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By: Pauline Berry

 

In competitive marketplaces, low cost delivery and production efficiency are archetypal growth factors for companies. Unfortunately, numerous companies compromise their ethical standards to maintain their low cost business structures.

The good news is that you can grow your business without compromising your ethical standards! In fact, Cotton On, an Australian Retailer, has done just that. With continuous adherence to ethical standards and a strong code of conduct focused on worker’s rights, Cotton On has grown 20% year over year since 2009. What has made Cotton On such a success? Their ethical supply chain practices. According to its founder, Nigel Austin, Cotton On’s clean supply chain is a direct result of “personal, longstanding, and concentrated supply relationships”- without any ethical compromises might I add. [1] With recently introduced anti-slavery laws such as the US Trade Facilitation and Trade Enforcement Act 2015 [2] and the UK Modern Slavery Act 2015 [3] as well as the heightened importance of corporate social responsibility, exercising ethical standards is no longer a voluntary undertaking. Business leaders are pressured more than ever to ensure that their sourcing, procurement, and supply chain practices meet ethical criteria. This post is meant to help you understand what it means to be visibly ethical and how to get there. Let’s learn!

1.     Engrain Ethics Into Supply Chain Methods

Building an ethically sustainable company culture begins with creating and communicating a code of conduct centered on ethical practices. To exemplify, Cotton On’s code of conduct is strongly centered on enhancing worker’s rights, eliminating forced labour and banning the import of illegal materials. A code of conduct centered on ethical and sustainable standards helps build ethics into a company’s supply chain and company culture as a whole. [4] Companies found to be non-compliant with Cotton On’s code of conduct are black-listed and/or suspended from future business engagement.

2.     Develop Ethical Standards with Suppliers

Engaging suppliers in the development of ethical standards can increase supplier compliance and enhance supply chain transparency. GlaxoSmithKline’s mission is to become the “world’s most sustainable healthcare company” by reducing their carbon footprint by 20%. [5] The first step to achieving their sustainable goal began with their suppliers. By engaging suppliers in the development of sustainable sourcing methods, GSK and its suppliers were able to develop ethical sourcing standards that keep all parties accountable and ultimately help achieve their objective.

3.     Evaluate Suppliers’ Ethical Behaviour

It is important that potential suppliers be pre-screened prior to joining your supply chain. Before this is accomplished, you may want to create a balanced scorecard that highlights relevant factors for risk assessment. Some of these factors may include: financial strength, quality and delivery management, and general commercial performance. [6] In addition to these factors, it is highly recommended that the supplier’s ethical, cultural, and compliance behaviors are also evaluated. Evaluating a vendor’s ethical behavior ensures both parties’ ethical standards are aligned.

4.     Assess Existing Suppliers’ Ethical Framework

For those suppliers already in your supply chain, risk potential and ethical behavior should be periodically evaluated. General Electric asserts the value in “on-site” assessments. GE conducts on-site assessments to evaluate past and current supplier performance. After the “on-site” assessment, certain suppliers are subject to one to three years of evaluations, depending on their performance. [7] Using the balanced scorecard created, existing suppliers should be subject to the same standards and guidelines as new, potential suppliers. that are being evaluated against a rigorous criteria.

5.     Establishing an On-Going Enforcement Mechanism to Maintain Ethical Standards

To maintain your ethical supply chain culture, an ongoing audit and enforcement mechanism should be created and managed. Cotton On continuously audits its suppliers through activities like “factory inspections and constantly evaluating sourcing methods.” [8] Without an enforcement mechanism that ensures your supply chain remains ethical, a company’s reputation could be damaged. Like GE, a supplier’s evaluation and engagement should be given regular cadence.

There’s no reason ethical standards should ever be compromised. Without ethical standards in place, companies are subject to supply chain disruptions. With consistent and open communication with suppliers, a mutually-developed scorecard, and on-going audits and monitoring, companies and their suppliers can become visibly ethical.

Forced Labour Can Enter your Supply Chain

However, you can keep it out.


References

[1] Helen Morgan, “Cotton On Put Focus on Supplier Relations.”March 22, 2016, CIPS.

[2] US Congress. “Trade Facilitation and Trade Enforcement Act of 2015.” 114th Congress. H.R. 644

[3] Legislation.Gov.uk. “Modern Slavery Act 2015.”

[4] CIPS, “Socially Responsible Procurement: Corporate Social Responsibility in a Supply Chain Context.” 2013.

[5] Krina Amin, “RBS Awards Focus: GSK’s Award Winning Supplier Engagement

[6] CIPS, “Socially Responsible Procurement: Corporate Social Responsibility in a Supply Chain Context.” 2013.

[7] General Electric, “Ethical Supply Chain Program.” January 20, 2016.

[8] Helen Morgan, “Cotton On Puts Focus On Supplier Relations.” March 22, 2016. CIPS.