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Does Knowing Make You Accountable?

In my recent post about supply chain a friend replied in the comments that “I’ve come to the realization that big business doesn’t want that level of transparency, because transparency = accountability.”.  To which my quick counter reply was “Being able to keep transactions confidential is key, but even this creates accountability - so we need an incentive that can outweigh that risk ”.  I then suggested that this would be a topic for my next post, so here it is 😃

Does knowing make you accountable?  What are the real motivations for supply chain transparency.

I worked on a project early in my career where we were writing an algorithm to calculate the rate at which product complaints were received over a three-week rolling window so that we might predict if we would hit a certain threshold in week four;  which would trigger an investigation.  Because an investigation required resources, this would help us better plan – we were going to have better, more timely inspections and save the organization millions of dollars due to more efficient resource planning.  As a side note, we didn’t call this AI at the time – it was just statistical trend analysis… The math worked, but the program was never implemented.  Leadership realized that once they had knowledge that an investigation should be done they had an obligation to do it, and this opened them up to additional liabilities and potentially raised the bar on all kinds of predictive actions they should take.

At the time I didn’t quite agree that sometimes it makes better business sense to “not know something”.  15 years later I still don’t quite agree, but I understand the position… everything is complicated.  In my opinion to not do something because it could make you accountable for not doing enough, means you just aren’t motivated to do the thing in the first place – even if you know it’s the right thing to do.  And if it is the right thing to do eventually it will be done (one way or another).  So, while the statement that “Businesses don’t want traceability because traceability = accountability” is generally correct (especially in a very narrow time frame) – but it’s also an excuse to avoid doing the work today.  Accountability is a risk, if you are not prepared to stand behind your actions, but it you are doing the work accountability can be a protection.

To fully round out this perspective we must also consider “to whom are you accountable”.  If the entire world is watching then that is a pretty high bar.  But if it is your business partners, customers, and regulators then you can set expectations appropriately.  This is why confidential transactions are “key” and when we talk about traceability it’s important to limit that visibility into only those things you should have access to see – IMO determining the “should” is the role of claims as discussed in my previous post.

But this really boils down to “how do you get people to do the work” to participate in a network that provides supply chain visibility to those who should have it.  Its’ worth reflecting here on the relationship between motivation (an internal driver) and incentive (an external driver).  I believe incentives are a catalyst to get people (or enterprises) to act on latent motivations, and that not everyone will react to the same incentives.  Conversely, if there is no motivation, then most incentives will be short lived.  So, in order to create supply chain visibility, we must make 3 basic assumptions:

  1. There are at least some participants in the supply chain who are motivated to do this. These are likely the endpoints – producers and consumers.
  2. Not everyone in the supply chain will respond to the same incentives.
  3. The adoption of such a solution will be gradual – there will be a (hopefully not-to-long) period of time where not all supply chain participants will be motivated to participate.

There is also one more important component here.  Compliance is not a motivator; at best it should be one of several incentives that get enterprises to take action.  I know this is an idealistic statement, but I am a firm believer that if we want to build a sustainable solution we cannot lead with the stick – supply chain visibility must provide business value first, regulations are the guardrails, and compliance is a byproduct.

Incentives:

In my experience incentives always fall into two categories:

  1. Reduce Cost
  2. Increase Revenue With the latter being the more significant driver, but reducing costs is usually the lower hanging fruit and is typically easier to quantify in terms of value. Here are just a few incentives that have come up through the supply chain projects I’ve had the privilege to be a part of:

Reducing Cost

  • Reduction of friction: Anywhere that there are delays in moving products or where processes rely on some form of a reconciliation to "true up" after a certain period of time is an area of friction. I love the word "friction" in this context - to me is sums all the stuff that doesn't make sense but we do anyway. Supply chain visibility and a common ledger for settling inventory eliminates this kind of friction.
  • Better planning: Imagine the impact on planning cycles if a manufacturer were able to "see" their products being consumed in near real time. Or how we could reduce safety stock requirements when we could see inventory flow accurately. One of my favorite use cases is inventory redistribution for products with a shelf life - if we know something is about to expire, lets send a replacement and get the near expired one to someone that will use it.
  • Directed Flow: Dynamically routing products based on attributes and inputs from some trusted oracle. Admittedly this use case is a little further out there, but the same way that DeFi created programable money with smart contracts we will see programable inventory.

Increasing Revenue

  • New Markets: With better product linage and the ability to "prove" compliance with local laws companies with true supply chain visibility will be better positioned to win new country level tenders and bring products to new markets faster.
  • Better Payments and Discounts: The next logical step from trusted supply chain visibility will be a better system for payments triggered by real world events (ironically this is the antithesis of procurement based supply chain visibility...). In the pharma industry the world of rebates and chargebacks has long been targeted as an area that blockchain will disrupt. one could argue that payments and discounts are a cost savings, but I believe if done correctly these actually lead to unlocking additional markets and customers.
  • Collaborations and Joint Ventures: Being able to pair your products with something that complements them allows you to specialize. Trusted supply chain visibility and a shared ledger of inventory settlements makes it WAY easier to collaborate and enforce cooperative agreements.

I'm sure I could go on and on, but this is a good list to get started. The point is that forward and backward traceability (trusted supply chain visibility) unlocks business value for those with the right perspective. For those without that perspective it will likely disrupt their business. So coming back to the original question of "Does knowing make you accountable?" I think the answer is "no"; you were always accountable, but you just didn't know it. I'm of the opinion that more (trusted) information is always better, and that knowing as much (or more) than your competition is sound business strategy. While there is a risk that comes with accountability, the from the right lens of incentives the benefits will far outweigh those risks.