In a world of immediacy, it is imperative for the procurement and compliance functions to work closely with suppliers to ensure that conduct throughout the supply chain does not overstep ethical boundaries. Abrie de Swardt, IMPERIAL Logistics Marketing Director tackles this tough topic for SmartProcurement.
“The combination of supply chain globalisation and consumer activism presents the logistics and supply chain management industry with a reality in which stringent social, ethics and sustainability policies make or break a business,” says de Swardt. “Sustainable procurement requires that these policies are tightly managed – not simply by ticking boxes to veto suppliers, but by partnering on this front.”
In cases concerning ethics, such as human rights violations, discrimination, child labour and below-minimum wages, consumer backlash is having an increasingly negative impact on brands. “The renowned US class action lawsuit approach is a potential risk that South African business must consider,” he says, noting that this provides consumers with a way in which to take collective legal action in response to an ethics, social or sustainability issue.
Big brand phenomenon
History has regularly demonstrated that it is not the unknown supplier brands that feel the negative impact of unethical practices. “If unethical business practice hits the headlines, it is the high-flying big brands within the supply chain that are tarnished – though the impact extends throughout the supply chain, end-to-end,” he says.
“Simply put, the ethics problem in the supply chain is that consumers often blame purchasers for ethical lapses that were actually committed further upstream by suppliers. The scapegoat could be closely associated with the unethical supplier or many steps removed. But the scapegoat will always be the player with the biggest reputation to protect,” says Michael Levin, Vice President of Corporate Integrity Strategy at Integrity Interactive, a provider of technology powered tools and services for managing ethics risk in the supply chain.
Consider some examples within the Retail sector: April 2010 featured US-based rights group, National Labour Committee publishing a report titled ‘Dirty Clothes’. It accused a Walmart and JC Penney supplier in Jordan of abusing young women migrant workers and of human trafficking from Sri Lanka, India and Bangladesh. In December 2008 UK campaigner War on Want accused Bangladeshi factories within the Tesco, Asda and Primark supermarket supply chains of poor working conditions.
Partnership vs. policing
Two key partnerships enable an effective compliance outcome when it comes to ethics, social and sustainability practices, says de Swardt. “One partnership area that is hugely underestimated is between procurement and compliance officers. The second area requires that a business nurtures a win-win partnership with its suppliers.”
“The key issue is whether a brand considers its supply chain a strategic asset and invests in it or whether a supply chain is merely a means of low-cost purchase,” notes Jeremy Prepscius, Managing Director for Asian-based Business for Social Responsibility. Whether a business operates through a complex or simple supply chain, ethical business principles demand that supplier behavior, upstream and downstream, is not just approved on appointment, but consistently monitored.
“Increasingly, the merits of supplier development and the disadvantages of focusing only on code violations are coming to light,” says de Swardt. “Examples of these include Marks & Spencer’s supplier exchange initiative, through which suppliers can share ideas. Levi Strauss, in collaboration with Business for Social Responsibility developed an industry monitoring framework for textile and fabric mills. Further, Levi’s sustainability programme is reputedly applying standards throughout its supply chain, right from cotton growers.
Suppliers need to be engaged by companies with the objective of building trust-based, long-term, mutually beneficial partnerships. Consider Adidas’ partnering vs. policing policy adopted seven years ago: the company moved from a one-sided enforcement of conduct approach to helping its suppliers develop the required management systems to address environmental and social issues.
Employee integrity reality
Ethical behavior is a reputational element of a business that all employees need to embrace. Processes will enable the management thereof. Yet it requires human beings to uphold set standards set and established behavioural codes. The procurement team literally holds the purse strings of a company, making it imperative for people of integrity to hold these positions,” says de Swardt.
Mallen Baker considered how unfortunate ethical outcomes are more an issue of systems and incentives than deliberate planning and cost cutting: “The company executives probably never once had a discussion that said “just as well the world doesn’t know that our supplier exploits children.” Instead, they just didn’t know – and they didn’t know they were supposed to know.”
Thinking about it this way, ignorance is absolutely not bliss. The fact is – If you don’t ensure social, ethics and sustainability compliance, your consumers will.