How Ethical is Your Supply Chain?

Supplier ethics management offers a way to plug global ethic gaps.

There have been plenty of "most admired companies" lists over the years, but there's a growing body of evidence that such lists may be obsolete. One recent survey conducted by Integrity Interactive Corp., a provider of risk reduction and management services, found that 78% of companies do not include suppliers in their company compliance and ethics programs, and nearly 58% are not sure if their company regularly assesses ethics risks in their supply chain.

"Being an ethical company isn't enough anymore," says Richard Cellini, vice president of Integrity Interactive. "Enterprises are being judged by the company they keep, which means the whole supply chain must be ethical. If a dishonest supplier 6,000 miles away disregards manufacturing standards to make more profit, it reflects on the U.S. company that hired the supplier. The public holds the supplier accountable -- not the outsourced vendor."

The Integrity Interactive study was prompted in part by the recent spate of stories about tainted dog food and toothpaste, lead paint in toys, automotive recalls and other supply chain problems.

"Supplier ethics is a serious and growing problem," Cellini notes. "It is one of the biggest ethics issues enterprises face today. It impacts revenue and market share because consumers reward companies that deliver a safe product to market and punish those that do not."

He points to the emergence of a relatively new business practice known -- buzzword alert -- as supplier ethics management. SEM aims to help companies manage their suppliers and supply relationships through strategies, programs and metrics that better align supplier business conduct with purchaser standards. The goal, Cellini explains, is to reduce a purchasing company's overall risk of corporate integrityfailure in the supply chain by aligning supplier conduct with purchaser standards in three major areas of corporate integrity: compliance, ethics and corporate responsibility.

Cellini recommends that manufacturers create and maintain an effective SEM program by implementing the following:

  • Make ethics and compliance a factor in supplier selection.
  • Create and maintain compliance history profiles of important suppliers.
  • Assign ethics and compliance personnel to major supply relationships.
  • Conduct regular assessments of supplier ethics.
  • Target and segment suppliers by importance and ethics risks.

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