Addressing the Trust Problem in Supply Chain Management

Author’s Note: The following is an excerpt of the presentation I recently gave at LabelMaster’s Dangerous Goods Symposium 2022 titled, “Addressing the Trust Problem in Supply Chain Management: Why It Matters.” You can watch the full presentation on demand at the event website, where you can register to watch all past and upcoming presentations by other speakers too.

When I was invited to speak this year, I was asked about what topics I might want to talk about today. The fact of the matter is that there is no shortage of supply chain trends and topics to talk about: Risk, Resilience, Agility, Visibility…E-commerce, Global Trade, Port Congestion…Inflation, Fuel Prices, Sustainability…and the list goes on.

As you can see from the title of my presentation, I chose a topic that I don’t think gets talked about much in the industry, but is arguably the foundation of everything we do in supply chain management, and is especially critical when dealing with dangerous goods.

Of course, I’m talking about Trust. Or, as is the case, the lack of trust that exists across the supply chain. Why is this a problem? Why does trust matter? How do we build trust?

Those are the questions I’m going to discuss in my presentation today.

Charlie Brown and Lucy

When I started thinking about trust, for some reason, the first image that popped into my head was Lucy holding the football for Charlie Brown to kick. If you’re a Peanuts fan, you know what I mean. Even though she has betrayed him many times in the past, there is Charlie Brown running full speed down the field, and just as he’s about to kick the football, Lucy pulls it away and he falls flat on his back.

Charlie Brown should know by now that Lucy is not reliable. That she is not truthful when she says she won’t pull the ball away. And that her ability as a football holder is highly questionable.

In short, Charlie Brown should not trust Lucy. Reliability. Truth. Ability. Those are the traits that define trust — and Lucy lacks them all!

Similarly, if you have colleagues or trading partners who are unreliable when you need them most, who are not truthful when problems or exceptions occur, or don’t seem to have the abilities (the people, processes, and technologies) to do their task well, are you able to trust them? When you look around at your colleagues in other functional areas and external trading partners, do you see many Lucys? If your answer is yes, the only good news is that you’re not alone.

Trust on the Decline

The sad truth is that trust has been on the decline for a long time. For example, in an AP poll conducted in November 2013, only one-third of Americans said that most people can be trusted. That’s down from half who felt that way in 1972. Almost two-thirds of the poll respondents said “you can’t be too careful” in dealing with people.

More recently, as highlighted in a July 2022 Forbes article, according to a poll conducted by Gallup, “only 27% of Americans have a great deal of confidence in 14 major American institutions on average [including the government, the press, medical system, schools, and business groups]. This is a record low since 1979 and a 5% drop from 2021.”

Simply put, we’ve become increasingly distrustful in just about every aspect of our lives. Obviously, this is a big societal problem that we have to address in order to sustain and strengthen all the pillars of a functioning society and democracy. 

And it’s obviously a problem at the business level too. “You can’t be too careful in dealing with people.” Is that what you’re thinking when you’re sitting across from a supplier, customer, or other trading partner? Are they thinking the same thing about you too? Sadly, that seems to be the case.

In September 2021, we explored this topic with our Indago supply chain research community, whose members are all supply chain and logistics executives from manufacturing, retail, and distribution companies. More than half of the respondents (56%) either agreed or strongly agreed with the statement that “you can’t be too careful when dealing with people across your supply chain.” The remaining respondents either disagreed or were undecided (Indago members can download the report at our website).

In short, the results suggest that there is some level of mistrust that exists for many people when they deal with others across the supply chain.

Trust and the Bullwhip Effect

Trust has an impact on supply chain performance in different ways. For example, there is a lot of discussion today about the bullwhip effect, which has resulted in mismatches in demand and supply and excess inventory.

In a research study published in July 2020 titled “Evaluating Trust, Trustworthiness and Bullwhip Effect: A Three-Echelon Supply Chain Interactive Experiment,” the researchers found that:

(1) The bullwhip effect could be controlled to a lower level when partners in a supply chain were with high trustworthiness but not those with low trustworthiness. (2) Suppliers are more likely to distrust low trustworthiness partners and adjust their production strategies relative to the high trustworthiness partners.

To sum up, this study establishes a connection between trust and the bullwhip effect through experimental results. Additionally, this suggests that trustworthiness is vital information in a supply chain for enhancing performances, especially for upstream members, which is one of the critical elements for information sharing in a supply chain.

The bottom line of this research is that trust has tangible and measurable effects on supply chain management. All you have to do is listen to the earnings call of retailers the past few weeks. There is a financial cost to the bullwhip effect, in excess inventory and markdowns, and it impacts customer satisfaction too.

Trust and The Transportation of Dangerous Goods

As you all know, trust is critically important in the transport of dangerous goods. As the authors of a 2018 research study (“Solving the trust issues in the process of transportation of dangerous goods by using blockchain technology”) point out:

In the context of the transportation of dangerous goods (TDG), many stakeholders cooperate to fulfill the process of transportation. This process is very delicate because of the risks for human life and the environment. The process reaches a certain level of complication due to the many standards and strict local and international policies.

For the TDG from the point of origin to the point of destination, there are many processes that must be followed, which generate sensitive information to be shared among the stakeholders. 

Again, we see here the need and importance of sharing sensitive information among different stakeholders. The authors position blockchain technology as one way to solve the trust issues in the process of transporting dangerous goods.

Why is overcoming these trust issues important? How can you build trust? Watch the presentation for insights and advice on those questions and more.