Challenges, Costs, and Benefits of Establishing the Provenance of the Materials Flowing through Global Supply Chains - Essay Example

Challenges, Costs, and Benefits of Establishing the Provenance of the Materials flowing through Global Supply Chains Challenges, Costs, and Benefits of Establishing the Provenance of the Materials flowing through Global Supply Chains Introduction With the rise of ethical consumerism, customers are no longer satisfied with just paying for and using products. The 21st century business environment is more complex, dynamic and competitive while the 21st century consumer is more demanding, knowledgeable, and sophisticated. These factors make provenance an important issue for supply chain partners, consumers, and governments, and justify the three entities’ renewed interest in establishing provenance. Challenges An urgent question to pose with respect to the new reality of international commerce is how much knowledge businesses really have on their supply chains. Current research reveals numerous solutions to this dilemma. Some supply chain partners have opted to conduct detailed assessments of their sources of supply; these can often go back five or six phases of supply or more (Blecker, 2014). Others, on the other hand, are satisfied with no more than a general understanding of the first stage. In some instances, where businesses use agents, they have close to zero good comprehension of the dynamics their supply chains. This huge contrast in approach is partly rationalized by structural aspects, but also reveals companies’ decisions on how they manage risk. Historically, businesses have been hesitant to share detailed information on their supply chain. Such information is seen to be strategically vital, and in some instances there is even the likelihood of industrial espionage or sabotage. Businesses have also agonized over the extent of bad public relations (PR) if embarrassing information about the supply chain becomes public knowledge (Kane, 2013). This has been a major challenge for supply chain partners and has led them to understand that the information age encourages knowledge sharing, and there is limited value in extreme secrecy. Most businesses, customers, and governments do not understand how to act on the information obtained by establishing provenance. For instance, the information could reveal that there are one or two levels in the supply chain that contain businesses on which another company’s operations or success are remarkably dependent (Kane, 2013). It may also become pertinent that a business whose own functions are beyond reproach could sometimes outsource to outfits that carry huge reputational risk (Soyka, 2012). In such instances, businesses have numerous options to take. These stretch from reorganizing the chain (e.g., terminating some suppliers) proactively and practically addressing the source of risk or working to ensure that any implications of failure are barricaded at another stage in the chain. Costs Establishing provenance is a tasking endeavor that requires significant investment to achieve success. For supply chain partners, the technologies involved in the establishment of provenance are costly enough to warrant ignorance of the issue. For example, technological advancement has now made it possible to radio frequency identification (RFID) tags and other types of tags to provide customers with information on the origins of products (Blecker, 2014).. Although the investment is worth it, a majority of businesses cannot afford to buy these technologies. For supply chain partners that do not use technologies, the outlay involved in establishing provenance is still significant. Although some scholars have argued that establishing provenance can reduce, in the long term, the cost of goods, evidence suggests that in some cases consumers may have to pay more to understand the origins of their products. After investing in establishing provenance, supply chain partners and companies will simply pass the extra costs down to consumers by increasing the prices of their good accordingly (Kane, 2013). For instance, when a business spends a significant amount of money in fitting all their products with RFID tags, consumers will pay more for their favorite products to compensate for the extra costs incurred by supply chain partners and businesses (Goldin & Mariathasan, 2014). Away from individual consumers, consumer groups also incur huge costs when lobbying for businesses and supply chain partners to establish provenance. Lobbying is both engaging and costly since it has to be funded, and affected parties must actively contribute to its success. Governments spend millions of dollars every year in convincing consumers and supply chain partners to demand and establish provenance respectively. Governments also incur huge costs in formulating and implementing legislations requiring businesses to establish provenance. For instance, the United Kingdom has the UK Bribery Act while the United States has the US Foreign Corrupt Practices Act (FCPA) Act (Soyka, 2012). These Acts require time and money to implement in order to ensure that businesses and consumers establish provenance. Governments also incur huge costs in collaborating with businesses in developing and implementing mechanisms for establishing provenance, advising businesses on how to establish provenance, and sensitizing consumers on the importance of establishing provenance. Benefits Establishing provenance builds consumers’ confidence in products and also encourages businesses to adhere to ethics when conducting their operations (Kane, 2013). This could be seen as a win/win situation for consumers, governments, and supply chain partners. When consumers see that businesses are open about the origin of their products they will develop trust in those organizations. When businesses know that consumers trust them, they will do all they can to secure this trust, most often through producing better items whose journeys to consumers is free of any unethical practices. This also benefits governments because positive relations between consumers and businesses are good for the economy (Soyka, 2012). In all successful economies, there is always a high level of trust between consumers and businesses. Industries which are notorious for the sale of items with checkered histories rarely perform well. Governments and businesses can always use provenance to market products or encourage consumers to invest in certain sectors. Establishing provenance creates a powerful marketing tool that is instrumental in attracting consumers to specific products. This is also good for industry growth because it encourages competition (Goldin & Mariathasan, 2014). Establishing provenance encourages businesses to compete to be seen as the most trustworthy and sustainable. Consumers, supply chain partners, and governments gain from stiff and healthy competition. For centuries, provenance has been used to raise the value of products. Businesses know that information on the origins of goods is priceless to consumers, who are always willing to pay more for products whose origins are known (Blecker, 2014).. In this respect, supply chain partners can increase the value of an average product by telling consumers about the history of the item. For instance, a jeweler whose products are marketed as “clean”, meaning they are not associated with violence or child labor, will sell more items than one who does not establish the provenance of his jewelry because customers are attracted to ethical consumerism (Soyka, 2012). More revenue means more taxes for the government and stiffer competition, which is good for supply chain partners and consumers. While it is true that products whose origins are traceable are considered unique, leading to an increase in their prices, it is also becoming apparent that establishing provenance can also lead to a decline in the costs of products (Lindgreen, Vanhamme, Maon, & Sen, 2013). For instance, since traceable items are more expensive, making all items traceable through the supply chain will reduce the rarity associated with those whose origins are known and standardize their prices. If establishing provenance becomes widespread, uniqueness disappears, and prices decline. Lower prices are good for consumers, businesses (more competition and limited regulation), and governments (market liberalization). Establishing provenance also facilitates optimization of the transition of items throughout the supply chain. For instance, Nike uses technology to manage a distribution network in which all products are made of the same type of verified organic input (Goldin & Mariathasan, 2014). The retailer supervises the movement and cost of inputs between each entity and ensures that the final products actually comprise the verified organic input the company claims. Conclusion Although establishing provenance is a strategically wise practice, it comes with many challenges and costs that must be embraced before positive results can be attained. Since global business is becoming more competitive, and consumers are becoming more aware, demanding and knowledgeable, establishing provenance is also evolving from an option to a compulsion. As shown in this paper, businesses, governments, and consumers all have a lot to gain by establishing provenance. References Blecker, T. (2014). Innovative methods in logistics and supply chain management: Current Issues and emerging practices. Munich: Epubli. Goldin, I., & Mariathasan, M. (2014). The butterfly defect: How globalization creates systemic risks, and what to do about it. Princeton: Princeton University Press. Kane, G. (2013). Building a sustainable supply chain. Oxford: Dō Sustainability. Lindgreen, A., Vanhamme, J., Maon, F., & Sen, S. (Eds.). (2013). Sustainable Value Chain Management a Research Anthology. (Illustrated ed.). Farnham: Gower Publishing. Soyka, P. (2012). Creating a sustainable organization: Approaches for enhancing corporate value through sustainability. Upper Saddle River, N.J.: FT Press. Read More