Supply chain transparency can help build trust with customers, especially when it comes to communicating social responsibility initiatives, according to new research from the MIT Sloan School of Management.
The research points to the growing importance of corporate social responsibility practices among consumers, noting that customers care more today about where and how the products they purchase are made. Investing in supply chain visibility can mitigate customers' skepticism and enhance their trust around those issues, the researcher said.
"Creating transparency requires a company to both gain visibility into its supply chain and disclose information to consumers," according to Tim Kraft, visiting assistant professor at MIT Sloan and one of the study's authors. "It's a massive undertaking: it's expensive, risky, and incredibly time-consuming. But at a time when customers are becoming savvier—and more skeptical—about social responsibility, our findings show that the investment can be worthwhile as it always engenders consumer trust."
The researchers found that such investments lead to higher sales when a company's target customers are either philanthropically minded and empathetic to others' wellbeing or if they tend to be naturally skeptical. They also found that the scale of a company's social responsibility initiatives affect consumers' purchasing decisions: Companies that undertake an initiative with a small impact—for instance, marginally increasing the pay to workers in the supply chain—but offer greater visibility are more likely to see a rise in trust-driven sales, the researchers said.
"This is because investing in visibility mitigates skepticism," according to study author and MIT Sloan Associate Professor Karen Zheng. "Consumers may interpret the smaller initiative as requiring less effort, and therefore may be skeptical of the company's motives. Knowing that the company has also made a significant investment to improve its visibility into the actual impact of the initiative can help to assure consumers of the company's good intentions."