2010 Prediction: Companies Focus on Supplier Social and Performance Transparency

In the first column in this prediction series on building supplier transparency, I focused on the area of financial and business transparency. But this is only one type of supply chain transparency on which companies will focus on building in 2010, however. Spend Matters' research suggests that an increasing number of organizations will also focus on building two additional kinds of supplier transparency this year: social transparency and performance transparency. With each, as with financial and business transparency, it's important to remember that building transparency represents a more significant initiative and investment than enabling visibility into a single indicator or information type; transparency implies a new level of continuous insight to supplier actions and behaviors.

When it comes to social transparency, companies typically want to develop insight around behaviors and practices that could damage their top or bottom line, create negative publicity, or impact their ability to meet new or existing regulatory requirements. Companies that build social transparency into their supply chain are often concerned with such supplier activities as labor practices, adherence to local work rules and regulations, environmental concerns, and supplier diversity (in certain markets).

What's most interesting about social transparency is that companies that usually embrace an approach to transparency in this area are as interested in supplier adherence to the absolute (e.g., regulations) as to the relative (e.g., accepted societal norms). In other words, building social transparency into a supply base often brings with it a philosophical shift away from simply ensuring that suppliers abide by the letter of a contract -- or the law -- to embracing a company's own CSR and related philosophy.

Spend Matters believes that transparency occurs when a company shifts its emphasis away from one-time (or "one-cause") efforts toward a broader and sustained focus on developing its own philosophy in suppliers. While technology, often in the form of supplier-information management platforms (as well as other niche platforms, such as multi-tier supplier-diversity reporting) is essential to building supplier social transparency, it's also essential to acknowledge the importance of putting feet on the supplier street. Ramping up in-country resources from the standpoint of supplier development and auditing is critical, unless you work with a local supplier development or auditing partner on the ground.

Similarly, supplier-performance transparency comes not only from investing in the right systems and processes to identify, track, measure, and report on a specific set of metrics, but also from fostering a culture of metrics-driven accountability and expectations. In this regard, performance transparency goes far beyond simply keeping and using a supplier scorecard (however, it does require quantifying and tracking metrics such as quality, PPM levels, escapes, on-time performance, SLA adherence, etc.)

Companies that choose to focus on supplier-performance transparency are not afraid to discover things that most teams in traditional procurement organizations would rather not (because of the work involved in further analyzing and correcting issues that might not have a sufficient near-term impact to warrant the effort under a traditional operating environment). As a result, a culture of supplier-performance transparency requires a significant commitment to building and fostering a relationship based on communication and continuous improvement, and to investing time and effort to identify, address, and resolve key indicators (i.e., future issues) as early as possible.

Companies that invest in performance transparency often have separate supplier development budgets and resources that are designed to develop and work with suppliers. These groups might focus on lean supplier development activities or other types of initiatives, but in all cases, the output is a development activity rather than just a vendor-management report or one-way corrective-action request. A commitment to embracing performance transparency is a commitment to treating suppliers as partners.

Quite often, organizations link performance transparency programs with broader financial and business transparency initiatives so that they may identify at-risk suppliers. They can then take action as early as possible to develop a supplier, or to develop alternative options. From a systems perspective, companies that invest in performance transparency often rely on a combination of supplier-performance management solutions -- often as part of a broader suite solution -- and supply-risk and supplier information management tools and content.

A broad number of vendors can help with both off-the-shelf and customized/configured tools in the performance transparency area including Aravo, Ariba, BravoSolution D&B, Ecovadis, Emptoris, Endeca, Hiperos, Rollstream, SAS, SupplierForce, SupplierSoft, Vendormate, Xcitec. And marketplaces that provide community input, like MFG.com, can facilitate certain elements of performance transparency as well.

- Jason Busch