Does your Supply Chain Contain ethical risks?
With 77% of companies believing there is a likelihood of modern slavery occurring in their supplier network (ETI 2017), do you know the working conditions of those in your supply chain?
What is a Supply Chain?
As a starter, here is a definition of supply chain from the ISO world (ISO 28000:2007):
A supply chain is a set of interconnected processes and resources that starts with the sourcing of raw materials and ends with the delivery of products and services to end users. Supply chains may include producers, suppliers, manufacturers, distributors, wholesalers, vendors, and logistics providers. They include facilities, plants, offices, warehouses, and branches and can be both internal or external to an organization.
The supply chain is no longer a business function delivered in the background. Consumers are increasingly exercising consciousness ethical choice when buying products or services; they expect brands to take a stand and be far more transparent when it comes to responsible sourcing and fair employment practices. This rising consumer activism sees an increasing willingness to publicly hold brands to account.
Many organisations outsource major parts of their operations and additional support services, this ‘value chain’ can range from the use of contract cleaners through to logistics and supporting processes in the manufacturing lifecycle, with many large organisations frequently subcontracting and outsourcing to third-party suppliers all over the world – who in turn also have suppliers.
Supply Chain Risk
The complex web of supply and outsourcing brings with it a range of uncertainties that can cause challenges in the supply chain. The result = increased importance of supply chain risk management. As the trend towards obtaining components and finished goods continues to lead to a greater use of manufacturing facilities and supply networks overseas, so the Responsible Business Conduct increase – this is particularly relevant in emergent economies where the governance structure may be fragile or partisan, and the legal framework and national laws protecting workers’ rights are weakly enforced. Businesses should be increasingly aware that outsourcing means that they will not only have to focus on their own direct operational risks but should also actively look at the risks presented by links in their supply chain network. Supply chain considerations are becoming more common, and in such an increasingly connected world, much more complex.
Where do ethics come into it?
An ethical supply chain is one that has responsible business conduct and good governance at its core, working to produce products and services in a way that treats its workers and the environment ethically. From a worker perspective, there are numerous considerations that come into play in regards their employer (your supplier), such as:
Does their employer (your supplier) take care of their workers and respect Human Rights; fair pay, sustainable workloads (hours worked, and deliverables in that time), and ethical working conditions?
Are Labour Standards upheld (regardless of the levels of enforcement by authorities)?
Does your supplier provide a safe & healthy work environment for its workers?
Does the supplier ensure child labour is not used?
Is employment in the supply chain freely chosen and there is no harsh or inhumane treatment of workers?
Is any employer provided accommodation a safe and healthy environment?
Benefits of an Ethical Supply Chain
Many of the above points form part of the Ethical Trade Initiatives Base Code of Labour Practice. At the very least they protect human rights. At their most effective, they incentivise organisations to go beyond the baseline: for example, paying a fair wage, providing Personal Protective Equipment (PPE), and growing the talent of their people through investment in education and training.
More than being just the right thing to do, ensuring your supply chain members manage their employees and environment responsibility can help minimise the reputational risk they present to you – and so help safeguard shareholder value. Online fashion company Boohoo saw its share price plummet after its 2020 Supply Chain scandal identified through a Sunday Times investigation published in July 2020 which found that some workers in factories supplying Boohoo brands in Leicester, one of the U.K’s textile centres, were being paid as little as half the U.K. minimum wage. And while its earnings soared in the short term, the reputational damage and public accountability will have increased pressure for Boohoo to grip their supply chain if they are to ensure that economic performance endures for the medium to long term.
With consumers increasingly seeking supply chain transparency and accountability, and investors using ESG measures and other non-financial reporting data as a basis for making investment decisions, organisations should start demonstrating that the goods or services they trade in are produced ethically – “Giving consumers the reassurance they seek, and workers the protection they deserve”.