Why keep your supply chains a secret?

It seems like a ridiculous question, but as occasional news reports show, global supply chains can be a shadowy affair. Time to shed some light perhaps.

You know the types of companies that are most often picked out in the press for the standards, or lack thereof, in their suppliers’ factories. They tend to be high profile enough to be worth picking on, and they then get held up as emblems of the dark art of low-cost sourcing.

In a sense, that’s an unfortunate fallacy – as if it only takes one big name brand changing their sourcing policy in order to solve low wages and poor conditions the world over. Notice, for example, the Apple’s supplier policy is the one under the most scrutiny, when a giant like Samsung has an easier time, comparatively, despite sharing many suppliers and, quite possibly having very similar policies in certain areas.

I don’t want to defend or admonish large companies who make the most of the low-cost produce that comes from countries like China and Bangladesh, but what I think is more interesting is the relationship between them and their suppliers and how they communicate that to the global press.

Wal-Mart, for its part faces constant scrutiny (and some may argue, rightly so) for its approach to supplier relationships and the standards in its suppliers’ premises. It wouldn’t be pushing it too far to say that you don’t have to wait too long for an accusation to come along to prove the point – this week it was the aftermath of the Tazreen factory fire in Bangladesh where the retailer faced allegations that not only was it not taking responsibility for its suppliers conditions, but also that it perhaps didn’t acknowledge that these conditions existed in its supply chain in the first place.

Wal-Mart’s response has been a combination of the usual approach to distance the business from the claims, but also to reject calls for more information on what goes on in its supply chain. In one sense, this might seem like a strategy of ‘don’t engage and you won’t have to answer as many questions and accusations’.

On the other hand, by not disclosing information about who their suppliers are, buying organisations in general leave themselves open to two allegations from the casual observer: they are hiding something or they simply don’t know what they should know.

The view of the casual observer is important here – Apple found this out too last year. The tech giant responded to allegations concerning conditions at its supplier Foxconn with platitudes and pledges of investigation, but still there was a cloak of secrecy around its supply chain. This bred suspicion and while it may not have halted sales, it’s still a cloud that hangs over Apple.

The other risk with this lack of information is that it encourages the wrong kind of behaviour among suppliers to continue unchecked. Tazreen didn’t come up on the radar of the global press until the fire – it takes a tragedy for people to notice there’s a problem and at that point the damage on a human scale is huge, while the organisations associated with the supplier are also hurt by the negative press, even if it’s not an accurate accusation.

If companies do have the intention to improve conditions in their suppliers’ factories, surely a more open, collaborative approach to bring them up to an accepted standard would be better than each purchaser going separately and demanding different standards. Meanwhile, the pockets of information that currently exist that identify where the risks are would be more openly available so businesses could identify suppliers that they shouldn’t be using and – crucially – suppliers that their 1^st tier suppliers shouldn’t be using.

In the case of Wal-Mart, the argument has been that a Wal-Mart supplier was sourcing from the factory without authorization from Wal-Mart. Either way you look at that problem, a lack of information had a hand in allowing this to happen.

Those who’ve gone ahead and been open about their suppliers – Nike being the obvious if not necessarily inscrutable example – have been able to try and expunge reputations and focus on creating relationships that, they hope, give them credibility with their customers – which surely should be the long-term ambition.

Steve Hall is deputy editor for Procurement Leaders Magazine. Follow him on Twitter@thestephenhall.