Flexible Transparency Part 1: How to Survive Change and Drive it
Written by Pietro Pasotti
When one looks at the debate around supply chains today, the buzzword seems to be “transparency”. Nowadays, more and more consumers want to know that their consumption is not hurting anybody, and this has been going on since at least the ‘90s. As I was looking for a way to introduce our technology to non-expert readers, a question came to mind: why transparency?
In fact, as a startup talking mainly to businesses, we hear on all sides: “the customers want more transparency”. And the big businesses are reacting by becoming more transparent or, at least, stating that they mean to. Many large companies are already publishing lists of their suppliers, and signing commitments to becoming even more transparent in the coming years. However, as we were engaging with more corporate partners, including consumer-facing companies which are trying to become more circular, we were in fact regularly told that transparency is not a good solution for them. Why, then, is not transparency the way to circularity; and what is?
We are going to argue in this article that the answer lies in a concept that we call “flexible transparency”. In a follow-up article, we will describe how we implement this concept into Circularise, a platform designed to allow supply chains to exchange “just the right amount” of reliable information.
What is transparency?
Let us begin by defining the concept of “transparency” by circumscription. A totally opaque supply chain is one where all information is privately held by the supply chain nodes, and unavailable to anyone else. In other words, the consumers know nothing about what they buy. A fully transparent supply chain is one where all supply chain information is publicly available: consumers can know who made their products, their age, gender, date of birth, when and where they made the product, how much they were paid to make it, who transported it and so on.
In the real world, we see the first applications coming up in the coffee and fish supply chains. In some instances, products can be traced back to the name and surname of the employee who collected the raw materials. Now, everybody seems to want full transparency. The next question is: what are its pros and cons?
Full transparency favours big fishermen.
Let us set this baseline: information is valuable. Transparency is about how such information is managed. Information which, very often, is part of the competitive edge of the supply chain stakeholders who control it. In this case, transparency comes to affect the whole value chain, from the fishermen to the fish, i.e. from the top brand managers to the consumers. And for this reason:
Transparency is about knowledge management, which is about power.
If companies were people, we would think that full transparency is a terrible idea. On the other hand, when it comes to powerful people, such as CEOs or world leaders, we tend to adopt more flexible standards regarding what we are allowed to know about them. Just think about how little space celebrities have. It seems that with great power comes great transparency or, rather, great expectation thereof.
Transparency is essentially a form of control; the idea is, if you know all about someone, you have a certain amount of power over this someone. Knowing what a person is doing means being able to hold him responsible for it. The fact is, even if they were to obtain information, most consumers would not have the means to neither verify it, nor act upon it. That includes punishing or rewarding.
What is transparency for manufacturers.
Suppose that the wages you pay your employees were publicly available; some bigger fishermen than you might, in the spirit of free competition, simply reach out to them and outpay you. Or imagine that you have found that one manufacturer that makes a special coffee bean that nobody else can produce; but this is public information and so your bigger competitor comes along and outbids you.
Fact is, stakeholders above the retail line want as much information as possible about what is below the retail line; but want to give as little information as possible about themselves.
Someone may think that this is not really a problem: “supply chains are built on trust; people won’t just let themselves be bought away because it’s about relationships”. It is true, but we are talking here about changing supply chains using systems that make personal trust, and personal connections in general, totally unnecessary. So, if your bigger competitor is just as transparent as you are, the wonder coffee bean producer might not be swayed by the fact that you came first, and start selling where it makes more sense to: wherever there is more money.
Consequently, a fully transparent market is one that benefits above all those who have more power already, just like a society with no privacy is a risk for its most vulnerable members.
What is transparency for consumers
If we look at what comes after products cross the retail line, there is yet more value to be collected by looking at the customers: their product usage data, lifecycle data, which other products were purchased on the same day and so on.
Fact is, stakeholders above the retail line want as much information as possible about what is below the retail line; but want to give as little information as possible about themselves. The reason for this is, in the scenario when they do not have anything to hide, that being transparent is to risk their competitive advantage. The supply chain actors therefore have an economic incentive not to be transparent, unless they are already so powerful that they can afford it.
Consumers on the other hand want transparency. They want to know the whole story behind the products they buy. Therefore full transparency across the supply chain would benefit consumers too, but the value in this case is not monetary. It is undeniable that full transparency below the supply line would conflict with what consumers often say they want: personal privacy. Like Jonathan Fox argued in an article:
Supply Chain : Transparency = Consumers : Surveillance
In a nutshell, we have parties on the opposite sides of the retail wall that want to know about each other but do not want to give away information about themselves. In the case of the consumers, they do not want to share their data because they fear the supply chain side; in the case of the supply chain, because they fear one another.
Information needs to be verifiable or reliably verified.
What monkey says it does and what monkey actually does are different things. Information is useless unless it is verifiable, verified by someone you trust, or verified by a process that can be trusted by you. Recurse on this at will. In modern supply chains, information verification “beyond reasonable doubt” is entrusted to concepts and processes such as “independent auditing”, and “due diligence”. Therefore, full transparency also requires one of these two: full trust, or full auditing. But if there were full trust already, there would be no need for full transparency. So that leaves us to deal with the situation in which parties do not trust one another but still want transparency: the price to pay is full auditing. Independent third parties need to be constantly in the field to verify a huge amount of information, keeping everyone in check.
Is there a middle ground?
Even if the market decides to adopt a fully transparent way of doing business, it will not happen overnight. It is more likely, instead, that a hybrid model will emerge and prevail, one which is neither full-on transparent nor opaque. What matters is, that a technology that can outlive this transition, as well as drive it, is one that allows information owners to fine-tune the amount of information they disclose as well as who can access it without simply implementing either extreme of the transparency-opacity spectrum.
Secondly, different motivations inform the preferences of the supply chain on the one hand, and the consumers on the other. Typically stakeholders in a supply chain want information but are not willing to disclose it for economic reasons; consumers want information but are not willing to disclose it for ethical, privacy-related and sometimes also economic reasons. This means that we need different incentive schemes, as well as different types of guarantees to the parties exchanging information. On the technology side, this means that we need to enable an information exchange supporting these business models; one where information can travel both ways between supply chain and consumers, and so can the guarantees that are respectively expected.
Thirdly, technology needs to give access to trustworthy information to parties who do not trust one another.
Full transparency may or may not be the goal; that might be where the world is heading but we cannot know it yet. The best we can do at this stage is offer a tool that can support this transition and be useful in any possible outcome. Furthermore, we believe that full transparency is not the solution to stop companies destroying the environment or ignore human rights just as much as the destruction of personal privacy is not the solution to combat organised crime. Let us call what we are after: flexible transparency - a situation where there is a continuous ongoing dynamic negotiation of what parties are willing to share versus what people want to know. After all, consumers want to know that no person was underpaid or exploited, no river polluted, no baby seals were slowly murdered in the manufacturing of this plastic cup, but they do not really care about how much exactly the truck driver who brought it from factory to supermarket was paid -- only, that (someone trustworthy went and checked that) it was “enough”.
Providing a system where all stakeholders can be held accountable for their actions, audit results can be published and shared, and information can be exchanged in a flexible way, is key
Consumers want to know that it is alright to buy the cup, that their consumerism is in line with their conscience - all the rest is too much information. But clearly, different people have different cognitive dissonances -- sorry -- different standards, what is ok for me is not necessarily ok for you, so, what exactly is “enough” also needs to be fine-tuned. Similarly, companies want, above all, access to aggregated data: what consumers buy in general after buying their product, where do they mostly come from, but they do not really care about what John Smith had for breakfast the morning of the 11th of January 2017.
So, while full transparency is not the solution because it is too much information, full privacy is not the solution either. The problem is, just like some people could become criminals when they are sure they can get away with it, so could supply chain actors. Big companies are no exception. Providing a system where all stakeholders can be held accountable for their actions, audit results can be published and shared, and information can be exchanged in a flexible way, is key.
Implementing flexible transparency
So far so good, but how do we do it? We do it by building an open information retrieval process, accessing data that has been publicly, but strategically shared. In other words, it is a way of accessing information that someone chose to make available. In simpler terms, it is the solution to all our problems. Simpler terms are not always enough, so let me break it down even further.
Suppose you want to know that by buying this shirt you are not sponsoring child labour. You may ask the name, ID and age of all people who ever touched it, then look up their Facebook and see for yourself that it corresponds with the truth. But the supply chain actors (not to mention the cotton pickers, truck drivers, sweatshop workers themselves) may refuse to give that information. You may ask whether all people are at least aged 17; and this may meet already less resistance but, still, may take some convincing. Finally, you may ask whether some independent, trustworthy auditor certified the supply chain; now this is just what you wanted to know, and is likely to be something that the supply chain would share with pride.
Getting the information you want is about asking smart questions. That, and being smart enough to know what you really want to know. But let’s face it, smart questions are nothing without smart answers: no company wants to spend their time getting naked in front of your prying eyes, and deciding whether you in particular are worthy of a certain piece of information. Even more so, if you do not want to reveal who you are.
We need a framework to do both: smart answers to smart questions, smarting all the way up to flexible transparency. On the one hand, we need to enable supply chain actors to decide beforehand what information is to be made available to whom, and under what conditions. On the other hand, to enable audited results to be published, certificates shared, so that information integrity can be verified with a click up to reasonable doubt. Thirdly, to enable information-hungry parties to reach information owners and ask for more; making the availability of information always a matter of negotiation.
All the while, we need to ensure that the balance does not slip into full transparency, unless, of course, all involved parties agree to it. For this reason, we build the system in such a way that verifiable information can be shared, but the parties can rest assured that only the information they want to be shared is in fact shared - without any leaks - keeping the hand firmly on the lever that steers from privacy and supply chain opacity to transparency -- and surveillance.
David J. Doorey, The Transparent Supply Chain: from Resistance to Implementation at Nike and Levi-Strauss, Journal of Business Ethics, November 2011, Volume 103, Issue 4, pp 587–603 https://link.springer.com/article/10.1007/s10551-011-0882-1
Jonathan Fox, The uncertain relationship between transparency and accountability, Pages 663-671 | Published online: 18 Nov 2010