Analyst Insight: The need for product-level visibility across multiple tiers of the supply chain was reinforced during the COVID-19 crisis. It’s also being driven by new regulatory requirements for environmental, social and governance (ESG) compliance, such as the German Supply Chain Act. Finally, organizations are striving to achieve net-zero emission targets, fully aware that between 70% and 90% of greenhouse gases (GHG) emanate from their supply chains. 

For many years, the Business Continuity Institute has carried out annual research on supply chain resilience. One of its most important observations from a risk perspective was to recognize that a sole focus on direct suppliers was insufficient, given that around 40% of disruptions came from lower-tier providers. The cost of these disruptions is substantial; McKinsey research has shown that an organization can expect to lose around 40% of one year’s EBITDA every 10 years.

This need for supply chain visibility at a multi-tier level is further necessitated by increasing government regulations, investor requirements, and consumer pressures, particularly from an ESG perspective. When it comes to regulation, one of the major drivers for multi-tier visibility is the need to improve working practices and eliminate modern slavery. This has led to a whole series of new regulations which are increasingly being enforced by higher financial penalties.

Another critical area for regulators is the need to meet legally binding net-zero targets for GHG as per the 2015 Paris Agreement, which seeks to limit global warming to no more than 1.5° by 2050.  At least 40 countries have signed on in support of this goal.

To meet all of these requirements, organizations need complete supply visibility. This is often the biggest challenge for organizations looking to meet sustainability goals, particularly when it comes to assessing the environmental impact of individual products. 

At the same time, investors are ramping up demands for increased visibility of companies’ supply chain exposure. According to the 2022 status report of the Task Force on Climate-Related Financial Disclosures (TCFD), 90% of investors incorporate climate-related disclosures in their financial decision-making, and 66% factor them into the way they price financial assets.

Consumers, too, are increasingly concerned. According to McKinsey, 78% of U.S. consumers prioritize sustainability in their purchase decisions.

Many organizations lack multi-tier supply chain visibility at the product and item level. They’re forced to make use of relatively crude spend data to model their carbon emissions. It’s essential that the quality of this effort be improved, to aid in the transition to net-zero carbon emissions. 

Outlook: In 2024, expect to see leading organizations seeking better insight into their multi-tier supply chains at the product and item levels, with the goal of acquiring improved visibility of cost, quality and delivery, as well as multiple risk factors. An understanding of ESG risk will become essential in light of investor and consumer demands, the financial impact of regulatory penalties, and carbon taxes. Total supply chain visibility will also increasingly become a critical competitive advantage. 

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