This article originally ran three years ago. (Link) It’s continued relevance is why we are repeating a slightly updated version of it.
Three years ago, research revealed that only 6% of procurement managers and directors have ever been made aware of unethical activity in their supply chain. (Source: EY.com) This was a surprising statistic since we know that supply chains in certain verticals run rampant with unethical behaviour, including violations of workers rights, child labour, and even human trafficking. However, when you think about it, it’s not all that surprising as E&Y’s recent 14th Global Fraud Survey found that 42% of executives could justify unethical behaviour to meet financial targets! Who would want to stand up to the CXO who could fire you if you know the CXO probably authorized the unethical behaviour in the supply chain in the first place!
The reality remains that as much as we’d like to believe that only 6% of supply chains have unethical activity, given that almost 86% of North American companies have a supply chain reliant upon China alone for key parts1, and 42% of CXOs will turn a blind eye, that’s a pipe dream. Depending on how rigid you want your definition of ethical to be, I’d guess that the number should be closer to 60%. Or more!
So why is it your fault if your supplier does it? Simple. As per the original survey, it’s because less than half of your organizations do any due diligence in their supply chains! Only 48% of UK firms do any due diligence at all! Even worse, 14% of respondents to the original EY survey did not even know what third-party due diligence meant, for crying out loud! You have to do due diligence and you have to ask tough questions and someone who can be trusted has to do a site visit to major suppliers at some point. If you do all this, and the supplier lies through their teeth, then, while your company may still be held financially responsible, it won’t be held criminally responsible and ethically you will know you did all you could (except cut the supplier loose before they did the unethical act, but at least you can cut them loose as soon as they do).
This is why you need good supply chain visibility, document management, and CSR monitoring. There are companies that do this, including Resilinc, Integration Point, and Ecovadis. (See the Vendor Post Index for more.) Reach out and get these types of solutions if you don’t already have them. They will be worth it.
And if you want more information, Ecovadis recently sponsored a trilogy of white papers by Sourcing Innovation on the importance of sustainability and social responsibility monitoring in your supply chain, the first two of which are available for your reading pleasure:
- Playing with Fire — The 4 Hidden Risks Lurking in your Supply Chain
- Why Sustainable Supply Risk Management cannot be siloed: Lessons from Leaders who beat the odds
and the following is coming soon:
- 5 Key Questions to Ask When Selecting a Multi-Criteria Supplier Sustainability Monitoring Solution
1 Supply Chain Disruptions, Ted Landgraf, Above the Standard Procurement Group, July 15, 2012.