Sub-Supplier Mapping: Tracing Products to the Source with a Supply Chain Social Network A SourcemapTM White Paper

Figure 1. A supply chain map before and after sub-supplier mapping

Introduction More than half of supply chain risk lies with 2nd and 3rd tier suppliers, outside the normal scope of supply chain management. These risks include delivery delays, quality issues, and social or environmental scandals that can be devastating to a company. The best way to prevent supply chain risk is to map the extended supply chain, and collect information that can be used to identify and mitigate risks. While traditional supply chain software and SRM (supplier relationship management) platforms only focus on the direct suppliers, web-based social networks are ideally suited to mapping out multiple levels of supplier relationships. In 2009 MIT engineers developed the first multi-tier supply chain social network. The technology was commercialized by Sourcemap Inc. in 2011, and since then has be used by dozens of companies to mitigate risks, increase supply chain efficiency and ensure social and environmental compliance.

This paper describes deployments of supplier social networks in the agriculture, apparel, electronics and light manufacturing sectors. Successful deployments rely on intuitive, error-proof data collection that connect supply chain managers and suppliers for mutual benefit. These social networks can be used for quarterly or annual record keeping (see Compliance and Benchmarking) and/or for real-time data collection by synchronizing with enterprise databases (Monitoring and Evaluation) and mobile surveys (Traceability).

How it Works Companies need to see beyond first-tier suppliers to identify risks, consolidate purchasing, and meet new standards of social and environmental compliance. Traditional approaches of emailing spreadsheet questionnaires or inviting suppliers onto an intranet are time-consuming and error-prone. Organizing, sharing and analyzing the data once its collected is also problematic. More important, traditional SRM only manages relations with direct suppliers, with no visibility into the suppliers’ suppliers and beyond.

More than half of supply chain risk lies beyond 1st-tier suppliers

Enterprise social networks are capable of accurately capturing data from large, convoluted supplier networks, and making sense of the results to drive powerful supplier benchmarking and strategic decision-making.

Enterprise social networks allow manufacturers to map their supply chains by inviting the suppliers they know (usually first-tier suppliers) who then provide information about their suppliers. Questionnaires can then be sent to the second tier suppliers who provide information about their suppliers, and so on down to the raw material suppliers. Along the way useful data is collected on the geography and structure of the supply chain, and on the efforts taken by suppliers to ensure business continuity, regulatory compliance, and best practices.

Conflict minerals reporting has made sub-supplier

mapping a standard practice for many suppliers

Supply chain mapping questionnaires are easy to complete and virtually error-proof thanks to field validation built into the online platform. Response rates from the first tier are typically greater than 95%, while the second tier replies more than 70% of the time and the third tier 50%. In the case studies described in this paper, cascading surveys and have brought direct communication between farmers and food companies, factory managers and apparel companies, and foragers in tropical forests and main-market retailers.

A number of user-centered design considerations are taken to ensure prompt, accurate and verifiable entries in online Requests for Information (RFI’s):

• Multi-user (collaborative) responses • Local language translation • Industry-specific jargon • Interactive tutorials • Welcoming and on-boarding content • In-line commenting and discussion • Approval and archival workflow support • Live support chat

Online RFIs are much faster and more accurate than paper- or spreadsheet-based ones, and are

substantially more secure with changes tracked to the location and identity of a respondent.

Supply chain social networks have been implemented for light manufacturing, electronics, apparel, and food. In each case an online RFI was modeled closely on an existing questionnaire, and enhanced with visual feedback, field validation and inline instructional content.

RFI’s are rolled out in a five-stage process:

1. Target and scope-setting 2. Configuration and user testing 3. Launch and ongoing support 4. Approval and/or rejection for review 5. Reporting and/or benchmarking

Suppliers are typically given three weeks to comply with a RFI, but most responses are submitted in the last week. More than 95% of first-tier suppliers typically respond by the three-week deadline. Overall progress is tracked using a supply chain mapping visualization and KPI dashboard (see Figure 2). Follow-up messages can be sent to non-responding suppliers and suppliers whose responses contained outliers. In most cases, after an additional two-week revision period, all suppliers have replied to the RFI.

Most of the information in a supply chain social network is self-reported by suppliers. Additional accuracy can be achieved by inviting third-party auditors, certifiers and even workers to contribute information alongside supplier. Privacy and permissions are especially important when combining crowd-sourced (third-party) and self-reported data.

Applications The benefits of supply chain social networks for sub-tier supplier mapping discussed in this paper include:

• Ensuring Compliance • Supplier Benchmarking • Real-Time Monitoring & Evaluation • Traceability

Compliance

Since the introduction of conflict minerals reporting, suppliers have become accustomed to providing information on their sub-suppliers for compliance purposes. Sub-supply chain mapping is becoming a business necessity as brands are tasked with ensuring that there are no conflict minerals, hazardous substances, or forced labor in their supply chain. This is achieved through a series of cascading Requests for Information (RFI’s) sent by purchasing managers to direct suppliers via Sourcemap’s online platform, and forwarded along to the 2nd, 3rd, and further tiers of the supply chain based on each respondent’s replies.

Figure 2. A consolidated view of hazardous materials per supplier

The Sourcemap supplier social network was used by a light manufacturing company to track the use of restricted and prohibited chemicals for RoHS/REACH compliance. RFI responses were automatically aggregated into a dashboard showing the quantity of each restricted material and the compliance status of the overall product, the individual part and the supplier. Special care is taken not to double-count chemical concentrations of sub-components in the component or finished good totals.

A similar supplier social network was deployed to monitor conflict minerals compliance for an electronics company, and to produce consolidated reports for customers. As responses are collected from suppliers, the overall status is shown in a visualization dashboard (Compliance / Noncompliant / Unknown) at the part, vendor, supply chain and product level. Aggregate responses are automatically compiled into a report that can be submitted to the board and customers.

Supplier look to the benchmarking questionnaires for guidance on supply chain

best practices

A supplier social network was also launched for an apparel company to track certificates issued to suppliers and sub-suppliers. Suppliers were asked to upload PDFs of each compliance certificate pertaining to each facility and/or process on a quarterly basis. The sub-supply chain mapping serves to create a paper trail of certifications over time. This information was also used to track progress towards publicly stated goals on the percent of certified suppliers.

Benchmarking

Continuous supply chain improvement requires a uniform approach to benchmarking suppliers. Supplier social networks make it easy to collect data and provide feedback in an intuitive way. Because of the real-time nature of social networks, suppliers who are invited to provide information can receive support and feedback

OBJECTIVE: Score quarterly supplier performance to support purchasing selection criteria and provide suppliers with useful feedback.

APPROACH: Suppliers are invited to an online portal to respond to best practices RFI’s and/or send them along to 2nd-tier suppliers. Results are automatically tabulated into buyer dashboards and feedback reports for suppliers.

OBJECTIVE: Comply with annual requests for certification of chain of custody, conflict, labor, restrictions on hazardous substances, and other emergent standards.

APPROACH: Suppliers are invited to an online portal to respond to compliance RFI’s and/or send them on to 2nd-tier suppliers. Results are automatically tabulated, flagged for compliance status, and consolidated into compliance reports.

as they complete the benchmarking RFIs. They can even collaborate with their colleagues and invite their own suppliers to provide additional information.

In a deployment of Benchmarking RFI’s for a major food company, managers at wholesalers were invited to the supply chain social network to provide information on practices at the farm level (two or three tiers beyond). These managers then requested invites to be sent to country-level managers, who were able to collect the information directly from farmer organizations. In this way, data representing more than one hundred thousand farmers was quickly and accurately collected in less than three weeks.

The results were automatically compiled into a visualization dashboard which revealed two outliers (responses outside the expected range). These suppliers were targeted for follow-up emails and were allowed to edit the replies. Cumulative responses were scored using a custom, multi-dimensional algorithm combining ratings for management systems, good agricultural practices and social issues at each farmer organization. Scores were used to inform buyers and provide individualized feedback to suppliers on their relative performance. Suppliers showed eagerness to learn about the questions to help guide their development projects, showing that a supply chain social network can help to further the supplier-customer relationship.

Real-Time Monitoring & Evaluation

Supplier social networks can provide control tower-like visibility into the supply chain by integrating automated data feeds from suppliers’ own management systems. This is similar to how individuals can automatically ‘push’ content to online publishing platforms like Twitter and YouTube. Suppliers are

provided with access to an encrypted ‘API Endpoint’ (the Application Program Interface for the supplier social network).

Sub-supplier monitoring and evaluation dashboards are

useful not only for buyers, but also for quality, finance, risk

and CSR

Instead of asking supplier representatives to complete online RFI’s by hand, these data feeds provide more frequent and accurate data while saving time. Supplier social networks for Monitoring and Evaluation have been deployed in four instances with pharmaceutical, food and agriculture supply chains. The automated data feeds are capable of transferring gigabytes of data weekly on data including:

• Shipments as they depart and arrive • Purchases of raw materials • Sales of finished goods • Productivity • Resource consumption

The timely refresh of this data offers a number of benefits (beyond saving the time needed to compile manual RFI responses). These benefits include:

• Early detection of outliers, errors and non-compliance (alerts available)

• Ability to manage data collection and projects more accurately

• Real time strategic decision making

In one implementation, the data submitted by a supplier’s own systems was compared against audit data to ensure that production volumes were within expected ranges. Transactions that were either too small, large, fast or slow were flagged for further examination and/or audits.

One unexpected result of a real-time monitoring and evaluation dashboard was the number of users outside

OBJECTIVE: Evaluate ongoing performance of suppliers to ensure continuous improvement and guide strategic decision-making on a weekly or monthly basis.

APPROACH: A supply chain social network with automated data feeds from suppliers’ own supply chain management systems.

the purchasing function who make use of the information collected: employees in planning and sales, finance, quality and corporate social responsibility were able to make use of the data to answer every day reporting and planning questions.

Traceability

While sub-supplier mapping typically starts as an annual business continuity and compliance reporting exercise, increasingly, businesses want to streamline the process by building a comprehensive traceability program. Traceability is the process of accounting for every step in the life cycle of a product, from raw material to finished good. Like monitoring and evaluation, traceability relies on continuous data capture from every stage of a product’s transformation and delivery. Prior to cloud-based social networks, traceability was only possible through dedicated hardware installed at manufacturing locations. With the advance of mobile social networks, however it has become possible to capture each step in the life of a product via smartphone and upload the results to an online data warehouse where the steps are automatically compiled into an end-to-end record of traceability. In two implementations of traceability, users at various steps of extraction and manufacturing were provided with smartphone apps to record each transaction of product along with a unique bar code or serial number. Certain steps in the process may also be captured in batches by enterprise systems and fed into the social network via API.

Traceability poses a unique challenge for supply chain management software, since every user group can only access information on the products that reach them,

and not any other material flows. To solve this issue, administrators can manage user roles and permissions. In addition, each user group has access to a bespoke dashboard tracking the provenance and output of their operation.

Even though there is limited visibility into the ultimate destination of products, traceability offers a number of key advantages to all participants, including:

• Early notification of delays and exceptions • Ability to enact recalls instantaneously • Real-time inventory optimization • Easy reporting on chain of custody

Traceability provides customers with the ultimate confidence that they are receiving an authentic, product that is consistently delivered on time. For these reasons it is poised to become the new standard for quality assurance in the pharmaceutical industry. As an added benefit, traceability via smartphones automatically captures the location and time of each step in a supply chain and automatically generates a multi-tier supply chain map.

Conclusion Sub-supplier mapping is fast become a business requirement, yet enterprise databases are not able to account for the flow of all goods across multiple tiers. Since the advent of conflict minerals reporting, suppliers have become accustomed to provide information on their sub-tier suppliers. As the number of regulations requiring sub-supplier mapping increases companies will start to adopt more flexible networks for collecting and maintaining supply chain data. Supplier social networks can be configured to closely reflect supply chain structures so that data collection and sharing is streamlined (through centralized RFI’s), automated via enterprise data feeds and extended through the use of mobile devices for capturing product traceability.

OBJECTIVE: Record the exact chain of custody, including locations and timestamps, for items and batches of items from raw material to retail.

APPROACH: Social network with offline mobile capability to capture serial numbers of products as they move through every step of the supply chain.