies re- ongoing dependency on external experts. vealed that 93%of the companies surveyed didn't Of course,developing one's own data-collecting know where their raw materials came from.2 and audit capabilities,coupled with a collaborative Improved transparency,however,is not without philosophy across the supply chain,offers the its costs,especially in complex,multilevel supply greatest potential for developing a high-quality chains.The cost and effort in setting up,using,and transparency system.However,tools such as real- monitoring a transparent reporting system across a time monitoring,product coding,and serialization complex supply chain can be steep.In our research, will require substantial up-front investment in many people we interviewed commented onaudit both resources and industry collaboration.Once fatigue"associated with the growing level of trans- the investments have been made,companies would parency-related data gathering and reporting.The have substantially improved data capabilities to lack of standardized reporting systems,the absence pursue further transparency and process improve- of a common technology platform,ill-defined ments.Companies exploring or adopting this standards,and a lack of supplier education can also approach,such as the Coca-Cola Co.,tend to pro- pose serious hindrances to companies wishing to vide guidance and assistance to their suppliers to improve their supply chain transparency. help them attain high levels of transparency,thus A 2014 report by Deloitte Consulting LLP3 de- increasing joint competencies and minimizing the scribed a number of approaches companies can use administrative burden while maximizing the qual- to improve their supply chain transparency,which ity of the data transfer. typically involve trade-offs between cost or effort and quality.At the low-cost end of the spectrum, Types of Supply Chain Information companies can gather basic information from their Once a company understands the pressures it faces tier-one direct suppliers using simple solutions such to release supply chain information to the public and as Excel spreadsheets or SMS texting surveys,with is aware of its information-gathering constraints the potential to gradually adopt more sophisticated and capabilities,it must understand the scope of reporting technologies such as product coding and supply chain information available for release.We real-time monitoring tools.A second,more involved identified four common types of supply chain infor- approach requires suppliers to meet externally certi- mation that tend to be publicly disclosed:supply fied accreditations as a precondition for becoming chain membership,provenance,environmental in- part of the supply chain.For example,suppliers formation,and social information. might have to comply with environmental manage- ment standards such as ISO 14000.This approach Supply Chain Membership Releasing information externalizes the cost of audit and compliance,but it on the suppliers that make up the supply chain is is limited in terms of its ability to be tailored to the especially important if suppliers are involved in specific needs of the company.A related,potentially practices that are a risk to the reputation of a com- more expensive approach is to outsource all or part pany.Publicizing basic information within this of the audit function to third-party bodies.Although category will,at a minimum,involve providing SLOANREVIEW.MIT.EDU WINTER 2016 MIT SLOAN MANAGEMENT REVIEW 39

SLOANREVIEW.MIT.EDU WINTER 2016 MIT SLOAN MANAGEMENT REVIEW 39 chains, certain industries, including fashion, often have limited knowledge of their supply chains and engage in limited public disclosure. For example, a 2013 survey of Australian fashion companies re￾vealed that 93% of the companies surveyed didn’t know where their raw materials came from.2 Improved transparency, however, is not without its costs, especially in complex, multilevel supply chains. The cost and effort in setting up, using, and monitoring a transparent reporting system across a complex supply chain can be steep. In our research, many people we interviewed commented on “audit fatigue” associated with the growing level of trans￾parency-related data gathering and reporting. The lack of standardized reporting systems, the absence of a common technology platform, ill-defined standards, and a lack of supplier education can also pose serious hindrances to companies wishing to improve their supply chain transparency. A 2014 report by Deloitte Consulting LLP3 de￾scribed a number of approaches companies can use to improve their supply chain transparency, which typically involve trade-offs between cost or effort and quality. At the low-cost end of the spectrum, companies can gather basic information from their tier-one direct suppliers using simple solutions such as Excel spreadsheets or SMS texting surveys, with the potential to gradually adopt more sophisticated reporting technologies such as product coding and real-time monitoring tools. A second, more involved approach requires suppliers to meet externally certi￾fied accreditations as a precondition for becoming part of the supply chain. For example, suppliers might have to comply with environmental manage￾ment standards such as ISO 14000. This approach externalizes the cost of audit and compliance, but it is limited in terms of its ability to be tailored to the specific needs of the company. A related, potentially more expensive approach is to outsource all or part of the audit function to third-party bodies. Although this facilitates tailored data gathering, it can still be costly. What’s more, it is unlikely to foster a collabor￾ative engagement with suppliers and may create an ongoing dependency on external experts. Of course, developing one’s own data-collecting and audit capabilities, coupled with a collaborative philosophy across the supply chain, offers the greatest potential for developing a high-quality transparency system. However, tools such as real￾time monitoring, product coding, and serialization will require substantial up-front investment in both resources and industry collaboration. Once the investments have been made, companies would have substantially improved data capabilities to pursue further transparency and process improve￾ments. Companies exploring or adopting this approach, such as the Coca-Cola Co., tend to pro￾vide guidance and assistance to their suppliers to help them attain high levels of transparency, thus increasing joint competencies and minimizing the administrative burden while maximizing the qual￾ity of the data transfer. Types of Supply Chain Information Once a company understands the pressures it faces to release supply chain information to the public and is aware of its information-gathering constraints and capabilities, it must understand the scope of supply chain information available for release. We identified four common types of supply chain infor￾mation that tend to be publicly disclosed: supply chain membership, provenance, environmental in￾formation, and social information. Supply Chain Membership Releasing information on the suppliers that make up the supply chain is especially important if suppliers are involved in practices that are a risk to the reputation of a com￾pany. Publicizing basic information within this category will, at a minimum, involve providing A 2013 survey of Australian fashion companies revealed that 93% of the companies surveyed didn’t know where their raw materials came from

THE AGE OF SUPER-TRANSPARENCY:SUPPLY CHAINS names of first-tier direct suppliers.For example,in meet appropriate regulatory standards.For exam- the electronics and fashion industries,many compa- ple,many consumers are unaware that tantalum, nies publish lists of first-tier suppliers,but this is less tungsten,tin,and gold are common elements in common in the food,pharmaceutical,or medical electronic devices and that companies may have devices industries.A growing trend among exemplar sourced them from suppliers in locations where companies is to disclose information on supplier lo- armed gangs profit from their extraction and where cation and also about lower-tier suppliers.Nike,for mining processes are dangerous.Intel Corp.took instance,began to move toward disclosure through- the lead as the first electronics brand to offer mi- out the late 1990s,and in 2005 it became one of the croprocessors made with materials from smelters first companies to reveal a global suppliers list con- validated as conflict-free. taining information on 90%of its suppliers.Now, corporate responsibility information appears on Environmental Information Most corporate re- Nike's main website,and the company reveals a sup- sponsibility reports include a wide range of plier list for its entire product range,including the environmental measures such as carbon and en- name,location,workforce composition,and sub- ergy usage levels,water use,and levels of waste in contracting status of every supplier. the supply chain.For example,Puma SE,the ath- letic footwear and clothing company based in Provenance Information on the materials used in Herzogenaurach,Germany,leads the field in envi- a product,the source location of the material or in- ronmental reporting of its supply chain.Puma gredients,and details on how the material or discloses information on water use,land use,air ingredients were extracted and produced is becom- pollution,and waste from its own operations as ing increasingly common.The point is to ensure well as its lower-tier suppliers,and it publishes an that there are no harmful or hazardous compo- environmental profit-and-loss statement. nents in the finished product and that the materials Social Information Companies may provide details on labor policies,human rights,and social THE SUPPLY CHAIN DISCLOSURE RADAR impacts within the supply chain.Information about This disclosure radar identifies four main categories of supply chain disclosure infor- labor policies may include work hours and holidays, mation and subcategories within them.It allows companies to evaluate their degree of wages and benefits,working conditions,and health transparency within these categories along a 0-100 scale (with 0 signifying no disclo- sure of supply chain information to the public and 100 signifying full disclosure). and safety reports.Human rights reports may in- clude information about child labor,forced labor, Social Society First tier Membership freedom of association,and nondiscrimination. information 100 Social impact information includes anti-corruption Human Supplier rights 0 location policies,impact on local communities,local en- gagement and development programs,and noncompliance with rules and regulations. 40 Labor Lower We have developed a supply chain disclosure rights tier radar that provides a visualization of the four broad categories of supply chain information discussed above and their key subcategories.(See "The Sup- Waste Material ply Chain Disclosure Radar.")This radar is not used intended to capture the full extent of all possible supply chain information gathered by organiza- Material tions.Rather,it is designed as a broad guide for Water location managers to help them categorize and plot their current approach to information gathering and Environmental Energy Material disclosure,and to frame thinking and change in re- information extraction Provenance lation to future disclosure strategies. 40 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU

40 MIT SLOAN MANAGEMENT REVIEW WINTER 2016 SLOANREVIEW.MIT.EDU THE AGE OF SUPER-TRANSPARENCY: SUPPLY CHAINS names of first-tier direct suppliers. For example, in the electronics and fashion industries, many compa￾nies publish lists of first-tier suppliers, but this is less common in the food, pharmaceutical, or medical devices industries. A growing trend among exemplar companies is to disclose information on supplier lo￾cation and also about lower-tier suppliers. Nike, for instance, began to move toward disclosure through￾out the late 1990s, and in 2005 it became one of the first companies to reveal a global suppliers list con￾taining information on 90% of its suppliers. Now, corporate responsibility information appears on Nike’s main website, and the company reveals a sup￾plier list for its entire product range, including the name, location, workforce composition, and sub￾contracting status of every supplier.4 Provenance Information on the materials used in a product, the source location of the material or in￾gredients, and details on how the material or ingredients were extracted and produced is becom￾ing increasingly common. The point is to ensure that there are no harmful or hazardous compo￾nents in the finished product and that the materials meet appropriate regulatory standards. For exam￾ple, many consumers are unaware that tantalum, tungsten, tin, and gold are common elements in electronic devices and that companies may have sourced them from suppliers in locations where armed gangs profit from their extraction and where mining processes are dangerous. Intel Corp. took the lead as the first electronics brand to offer mi￾croprocessors made with materials from smelters validated as conflict-free. Environmental Information Most corporate re￾sponsibility reports include a wide range of environmental measures such as carbon and en￾ergy usage levels, water use, and levels of waste in the supply chain. For example, Puma SE, the ath￾letic footwear and clothing company based in Herzogenaurach, Germany, leads the field in envi￾ronmental reporting of its supply chain. Puma discloses information on water use, land use, air pollution, and waste from its own operations as well as its lower-tier suppliers, and it publishes an environmental profit-and-loss statement. Social Information Companies may provide details on labor policies, human rights, and social impacts within the supply chain. Information about labor policies may include work hours and holidays, wages and benefits, working conditions, and health and safety reports. Human rights reports may in￾clude information about child labor, forced labor, freedom of association, and nondiscrimination. Social impact information includes anti-corruption policies, impact on local communities, local en￾gagement and development programs, and noncompliance with rules and regulations. We have developed a supply chain disclosure radar that provides a visualization of the four broad categories of supply chain information discussed above and their key subcategories. (See “The Sup￾ply Chain Disclosure Radar.”) This radar is not intended to capture the full extent of all possible supply chain information gathered by organiza￾tions. Rather, it is designed as a broad guide for managers to help them categorize and plot their current approach to information gathering and disclosure, and to frame thinking and change in re￾lation to future disclosure strategies. THE SUPPLY CHAIN DISCLOSURE RADAR This disclosure radar identifies four main categories of supply chain disclosure infor￾mation and subcategories within them. It allows companies to evaluate their degree of transparency within these categories along a 0-100 scale (with 0 signifying no disclo￾sure of supply chain information to the public and 100 signifying full disclosure). 10 0 20 30 40 50 60 70 80 90 100 First tier Lower tier Material used Material location Material extraction Water Waste Labor rights Human rights Social information Environmental information Provenance Society Membership Energy Supplier location