Achieving Supply Chain Transparency

Achieving Supply Chain Transparency

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hello and welcome to today's webinar achieving supply chain transparency i'm paul michelman editor-in-chief of mit sloan management review and i'll be your moderator today today's program is sponsored by amazon business our speaker today is karen zhang karen is a sloan school career development professor and an associate professor of operations management at the mit sloan school of management karen welcome and over to you thank you paul for the introduction uh good morning good evening and good afternoon everyone it is a good great pleasure to be here today and share with you some of the key lessons that we have learned through a decade long of research on the topic of supply chain transparency and one of the goals that i also would like to achieve today is to help inspire further ideas on how companies can craft a path forward toward transparency through business innovation and so we can enable positive changes in global supply chains particularly with respect to social and environmental practices now briefly about myself i grew up in china and did my bachelor's and master's degrees in qinghai university which i often proudly say is the mit in china then i went to stanford for my phd degree in management science and engineering and very luckily upon completing my phd degree landed a job at mit sloan as a faculty member in the operations management group i have been as long since 2011 and my passion as an academic is to use my knowledge and expertise to help improve the world both through research and education and naturally i am drawn to the topic of sustainability in my research i consider sustainability more broadly as encompassing both environmental and social responsibility issues in particular i have been working on the topic of supply chain transparency in both how companies can achieve transparency in their complex supply chains and how transparency can be utilized to drive behavior change now why do we care about supply chain transparency i am sure you are all aware of several high-profile incidents in the past two decades from labor abuse in foxconn factories to the renai plaza collapse in bangladesh these tragedies not only revealed to us how tremendous social and environmental impacts that our global supply chains have but also highlight that how little do we know about the practices in them most recently in november 2020 a large group of global brands including nike amazon h m zara ikea you name you can name many of them were brought in front of the uk parliament to address claims regarding the potential exploitation of uighurs in their supply chains and these claims came out from a study published by the australian strategic policy institute these brands one by one had to respond to questions about how their companies maintain visibility and combat modern slavery in their supply chains now these examples all illustrate that for many industries supply chain transparency is no longer a nice to have but actually becoming an expectation now emerging regulations activists consumers and even investors are all pressuring companies to establish responsible practices in their supply chains now for example esg investing is actually becoming more and more important these days in the u.s it is estimated that environmental and social problems erased half a trillion dollars worth of value from public companies over the five year period from 2015 to 2019. a key step to ensure responsible practices in the supply chain is indeed to obtain supply chain transparency and understand where are challenges for enacting those practices however it is not easy to do so in a 2016 survey by the sustainability consortium over 80 percent of the 1700 companies surveyed commented that their companies lack full visibility into the practices of their suppliers and over 50 percent of them actually had no visibility at all at the same time improving visibility is quite costly and resource intensive just to give you an example in 2014 the consumer electronics industry spent over 700 million dollars and six million staff hours to try to make sure their supply chains are free of conflict minerals yet despite all of these efforts many companies are still unsure whether their products are conflict-free now a third challenge is also that companies often do not know what kinds of information their customers and stakeholders really want to know so they need to figure that part out in order to make sure their investment in transparency can you the best return to try to tackle these challenges in our research we dissect supply chain transparency into two key components the first is what we call supply chain visibility this is about gaining information and knowledge about practices in the supply chain and trying to motivate better practices and the second one is what we call disclosure or communications to the public this is about providing information to the public and let them know what is actually the practices that are happening in your supply chain and as you can see giving visibility is a prerequisite a gaining disability is a prerequisite for a company in order to communicate the information that they collect to the public so today i am going to primarily focus on the dimension of supply chain visibility and would like to share with you how companies can gain visibility into their supply chains now with that one of the things that companies have been doing quite a bit is to rely on audits so traditionally they have rely on auditing to monitor their suppliers practices however there are a number of key drawbacks about auditing that could potentially prevent companies gaining true visibility into their supply chains first audits are all are very costly and because of the high cost audits are conducted with relatively low frequency so they only provide an infrequent snapshot of the suppliers practices second for the same reason of the high cost they also drive most companies to only audit their immediate tier one suppliers now this is actually going against the nature of the problem because data has actually consistently shown that the most severe social and environmental problems are actually occurring in the upper tiers of a supply chain for example in a 2013 zx report tier 2 suppliers were found to commit 18 more non-compliances than tier 1 suppliers and tier 3 committed 27 more than tier 1. unfortunately these upper tiers are currently out of the reach of many of the regular audits a third key drawback is that there is also evidence that suppliers can gain audits and hide information that they don't want to the auditors to see and this is really annihilating the purpose of the audit to begin with so we do agree that auditing is certainly a necessary tool to increase trans uh supply chain visibility and actually companies are finding ways to actually improve the efficiency of their audits and by counteract some of these drawbacks but we believe that companies ultimately need to expand their toolbox beyond auditing to truly gain supply chain visibility now one of the things that people may be thinking is how can we get more granular data and more higher frequency data and perhaps one approach that immediately jumped into many people's minds and have gotten a lot of hypes recently is the use of advanced technologies such as blockchain or internet of things now no doubt these technologies can provide very granular and high frequency data with the potential to offer unprecedented insights into supply chain practices but i want to challenge is blockchain or iot really the panacea to answer this question let me first share with you two interesting stories the first story is about a startup called context labs this is a company that specializes in providing companies with trustworthy data integration through blockchain technologies and using those integrated data to offer analytics driven insights their initial focus is the oil and gas industry where they can actually leverage the existing iot infrastructure and a number of public data that already exists to measure the carbon performance and related risks in the production sites in real time these insights actually allow the companies that they work with to more proactively manage potential risk events and also to actually benefit from carbon credits in this case the adoption of blockchain and iot to gain misability is actually quite successful now the second story i want to share with you considers another startup called goodyear chocolate in the picture here is the founder of goodyo chocolate juka so gudio is a finnish craft chocolatier that aims to provide radical transparency into the supply chain behind their products and in order to achieve that they experimented with using blockchain technology to trace raw materials and wages in their cacao supply chain unfortunately as indicated on the slide the experiment failed and it failed for two main reasons first the small holder cacao farmers that they source from do not actually have the knowledge and capabilities to operate and advance technology such as blockchain it took a lot of training but in the end the take-up rate is still very low second the mode of trading with these smallholder farmers and actually is very common in many developing countries largely relies on verbal agreements rather than formal written contracts and so there is no existing infrastructure to properly document the relevant information nor do the farmers have much motivation to change how they are doing things we can see from these two stories that advanced technology certainly do not apply universally and companies really need to be mindful of what it takes in the specific application at hand in order to make them useful in the particular context of gaining supply chain visibility there are at least two major barriers that must be overcome the first is the lack of technical human and process infrastructures to achieve transparency just like in the case of goodyear's failed blockchain experiment there the people involved do not have the capability and knowledge to process the technology or to use the technology there's also not an existing process for people to collect and document information properly now the other major barrier is misalignment of incentives this often occurs in large supply chains that involve multiple parties with potentially conflicting interests let me give you an example consumer-facing brands downstream probably feel a lot of pressure and need these days to improve transparency however upstream suppliers usually do not have the same sense of urgency or even the same level of interest in providing transparency that is because for these suppliers their sourcing practices and their own supply chains are part of the value proposition that they offer to downstream buyers so from their perspective being more transparent would potentially decrease their leverage in the supply chain because that is closing these advantages to their buyers and this could potentially lead to them being eventually squeezed out from the supply chain so you see technologies alone cannot solve these systemic problems and instead we really need business innovation to happen in order to address them so what i want to do next is to share with you a few examples of how innovative organizations are designing solutions to actually overcome these two types of barriers the first example i want to share considers how organizations are trying to solve infrastructure constraints or even more precisely how to work under the current infrastructure constraint to obtain visibility in the supply chain and this is an example of utilizing crowdsourcing platforms to get information deep in the supply chain in informal settings a number of organizations such as sedex in partnership with and wider and elevate by acquiring labor link are using this approach with initial success in particular they leverage everyday technologies such as cell phones that are increasingly available to workers and farmers in the developing world they develop a safe communication channel that is available 24 7 through which workers can call or text to report potential labor and safety issues occurring at the factory floor as you can see these platforms not only allow workers to have a voice but also give suppliers and downstream buyers a scalable way to obtain real-time visibility very interestingly the increasing number and scale of data collected through these platforms also trigger another emerging innovation that is organizations are using predictive analytics to be more proactive in managing social and environmental risks in the supply chains for example the global fund to end modern slavery is partnering with elevate to use their large-scale worker voice data to help buyers detect unauthorized subcontracting and forced labor and other issues in informing in informal garment factories in bangladesh and india similarly zx is also developing methods to combine audit reports with worker voice data and other data sources such as utility bills and shuttle schedules from the factories to try to uncover the true picture of factory practices the idea here is that every single data source represents one piece of the puzzle and by piecing them together we are more hopeful to see the complete picture now moving to the incentive side downstream buyers especially large ones have historically leveraged their market power to compel suppliers to be transparent and share information now this certainly represents the first step to bring suppliers on board we do contend that solely relying on sticks is not a sustainable approach in order to gain suppliers trust and maintain their participation it is important to show them the carrots these can be in the form of granting preferred supplier status offering better contracts or even jointly investing in capacity building at the supplier side now even more effective and in our opinion more critical and important is education is to educate suppliers to see the long-term benefit of transparency we believe that the conversation must shift from seeing transparency as yet another requirement for compliance to viewing it as a way to achieve cost savings for example reducing disruption-induced downtime or having better employee retention and eventually really seeing it as an opportunity to create business values winning more contracts or attracting new buyers now it is important to actually point out that this such type of education and mentality shift must also happen within the buyers owned organizations especially at the upper management level too often we have heard from practitioners that initiatives such as this encounter substantial internal resistance because top management is not committed and not willing to dedicate the necessary resources so the conversation shifting from compliance to opportunity must happen throughout the entire supply chain in that spirit uh next i would like to demonstrate to you several ways with which transparency can bring new business opportunities to organizations now many of you likely already see how having better insights into your supply chain can create opportunities to enhance its efficiency as i mentioned earlier by reducing disruption events and the related remediation costs so what i want to do here is to focus on the other two points how transparency can enable better communication to the public and how that could create an opportunity for an organization to take a leadership position in the industry and shape new market trends the first i would like to share with you an example about the better communication point and this is regarding a research collaboration that my colleagues and i have engaged with goodyear chocolate to help them improve their social responsibility communications with their consumers as mentioned earlier goodyo is a finnish chocolate startup that primes itself in providing radical transparency into its supply chain however it has been struggling with getting the desired market return on that currency in part because they don't know what information best resonates with their target customers so we welcome to answer that question and in particular we conducted consumer studies to measure how consumers intention to purchase goodyear products may change when different types of sustainability information is being presented with the product to be more precise here is the type of information that we present to the consumers in our study we vary the information along two dimensions whether it's about paying a fair price to cacao farmers or engaging in community development in underdeveloped regions and whether the message takes the form of telling a story from the beneficiary's perspective or simply stating the facts so let me read some of these uh messages that we designed together with the with goodyo from the screen here for example fair pricing fact-based messages what we show to the consumers is the this picture here and also the following uh statement artisan cacao we use a fictitious uh brand name in the study artisan cacao purchases cacao beans produced by farmers at five dollar per kilogram a price significantly higher than the industry's average price of 2.1

dollars per kilogram cacao beans now for fair pricing under a story based message we quote a statement from a cacao bean farmer saying that working with artisan cacao allowed me to trade cacao beans at the fair price to ensure a good income for my family so again we design our study such that one of these messages may appear together with the product and consumers will state how likely are they going to purchase the product when they see the corresponding message and we test the effect of presenting one of these messages on consumers purchasing tension as compared to the baseline condition of no messaging at all so the baseline condition consumers only see the product and state how likely are they going to purchase the product and prices are kept the same across all the conditions and because gluteal has two major markets finland and the u.s we also do the tests in the two major markets now the results actually are quite interesting and let me show you a summary of what we find there are two main findings i want to take away i want you to take away from this slide first of all in either market presenting any message is beneficial as compared to no message so the graph here shows how the average purchase intention that we collected from the consumer subjects vary depending on whether they are in the condition of seeing no message or in the condition of seeing a community development message either story based or fact based or seeing a message about fear pricing again either story based or fact-based so as we can see from both figures the purchase intention associated with any of the messages is significantly higher than the purchasing tension under no message and this is true for both finland and u.s markets so this result shows that indeed consumers increasingly consider sustainability attributes of a product in their purchase criteria and companies who can demonstrate transparent information on these attributes can gain market benefit now the second interesting insight from this study is highlighted in these green circles here notice that in finland story based messaging actually leads to the largest increase in consumers purchasing tension however in the u.s consumers tend to react more strongly to fact-based messaging so these contracts actually should shows that what information best resonates with consumers can vary by region and companies should not take for granted that communications that work well in one region would necessarily work in another region and instead they should take an evidence-based approach to try to identify what is the best communication strategy in a target market in order to achieve maximum market benefit so that is the example regarding how transparency can now enable better communication to the public another important opportunity that comes with better supply chain visibility is that it can enable a company to take a leadership position within its industry and let me illustrate this point through the example of taylor guitars like other guitar makers taylor guitars is a big buyer of woods and especially ebony woods historically the company sourced its ebony wood from a meal called the crelican meal in cameroon and the meal sourced its raw wood from several small suppliers in the region in 2011 when taylor executives visited the meal in order to learn about their practices and sourcing process they discovered some very disturbing facts among them one of them is how wood suppliers had actually need to cut down on average 10 trees in order to find one tree with the desired pure black color just because there is a strong industry preference for pure black ebony wood rather than ebony wood with stripes the what the the uh workers told taylor executives that if they had shipped the striped ebony wood to the mill they would reject it and so they have to actually find out cut many more trees in order to get the pure black avenue wood in order to receive the price that um they deserve so learning about these facts uh taylor executives are very determined to change this very unsustainable practice and so they decided to purchase the acrylic meal and vertically integrated its ebony supply chain by doing that they started to accept striped wood from the suppliers at the same price as pure black wood and in addition by owning the source of the ebony the company started to sell wood to its competitors being both a supplier and a producer they now help to re-educate both consumers and competitors to accept striped wood and as a result significantly improve the sustainability of ebony wood supply now taylor guitar is not an isolated example other transparent companies like patagonia in the apparel industry and starbucks in the coffee industry they are all increasingly playing an active role in shaping industry standards and new market trends to create new business opportunities for themselves to conclude i would really like all of you to take away from this webinar three important lessons first to truly gain supply chain visibility edits are only part of the solution it requires companies to expand their toolbox by introducing new methods second technology is only a means to an end gaining supply chain visibility is not just about making technology investments but instead it requires business innovation that addresses infrastructure and incentive barriers and i hope the examples that i share today can inspire even more innovative ideas to achieve uh those uh goals and finally i want to emphasize that education is key a shift in mentality is really needed from viewing transparency as yet another requirement for compliance to seeing it as an opportunity to improve both internal efficiency as well as to create new business opportunities for the organization thank you very much for your attention and i look forward to our q a sessions now thank you karen i'll give you a second to turn on your camera um and we'll move into the q a just a reminder for our audience you can add your questions to the questions section of the control panel and we will get to as many as we possibly can and their questions are already flooding in so um let's get right to it um karen on balance very difficult question to start what is the biggest challenge to achieving supply transparent supply chain transparent is it technical operational or cultural ah so i think that um i would i would say cultural and then operational and then least technical uh as i said and this is very related to my point about education and mentality shift right so in our conversation with various practitioners they repeatedly mentioned that you know especially when you are dealing with suppliers in you know underdeveloped regions and developing countries they do not you know it's not in their mindset about being transparent and and being forthcoming in terms of sharing information many of them actually do not have the necessary policies and processes in place to actually do that it's not even just that they're not willing to do it it's they don't even know what they need to do so there's a lot of cultural differences when you go to those remote regions and education and to change that mindset and change their culture is really a critical first step and it takes a lot uh to initiate that first step so you call it the first step but technically does it need to be the first step in other words if it's the hardest thing to challenge might there be an argument that says you should actually begin with operational because it's more within your control well the issue is um if if first of all in a lot of these settings data resides in those uh in those suppliers right so if the suppliers are not willing or not don't really have the capabilities to give you the information even if you have all the operational processes planned very well downstream you don't have the input right it's like you have a computer with the best program in the world but if you don't have input and data into that program it's not going to give you any output so a next question i think kind of stays in the same general area kind of setting aside the question of how we achieve the visibility we require the barriers to which and solutions you addressed extensively in the presentation what about the responsibility question how deep into a supply chain and how wide into the network of relationships your suppliers the cells manage does your responsibility go is it infinite uh that's definitely a great question and and and a question that we also you know grapple with a lot uh both in our own research as well as in our conversation with uh practitioners now there are definitely two i mean i would say at least two different leagues right when you talk to small companies like goodyear chocolate their supply chain is relatively simple and so their their whole you know idea or vision is really built upon this idea that they have complete visibility end to end right so they go all the way to the very first step which is growing the cacao beans to packaging to distribution to you know final consumer market so they are trying to own the entire supply chain and provide radical transparency there now if you think about a supply chain as complex as the one of nikes right then it is very very difficult for a company even if they have the will right to actually own the entire supply chain just because you know for suppliers in the very upstream of their tiers there are they could potentially engage in some unauthorized actions such as unauthorized subcontracting without company such as nike very far away from the region to know that know about and that's why i think again going back to the point education is important right how do you make that change just to tell the suppliers that you know really um this is not sustainable not responsible behavior and how we can work together to actually eliminate those behaviors um we've had we've had a number of questions looking for your kind of thoughts on how to manage some potential trade-offs the supplier who lacks transparency might be exploitive but it's a very low d factory versus the supplier who has better transparency who you know is not exploitive who's managing their carbon footprint well but has an inferior defect rate right in the kind of in that in that in the heat of the challenge to meet your business goals to satisfy the market isn't the lower defect rate always going to win out i often got that i often got the push back and challenge and my viewpoint i i took a very strong real point and you can disagree with me is that we don't need to make that trade-off i believe that fundamentally if you build a deep working relationship with your suppliers not maintaining an arms length kind of a relationship and work with them collaborate with them then you can achieve both you can get both good quality of of raw materials and components and products as well as making sure that these are achieved under responsible practices uh you know we are all very well known of examples of at least in the operations field uh of toyota right to your production system has been uh you know championed for many decades and they are the very very first to demonstrate to the world you actually do not need to sacrifice quality for time to market which was in the past maybe even today a very strong stance you know believed by many many companies that if i want to rush to the market i need to sacrifice on quality of products but they show us there is a way if you design the system well if you have the right culture the right commitment you actually can achieve that and you don't necessarily need to trade off those attributes and i have the same view in terms of sustainability and functional quality of the product so as we think about how we are um how we're analyzing right the performance of our suppliers you know in order to manage those trade-offs effectively can you talk about um some of the data consistency challenges and how you've seen organizations kind of harmonize for lack of a better word very different data streams to kind of make these measurements so are you talking about that when there's inconsistency for example from your audio reports and other data sources to really try to understand the picture is that the question one but i think also just different types of data being measured by different suppliers um and i mean i think maybe the question is is it on you right to set the standard and say this is what i need you need to follow it or does there need to be some you know more cooperation um i i am all for more collaborative approaches um so i think that currently this is definitely something that uh has not been done to the fullest extent and and as i mentioned uh leading leading organizations such as sedex in in this field is still experimenting on methods of how to reconcile data inconsistency problems um so i think that you know thinking at a very high level right so there are data provided internally and there are data that are collected externally and oftentimes you know external data holds a more objective view of things compared to internally provided data and so to the extent possible if organizations can use external data to try to triangulate and verify you know the internally obtained data that's always a good you know at least a good approach and good check in the process but this is definitely a you know a difficult challenge that i don't think a very good well-defined solution has been identified thank you we know how slow most companies are to change especially when they're not being forced to and you mentioned the carrot and the stick with respect to incentives between organizations but what about the bigger stick the one wielded by governments and regulators or within trade agreements is there a role for public sector involvement in achieving greater supply chain transparency oh tremendously tremendously so i'm going to tell a drug so rick so people talk about regulation regulator pressures so we always joke that the only thing that can be slower than publishing an academic paper which often term times take a long long time is regulation you know so so i have this uh this funny story from one of my best friends and we are still collaborators to date um he you know started his first paper on potentially hazardous materials uh particularly concerning bpa and how companies should design strategies to you know replace potentially hazardous substances in their products with you know safer and healthier uh alternatives and he started the the research and then finished and then publish the paper like five six years later and yet throughout the entire process regulations too has not changed and only after that you know very recently uh there is starting to have you know bans on using bpa in baby products and then eventually more and more in mainstream plastic products so yes i believe and i strongly believe that regulators um and brought more broadly active activists right and ngos they play a very important role in moving the needles and i really want them to move even faster right there are certainly some pioneering examples such as so for example australia uk they all have the modern slavery act and there is also the california supply chain transparency act uh these are all you know regulatory pressures and regulations that emerge recently to pressure companies to compel them to really be more transparent and responsible in their in their supply chains but i really hope to see more and faster actions in that space are some industries um you know embracing um the move towards transparency and maybe specifically some of the things you talked about in your presentation are there industries that stand out as exemplars and who are the laggards yeah so i think that um if you think about you know relate this to fair trade movement right so i think that the the industry uh the coffee industry the chocolate industry these are industries are at a more advanced stage compared to industries such as apparel and consumer electronics um i would say you know i would i would not i would not pinpoint one of them to be the least the the most lagging but i would just say you know the more advanced is you know the cacao coffee and and and um um chocolate and and i know that there is recently a lot of effort going into also fresh produce um so that is another industry that is catching uh fairly quickly in terms of making changes so to what do we attribute that do you think that consumers are more sensitive to things that we're putting in our bodies for instance than on our bodies right and that the drive is i want to know that i want to know no one was exploited in this cup of coffee or in this bar of chocolate right or in this head of lettuce um and somehow we don't care as much when it comes to say clothing yeah i think yeah i think you you are definitely on yeah you're definitely correct like um i do believe that once things are related to nutrition and health people become more sensitive and and that's potentially why we see more changes and faster changes that are happening in food and beverage industries as compared to you know other products that we just put on us not in us right so clothes you wear it even though you don't realize you know the chemicals that release from your clothes could be very you could be just easily the same level of you know a health impact compared to things that you eat um and then you know for consumer electronics these are things that even farther away from something that will you know actually affect my health uh and and i think that you know especially for very cost sensitive consumers right and and markets that are not uh educated to understand all these environmental and social impacts that are not internalized to consumers themselves it could be challenging to you know educate the consumers to realize why it is important to consider these issues i imagine the complexity of the supply chain has something to do with it as well right a coffee supply chain a chocolate supply chain a produce supply chain it may be complicated that i'm not diminishing how hard it is to achieve with transparency and good practice but certainly it's less complicated than the supply chain to produce the next great iphone um right right that's correct i mean and and part of it is also i think um we are talking about you know products with relatively fewer ingredients ingredients so i'm not i'm not even so this will be very different from processed food i don't think the processed food industry is as well as the fresh produce and like the simple you know um coffee and and chocolate with you know relatively simple ingredients and and this is precisely to your point that you know the complexity of these these supply chains are a little bit easier to manage compared to some of these other that have like hundreds of you know raw materials and ingredients or components coming into the final product i mean does that mean that that we should i'm not sure who we is in this sentence but does that mean that we should be more patient with certain industries than others or should our demands and expectations be consistent uh i don't know i'm losing patience a little bit because you know things have have happened for a long time and and i feel that um you know for apparel and consumer electronics industry perhaps in part is that we don't have a strong group of leaders that stand out early enough um and and perhaps also because of the very substantial competitive pressure you always have a low-cost competitor out there that threatens to grab your market share and these industries have you know slim margins and etc so it's you know and also coupled with what you you're saying that because they're not related to nutrition and health consumers also don't have that bigger drive of moving demand right and so um i feel all of these factors are contributing to to that yeah i mean certainly i can see that and in the cases where you know there are um leaders say in the apparel industry patagonia who you mentioned who is of course built their brand not just on on quality of product but they built their brand on supply chain visibility i mean kind of a remarkable story and when you walk around with your patagonia vest you're actually sending a message right you know not only am i rich enough to afford this but i actually write about you know i i mean they're they're but but somehow that doesn't translate to say consumer electronics yeah i think i think also part of it is that um you know so it's interesting when you compare you know food or agricultural supply chain with a parent and consumer electronic supply chain the structures are quite different in the sense that both of them are complex but the structures are quite different in the sense that in the agricultural supply chain you also have a lot of smallholder farmers in the upstream but typically one smallholder farmer or one village is going to supply to one buyer so if the buyer can get a hold on where is the region that they are sourcing from the buyer can actually exert quite a lot of influence on those farmers to change their practices and build visibility and build supply chains build transparency but that is not really the case for para and consumer electronics in the sense that a lot of these subcontractors they have shared capacity right so patagonia they won't be able to use the entire capacity of one factory they're only one of the orders that they you know they they they have and so it is very hard if you don't have a critical mass that you know constitute 80 or 90 of the order size of one factory then it's very hard to motivate that factory to change because it's hard for them to change one product line for patagonia and then the rest remain the same right they would just do the same process for everybody and and and that is a that is a challenge we often hear from this industry because of that shared capacity well and that raises the question of whether or not a smaller company has less responsibility to be a leader than a larger company right if a small organization doesn't really have either the leverage with their suppliers or maybe some of the capabilities you know that that you've mentioned to actually um to actually kind of produce visibility is it fair for smaller companies to just leave it to the bigger companies uh i will not i will not look at it this way though i will look at it more from an opportunity perspective right so you are small uh you know competing with the big gorillas in the industry in the traditional way it's probably not going to you know it's much hard it's very hard to work out right i mean they have been there at the dominated market for so long and now you're a small no brand you know company coming in what is the what's the edge right i feel that a lot of the small rising companies are actually using sustainability attributes as a way to enter this highly competitive market now of course it's very hard for them to you know try to move the entire industry and so i think that i admire a lot of these very passionate entrepreneur and how they you know try to not only through their own supply chain construct their own supply chain to establish those practices but also through a successful business building connections with these larger brands and then try to influence also larger brands to change uh and and and i have a lot of admire of those entrepreneurs um and you know the courage and their determination of driving changes you can definitely see how how the commitment transparency can be can be a real attribute of a disruptive entrance into an organization right a little bit harder for the legacy organization you know to to play on that you know we used to be bad and we're not anymore um but i guess that's better um sorry it was very slim and activists she need to come in you know pressure them there is indeed public companies are facing much higher pressure from these external uh stakeholders compared to private companies so so at least i think the society is trying to move them to the right direction yeah so let's shift gears because we've got a number of questions about kind of specific technologies and one technology that came up um was digital twins and whether that technology in particular um might have some value in better digital twins that is the that that is i'm going to do my best um sorry i'm i'm bringing you right out of your area of expertise is the concept of a live kind of a live digital replica of a product that you can that you can see and monitor at all times like an airplane engine or a car that type of technology might have some value in holding organizations accountable um for their visit for for transparency that's interesting uh i i am really i i don't know that technology at all um but if the idea is to it's the idea of so this is like a virtual reality kind of thing like a robot thing um it could be it could be it could also just be a you know a screen basically a um you know something you're looking at a screen that is actually monitoring live say the operation of your tesla um and actually looking at the efficiency of it um yeah right so i think that they're actually um so so now i forgot the name of the company so i i don't think it's exactly this technology but i think that there are some companies that are actually using uh sensors and videos to monitor you know factory conditions and and they can observe the those conditions you know remotely and and so that's actually something that have some innovation that has been uh going on in in the agricultural space where you know sensors are being stored so that um for example you can make sure that it's really organic practices during the whole growing process of of the crops but but i do think this this raises a very interesting research question in my mind which is um even if the images are not live or from the real situation perhaps these kind of uh technology can be utilized to motivate more i don't know to motivate more responsible behavior like if you show people you know if you don't do it right there's some stressful you know reaction to to a distressed reaction to what you are doing here that could potentially trigger the actor to actually change and do it you know more properly um this is a very vague idea but but i think that it holds some potential well it does speak to the importance of of of accurate monitoring right and how to and the role technology can can play in that let's talk about communication strategy um for a moment and so i have to admit i laughed when you talked about a fact-based approach being effective in the u.s market right because we live in this time when we rarely can agree on what facts are and what's a fact and what's an alternative fact but i mean but but it but more broadly um you know i i wondered how difficult is it to get that messaging right and and perhaps that it might be better just to really focus on the best possible practices right and let someone else do the messaging for you and i guess the the the reason i'm asking this question is so many organizations were rightfully taken to task for greenwashing right over the last 20 years where they were we've gotten so jaded that when an organization claims a practice our reaction and maybe i'm just terribly cynical is to actually think what are they compensated for what are they trying to hide um and so um i guess i mean there's a reason why you you pointed to fact based versus story based you know as different strategies but how proven out do you think that is yeah so i think that one of the things uh that i also want to clarify here is certainly uh you know ensuring good practices responsible practice is really the necessary first step right if you are doing very bad in your supply chain i would not recommend you do a lot of transparent disclosure of how bad you are right so research there's there's research showing that if you show bad really bad performance it's actually going to hurt you and that and i mean that's a no-brainer um now so given the assumption you know under the assumption that you're improving right not necessarily you're already the best right you are improving and you are really making a lot of effort into driving good practices in your supply chain what our research is showing that actually having this ability into those practices and really understand what is the actual impact of those practices and being able to communicate those impacts in a precise way to your consumers is actually going to help and that is actually what we show in another research project to counteract the consumer skepticism about green washing motives and the key here is not really just communicate any message it's actually communicate trustworthy credible message and the way to ensure that your messaging can be trustworthy and credible is precisely through having visibility in your supply chain because now you can really talk about the deep facts and the deep impacts of your of your efforts great thank you all right we have about two minutes left i'm gonna try to get in two more questions um one is um related to um the pandemic right and and coming out of coming out of this global disruption a lot of organizations are looking at how they can localize um their supply chains some are probably thinking about how do i achieve greater vertical integration is that a positive movement for transparency or what might be some unintended consequences yeah so the i mean so it's not completely positive but it has the positive side and i think i want to and this might be going you know this might be going beyond the topic of transparency so when it's really about how you can ensure the resilience of your supply chain right and i think that companies really need to be uh careful in terms of redesigning their supply chain and redetermine which part of the supply chain warrants coming back you know being integrated to have the local component and which part of the supply chain it really makes more sense to uh maintain an oversee or a second supplier and then i would say for the unintended consequences part is that you know imagine all the apparent consumer electronics industry companies now all of a sudden pull all of their supply chain back to the u.s

then you are going to have a huge societal negative societal impact on all the people that you hire now in all your suppliers right they are going to go out of business and millions of people are going to lose their jobs and this is a very very non-responsible irresponsible practice on the part of these big brands so i think that they really need to think about across the different products and services that they are offering which of these are critical enough that you really need that responsive and very you know responsive capacity so that you can handle you know spikes in your supply chain when disruption potentially happen and how you can then leave the rest you know still giving sufficient employment opportunities to all the people that you're hiring in the global supply chain because they do have tremendous impact on their lives great that's such a great lens to look at that issue thank you okay final question does it commit to transparency have to be organization-wide and does it have to start at the very top have you seen any examples of kind of renegade or kind of permission free attempts at transparency from kind of middle of the organization or a particular part of an organization uh so i think that you know it's necessary for for top management to commit the resources so in the end of the day i do believe that you need the commitment from the top uh in order to you know achieve the outcome the aspiration can come from the middle but whoever you know start that process need to have the drive to convince the boss that this is the right thing to do for the organization unless that person itself can leverage can can move enough resources to complete it it's a it's a huge undertaking so without top management support it is very hard to pull off great karen thank you very much this concludes our program thank you all for attending and your wonderful questions thank you karen jang and thanks to our sponsor amazon business enjoy the rest of your comments happy holidays bye

2021-01-23 03:42

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