Successful manufacturing businesses rely on strong supply chains to provide high quality products to their customers. Getting timely access to the right raw materials, then being able to guarantee delivery times according to customer requirements, can help manufacturers stand out from their competitors. By Terri Hiskey, Vice-President – Product Marketing, Manufacturing at Epicor Software
Manufacturers need to work with supply chain partners that are ethical, reliable, and stable. Choosing the right partners requires significant due diligence. In an age where consumers vote with their feet and increasingly prefer to purchase from companies that demonstrate concern for environmental and ethical practices, manufacturers can’t afford to find out that their supply chain partners don’t measure up to their high standards.
More than half of consumers have declared themselves willing to pay a premium for products from companies promoting social responsibility. A company that promotes this virtue and is then found out to purchase materials from supply chain partners that employ slave labour or child labour, for example, could experience significant reputational damage. By contrast, a company that can prove beyond doubt that each member of its supply chain is ethical and trustworthy, can use this fact to attract new customers and grow.
The challenge for manufacturers is how to manage the supply chain effectively. It can be difficult to effectively track the behaviour of every supply chain organisation that a manufacturer deals with. However, investing in this level of due diligence is well worth it — the numbers prove that manufacturers that do the right thing are more successful.
For example, a Harvard Business Review study showed that retailers with a high level of trust in the manufacturer generated 78% more sales than those with a lower level. Unfortunately, not many manufacturers are getting this right at the moment. Recent research by the Economist Intelligence Unit has uncovered significant issues in how multinational firms manage the ethical performance of their supply chains. Less than one-third were found to address issues such as ethical breaches or supply chain corruption.
This leaves a wide-open opportunity for Australian manufacturers to take the lead in demanding ethical behaviour from all supply chain partners. This includes gaining full visibility into the supply chain as well as acting immediately and decisively to address ethical violations.
There are a number of benefits to this approach. The first is obvious — it lets manufacturers gain more control over the suppliers they do business with. This, in turn, delivers operational benefits such as more reliable supply of high-quality materials, improved relationships with suppliers who share the manufacturer’s approach to doing business, and an enhanced reputation in the marketplace. Another benefit is that manufacturers can contribute to eradicating human rights abuses such as slavery and child labour.
By demanding higher standards from the supply chain, manufacturers can improve their own products. For example, if raw materials are poor quality, the products created using those materials will be substandard. By contrast, if the raw materials are of top quality, then the products are more likely to be high quality.
It’s essential to remember that, even if a poor product is the direct responsibility of the supply chain, it’s the manufacturer whose reputation will suffer. This is the same whether the manufacturer receives inferior steel or tainted food ingredients. When the finished product fails to live up to expectations, the manufacturer will bear the brunt of consumer dissatisfaction. It can be difficult if not impossible to win customers back once their trust has been broken.
The only solution is to gain increased, overarching, and clear visibility into the supply chain.
While this has been challenging in the past, an emerging technology is helping achieve this. Blockchain was originally developed to underpin digital currencies, specifically Bitcoin. Blockchain is a distributed ledger where a list of transactions is stored in multiple participating servers, rather than in one central transaction server.
The reason this is so useful for manufacturers is because the technology is tamper-proof. No one can fraudulently change the transactions because they’re locked down — any attempt to do so would be automatically detected. Using blockchain technology to track supply chain transactions works the same way. It shines a light into every corner of the supply chain so manufacturers can see exactly what their supply chain partners are doing and where their materials come from.
Using the inherently-secure blockchain technology, manufacturers can increase visibility throughout the supply chain, decrease administrative costs, and improve traceability. This lets them definitively achieve the control and knowledge they require to use supply chain management as a competitive differentiator.
As supply chain networks become more complex and less integrated, blockchain will become even more important since it doesn’t require a central authority to provide an immutable record of events. This helps manufacturers maintain quality, and build and sustain consumer trust.
Blockchain isn’t just a passing trend. Many companies are already using it for various applications, and manufacturers are adopting it. In a recent global survey, almost three-quarters of respondents said they were either in the experimentation or the production phase of blockchain development. Australian manufacturers should start evaluating blockchain technology to consider where this emerging tool could benefit their operations. Blockchain can potentially help Australian businesses grow manageably and strategically, so starting the investigation process now means organisations will be ready to move when the time is right.
For blockchain to be effective, manufacturers will need to integrate it with their enterprise resource planning (ERP) solution. It can help expand analytical possibilities and give manufacturers a more comprehensive view of the business to enable more accurate decision-making.