The Role of Supply Chain Transparency in an Organization

Accounting Staff

The Role of Supply Chain Transparency in an Organization

As ESG requirements evolve, companies find the supply chain as an emerging critical area. The increased focus on sustainability requires companies to look closely into product/service design and manufacturing processes, the materials and services they use, and how their products travel through the supply chain.

How do we define a supply chain?

A company’s supply chain is a vast interconnected network of businesses, organizations, individuals, and resources involved in creating and delivering a product or service to end customers. Simply put, the supply chain begins with sourcing the raw materials and ends when the product’s or service’s life cycle ends. Parties involved include suppliers, manufacturers, distributors, retailers, and customers.

To demonstrate its commitment to responsible business practices, manage risks, improve efficiency, and enhance its brand reputation, a company needs to understand and provide more detailed information about its supply chain than conventional preparers could imagine. The key is supply chain transparency.

Supply Chain Transparency

Transparency means the ability to provide the public with factual information about a product’s life cycle – from materials sourcing, manufacturing procedures, packaging, logistics, and usage, all the way through to recycling and disposal. Information disclosure is vital to building customer trust and patronage, but companies must also ensure they disclose the right amount of data to satisfy customers without sacrificing trade secrets to maintain competitive advantage.

In this new environment, every company needs to know every aspect of its supply chain. You need to understand whether the materials you use are sustainable, whether your suppliers practice good governance, and whether your final products are sustainable, safe to use, and can be safely disposed of or recycled.

Responsible reporting is everybody’s business.

Responsible supply chain reporting on ESG can be challenging. Many companies experience difficulty gathering data, worry about the time investment required, and wonder if the costs of these activities are worth it. In addition, knowing when to start and stop data gathering for reporting purposes can be confusing.

It’s also the case that many private companies believe they will not be required to disclose Scope 3 emissions or the impact of upstream and downstream activities. While this may be true for some regulations, it ignores the fact that private companies have business relationships with large public corporations and will be required to report the sustainability impact of downstream and upstream activities. Private companies will be asked to provide complete information about their supply chain so that their public partners can fulfill their reporting requirements.

In addition, public corporations will assess their suppliers’ (even private companies) environmental and social impact. If a company has poor–or poorly reported– ESG practices, this can negatively impact the sustainability goals of companies downstream that rely on the company’s product or services. One company’s sustainability performance can directly affect another company’s sustainability performance further along the supply chain.

Thus, even businesses not required to report by current regulations may have to gather ESG data or risk losing business relationships with market giants.

Given that it will affect everyone, let’s take a deeper dive and demystify some key supply chain considerations you’ll need to investigate:

Materials

Are these coming from renewable sources? How can the company redesign its product/service to transition to renewable resources, if not?
How are these materials harvested, mined, or extracted?
Is the extraction of these materials affecting local communities and/or indigenous people?
Is it safe to use? Is it causing irreversible negative impact on the environment or society?
Is the consumption of these materials affecting biodiversity?
How is the organization working on the replenishment of the resources it uses?

Suppliers

Are my suppliers publishing complete and compliant sustainability reports?
Are my suppliers monitoring and addressing any negative environmental impacts of their operations?
Are my suppliers managing their GHG emissions?
Are my suppliers involved in any child or forced labor practices?
Are my suppliers conducting safe and fair labor practices compliant with laws?
Are my suppliers providing equal opportunities to a divorce group of people?
Are my suppliers practicing good governance policies and procedures?
Does the company conduct environmental and social impact assessments on all suppliers? Do they meet the minimum sustainability standards that the company follows?

Production Process or Service Delivery

Are we managing our energy consumption, considering GHG and other air emissions covering Scopes 1, 2, and 3?
How about water consumption, treatment, and discharge?
Are all production or service wastes properly managed?
Is the company using sustainable packaging materials, limiting plastics from packaging to delivery materials?
Were all products/services assessed for health and safety impacts?
Has the company considered the employees’ carbon footprint while working from home?
Are employees practicing sustainable measures?
Has the company accounted for the emissions from employee commuting?

Logistics

Is the product transport process sustainable?
What emissions are caused by product transportation from the warehouse to the end users?

Product or Service Consumption

Is the product or service safe for the environment and users?
Does the product packaging or service description provide details of materials sourcing, a safe use guide, and proper disposal instructions?
Does the company provide programs or means to collect product waste to recycle or ensure proper disposal?

The goal of asking these questions is both to improve corporate behaviors and ensure the company is in a position to inform stakeholders about the ESG impact of supply chain practices and efforts to promote responsible and ethical practices throughout the supply chain

What can companies do today?

Many companies fall into the trap of waiting until the last minute to look into their vast supply chain impact, leaving them overwhelmed by the scope they need to cover. Achieving transparency in the supply chain offers many advantages for the organization, but transparency won’t happen instantly.

Your business and suppliers can start by taking these steps:

Assess the current state of supply chain sustainability – map the entire supply chain, identify key risks and impacts, and assess current reporting practices.
Develop a supply chain transparency strategy – this strategy should outline the specific goals and targets and the actions needed to achieve them.
Collaborate with suppliers – engage with suppliers to build relationships and gather information about their sustainability practices.
Invest in technology-driven solutions –enable more accessible collection and analysis of data.
Report progress – track and regularly report progress, including key metrics, such as supplier social performance and environmental impact, and share best practices and lessons learned.
Evaluate progress – continuously monitor and evaluate progress, set up systems for tracking and reporting on key metrics, and conduct regular audits and assessments to identify areas for improvement.

Supply chain transparency is a two-way street. It creates trust and confidence within the ecosystem, attracting more customers, investors, and partners. Companies should proactively manage their supply chain risks, achieve supply chain transparency, and meet evolving regulatory requirements to build trust with stakeholders and remain competitive in a rapidly changing business environment.

Global Sustainability Development will likely drive increased demand for supply chain transparency and reporting, and companies should expect more reporting requirements to emerge. Engaging fractional CFO services and leveraging SaaS accounting expertise can help organizations stay financially prepared and strategically aligned with these emerging compliance obligations.

How Scrubbed Can Help

Achieving sustainable supply chain transparency can be complex and challenging, particularly in meeting US and global regulations. Scrubbed’s Technical Accounting and ESG team can support your company at every step — from knowledge building, risk assessment, data gathering, and impact assessment to reporting. In addition, the Scrubbed ESG Team keeps tabs on standard-setting developments and regulations related to the increasingly significant impact of ESG on your financial reporting. As a result, we can help your organization stay ahead of these developing requirements. Contact Scrubbed to learn how the experts in our Technical Accounting and ESG Team can help your business keep up with the emerging need for Supply Chain Transparency.

CONTACT

Frequently Asked Questions

Still have questions?

Contact Us

Related Content

Blogs

Scrubbed Announces New Promotions and Expansion of Its Leadership Team

Scrubbed has handpicked four stellar professionals to take the helm as directors, reinforcing their unwavering dedication to fueling success for businesses of all shapes and sizes. Masters in the fields of accounting, finance, and taxation, these new directors are poised to steer their clients toward groundbreaking accomplishments. This initiative is just the beginning as Scrubbed continues its vision of revolutionizing the industry, unlocking a bright future for the company and its clients.Michael John David after seven years with Scrubbed is now the Director of Real Estate Accounting Solutions and Clean Technology Industries. He has served in key roles at Scrubbed for seven years. His impressive credentials include Summa Cum Laude distinction, where he ranked as a top scorer in the 2015 CPA board exam, Certified Forensic Accountant (CrFA) license, and degrees in both Business Management and Mini-MBA from the International Business Management Institute in Berlin, Germany.Grateful for the opportunities and challenges that have shaped him both personally and professionally, MJ will continue to focus on the quality and consistency of his team’s work. Leveraging his team’s expertise in end-to-end accounting for US-based real estate and clean technology clients, ranging from startups to those with substantial investment portfolios, he is confident in delivering accurate and high-quality reports tailored to each client’s unique needs.With over 12 years of experience in the accounting industry, Arian David assumes the role of Director for the Distribution and Retail Sectors. Her extensive background in inventory management and cost accounting, along with her team’s significant contributions in implementing advanced inventory systems for clients, has streamlined manual processes and improved overall efficiency, effectively addressing the intricacies of these industries.Arian brings a decade-long track record to her position, having worked with EY Philippines and Singapore, where she honed her expertise in general accounting and auditing. She is determined to guide her team toward growth and success, she draws inspiration from the trajectory of Scrubbed.As the new Director of E-commerce and Family Office at Scrubbed, Denissa Ysabel Dizon – Ballos firmly believes in the enduring presence of e-commerce. In response to the rise of ESG, sustainability, and carbon reduction, her team is enthusiastic about fostering stronger relationships with clients through more frequent dialogues, addressing their evolving needs with standardized and efficient processes.Yss started her career with Grant Thornton doing audit work and moved on to Shell in its global shared services group. With over 13 years of experience in general accounting, financial report preparation, and accounting and auditing education, she has substantial experience in serving companies within the merchandise and retail sectors.With almost five years at Scrubbed and a total of 15 years in the industry, Gliezel David now holds the position of Director of the Technical Accounting Group. Her decade-long tenure as an external auditor laid the solid foundation for her career. As well as her stint as a methodology senior manager in one of the big four accounting firms in the Philippines.Armed with extensive knowledge of IFRS, US GAAP, and SOX/PCAOB reporting requirements, Glie and her team offer clients accurate accounting guidance and frameworks, providing tailored analyses for each client’s specific needs. Their technical accounting support helps businesses navigate complex reporting requirements with confidence. She aims to double her team’s workforce by next year to serve the broader clientele effectively.Scrubbed is hiring for a number of careers in accounting. Learn more about the Scrubbed team and how the organization fosters career growth. Visit Scrubbed.net/careers.

SESSION 1: Building Scalable Growth Through Strategic Fractional Partnership

How Adapture Renewables Built Scalable Growth with Strategic Fractional PartnershipHow do you keep operations ongoing… while doing a deep audit endeavor?This was the critical question facing Ivan Kwan, VP of Corporate Finance at Adapture Renewables, as his company began to scale. It’s a classic high-growth dilemma: the core business is moving at top speed, but the finance team is stretched thin, facing strict deadlines and budgetary constraints. In our recent “The Future is Fractional” virtual conference, Ivan sat down for a candid fireside chat with Diana Peralta from Scrubbed to share his playbook for solving this exact problem. He detailed how he moved from handling the company’s first audit by himself to building a scalable, resilient finance function through a strategic fractional partnership with Scrubbed. If your business is struggling to balance growth and resources, here are the key highlights from his session.How Adapture Renewables Built Scalable Growth with Strategic Fractional PartnershipThis was the critical question facing Ivan Kwan, VP of Corporate Finance at Adapture Renewables, as his company began to scale. It’s a classic high-growth dilemma: the core business is moving at top speed, but the finance team is stretched thin, facing strict deadlines and budgetary constraints. In our recent “The Future is Fractional” virtual conference, Ivan sat down for a candid fireside chat with Diana Peralta from Scrubbed to share his playbook for solving this exact problem. He detailed how he moved from handling the company’s first audit by himself to building a scalable, resilient finance function through a strategic fractional partnership with Scrubbed. If your business is struggling to balance growth and resources, here are the key highlights from his session.Building Trust with an Incremental StrategyFor leaders worried about a “loss of control,” Ivan detailed his deliberate, incremental strategy for engaging a fractional team. Instead of going all-in, Adapture Renewables started with hiring people from Scrubbed for foundational tasks like bookkeeping (AP/AR). This allowed them to build confidence in the process and establish approval workflows that maintained control. This approach also opened the door to an unexpected benefit: the ability to “sample a buffet” of services. As Ivan explained, they could engage specialized expertise, like ESG reporting or technical tax, for a one-off engagement without having to hire a full-time, niche expert.Integration is a Mindset, Not a MemoI looked at the fractional staff as our staff, just housed elsewhere.The session’s most powerful insights centered on how to make a fractional partnership work. For Ivan, success came from a crucial mindset shift. Ivan warned against treating fractional teams like “a 1-800 number… a black box you call.” The key, he said, was a crucial mindset shift:This meant investing in integration through frequent communication and, most importantly, face-to-face time. Ivan admitted he didn’t visit the Scrubbed office until 2022, already four years into the partnership. When talking about his experience, he shared that “I would often tell that in that 10 days or so, I felt more connected with the team than in the prior four years combined”Achieving Flawless Compliance and Tech Adoption The move paid off. When asked about the measurable impact, Ivan pointed to two key outcomes:Flawless compliance:The session’s most powerful insights centered on how to make a fractional partnership work. For Ivan, success came from a crucial mindset shift. Ivan warned against treating fractional teams like “a 1-800 number… a black box you call.”The key, he said, was a crucial mindset shift:Tech adoption:The fractional team, already adept with tools like Zoom, Slack, and Asana, helped speed up Adapture’s own tech adoption. When the pandemic hit, it “was not adopting something new or novel,” Ivan explained. “It was just scaling up what we already had, the ecosystem we already had with the Scrubbed team.”Watch the Full Session Ivan’s story is a masterclass in how to strategically leverage fractional talent to not only manage growth but also to build a more resilient and efficient operation. To get all the insights, including Ivan’s advice on the single best role to start with and his hindsight on what he would do differently, you can watch the full session recording. GET YOUR ON-DEMAND ACCESS

Considerations for the 2022 Inflation Reduction Act

On August 16, 2022, the H.R. 5376 or Inflation Reduction Act of 2022 was recently signed and passed into law by US President Joe Biden. Calling the Act as “one of the most significant laws in our history”, it covers numerous provisions to address energy security and climate change programs, deficit reduction, prescription drug pricing, and healthcare premiums. This Act is a significant piece of legislation that fulfills some initiatives that have been embroiled in congressional debates for decades and is said to be the largest congressional action and investment in fighting climate change in US history, as of date. The Act also has a provision that raises taxes on wealthy corporations and makes prescription drugs and healthcare more accessible and affordable. Industry update: If Your Company is Involved in Leasing, Have You Met the Requirements of ASC 842? What’s in the Inflation Reduction Act? If you are already familiar with the Build Back Better bill, the Inflation Reduction Act is a ‘slimmed-down’ version of such, in which is aimed to make significant investments in the US’ “social safety net” (programs that will benefit the low-income or vulnerable individuals and communities) as part of the budget reconciliation process. The Act is meant to aid inflation by reducing the US national debt, healthcare, and energy costs over the years. Below is the summary of the Act’s salient provisions:Climate change and energy security provisionsNumerous investments in climate protection, including tax credits and rebates aimed at reducing carbon emissions and offsetting energy costs for households; investments in clean energy production such as research, loans, grants, and also tax credits to increase domestic manufacturing capacity for solar panels, wind turbines, batteries, and other integral components of clean energy production and storage; programs to decrease the environmental impact of agriculture; and more.With the new law comes the extensions of green energy tax credits ranging from 2024-2032. In addition, Green Energy Credits was added to promote sustainable growth.Aside from the credits, the US Government also made investments to address climate issues and encourage the citizens to switch to renewable energy. It is believed that this change will reduce climate pollution by up to 40% until 2030.This provision will cause a significant shift in customer demands which can affect traditional companies’ profitability, particularly those in the energy and automotive industry, in which products are based and reliant on fossil fuels and products with excessive carbon footprints. Unless companies adapt to these demand changes, inventories can be rendered obsolete, assets rather impaired, and businesses going under. Consideration should also be taken on how Green Energy Credits should be accounted for.Extension of Affordable Care Act (“ACA”) subsidiesExtends the temporary expansion of Premium Tax Credits for additional two years through 2025. Under the current law, the expansion offers eligibility to households with incomes between 100% to 400% of the federal poverty level.Under ACA, medical insurance premiums are currently subsidized by the US federal government to lower premiums. But these are scheduled to expire at the end of 2022, if not extended, which could cause millions of Americans to lose their health insurance, according to the U.S. Department of Health and Human Services.This will continue to affect the cash flows for certain companies, especially those mandated by the ACA to provide affordable healthcare to their full-time employees since noncompliance could result in hefty annual fines.International Revenue Service ("IRS") fundingInvestment of approximately $80 billion over the next 10 years for IRS enforcement activities, including IT Systems modernization, taxpayer services, and the hiring and training of new auditors.Stringent enforcement of IRS audit and filing is expected. Thus, companies should be more vigilant in compliance with rules and regulations and be audit-ready to avoid assessments, penalties, or even litigation. In addition, companies must carefully account for uncertain tax positions and follow the guidance of ASC 740. Corporate Alternative Minimum Tax (CAMT)Creates a 15% corporate alternative minimum tax rate for corporations with average annual earnings that exceed $1 billion over three taxable years. While tax rates on individuals and households will remain the same.CAMT-exempt are companies with combined income with unrelated businesses of shared ownership of an investment fund/partnership even if it exceeds the threshold and corporate subsidiaries of private equity firms.Affected companies should consider the impact of increased tax liability on their cash flows, forecasts, and investment/growth strategies. Excise Tax on Stock Buybacks or RepurchasesImposes a 1% excise tax on domestic publicly-traded corporations when it buys back its own shares directly or through a more than 50% owned subsidiary corporation or partnership.This can impact companies as to their corporate buyback transactions, including those with outstanding shares subject to repurchase rights, stock issued in the initial public offerings of special purpose acquisition companies, and redeemable preferred stocks.Prescription drug price reformsAllows Medicare to negotiate the price of certain prescription drugs to bring down the price beneficiaries will pay for their medications and limits the price growth of certain drugs due to inflation by having a $2,000 cap on the annual out-of-pocket prescription drug costs for Medicare recipients starting in 2025.It also repeals the implementation of the “rebate rule,” which is scheduled to increase drug-related Medicare costs beginning in 2027, and redesigns the Medicare Part D benefit formula.This can impact the bottom line and cash flow projections of various healthcare, pharmaceutical, and other life sciences and drug related companies. This can also affect pricing schemes and inventory valuation to Net Realizable Values.Other Provisions:Research Tax Credit – Beginning after December 31, 2022, the Research & Development (R&D) tax credit limit of $250,000 for qualified small businesses can now be applied against payroll tax liability up to $500,000.Passthrough Loss Limitations – IRA included a two-year extension of the deductibility of the excess business losses limitation to pay for the late changes to the CAMT of partnerships and S corporations until 2028.You may refer to this link for the full legislative text of the Inflation Reduction Act of 2022. We’d love to help. This summarizes the significant provisions in the Act. To ensure that all factors are considered in the pursuit of reliable financial reporting, effective and efficient operations, and compliance with law and regulations, including risk and SOX compliance and corporate finance advisory, our services can be scaled to accommodate your business needs.Visit Tax Compliance and Advisory Page