How Companies Can Build Ethical Supply Chains on a Global Scale | 2019-11-12

What constitutes ethical practices in global supply chains can vary by country. Yet companies still need to uphold broad ethical standards for the treatment of workers and environmental sustainability. Bribery, too, is a common problem encountered by procurement professionals. In this conversation with SupplyChainBrain editor-in-chief Bob Bowman, Bill Michels, vice president of operations for the Americas with the Chartered Institute of Procurement & Supply (CIPS), offers insights on how organizations can engage their procurement teams in positive ethics, as well as the consequences of failing to do so.

SCB: Where do you believe that procurement organizations are falling short today in maintaining ethical practices?

Michels: One of the things we’re seeing across many supply chains is forced labor. It’s Nestlé with its coffee supply. It’s fish that wind up in retail grocery stores that was caught by people chained to boats. It’s in the apparel and construction industries. Those are areas where we really need to educate and drive change in the supply chain.

SCB: How can we accomplish that?

Michels: Companies say they’re running education programs and auditing their suppliers, but every person who’s involved with procurement needs to make sure they’re following ethical practices on human rights and environmental restraints.

SCB: Where does the failure lie within the companies that didn’t see it or didn’t properly manage it?

Michels: A lot of companies don’t have a complete map of their supply chain. If I ask a group of people who has a risk-management program, most of them raise their hands. But if I ask who goes beyond tier-one or tier-two [suppliers], all the hands drop. We don’t really have full supply-chain transparency.

SCB: Give me an example from your own experience of an ethical challenge that you’ve encountered, and how you dealt with it.

Michels: I’ve encountered ethical challenges in foreign countries where bribery is a common practice. Making sure you don’t have bribery across your supply chain is something you really have to focus on. You can’t source stuff from your desk — you have to be out there looking at suppliers to understand what’s happening. You need to do surprise visits to make sure everything is the way it should be. You go to a beautiful factory and find out they’re outsourcing production. I actually experienced that in the food business.

SCB: How do you ensure that’s not happening?

Michels: We need people to educate all of our suppliers in ethical practices — make sure they have processes for compliance. And we have to be auditing those suppliers on a regular basis.

SCB: How do you deal with such situations when you’re sourcing from a part of the world that has different ethical standards than the U.S. and or other Western countries?

Michels: You have to have a policy in place that says these are the practices that you must follow when you work with our company. You educate people, then follow up to make sure you’re getting compliance.

SCB: Who in the organization should be responsible for upholding ethical practices in procurement?

Michels: You should have a quality department that monitors that. It should be responsible for checking out all suppliers in the supply chain.

SCB: Should companies be making personal visits, not just to first-tier suppliers, but those further up the supply chain as well?

Michels: Yes. I was talking to one company about making sure they mapped the entire supply chain. Three tiers down, they found a company that was supplying their entire industry. So they were at an extreme risk. Without transparency and maps, you have no idea what’s going on in your supply chain.

SCB: How often should you be making these visits, and what else you should be doing to make sure that ethical standards are being upheld over the term of the contract?

Michels: There are a lot of third-party auditors out there that do that. The electronics industry is trying to band together to get people educated and certified so they know who has been through training and is educated. From a buyer’s standpoint, if you have no compliance issues, you might visit once a year, and reinforce the training. If you have any supplier issues at all, you need to have regular audits.

SCB: I take it you would argue that this whole thing be included as part of a larger risk-management strategy?

Michels: Yes. You’ve got reputation risk, as well as a moral and ethical responsibility. And you want to be environmentally responsible.

SCB: So where in the organization should the individual reside who oversees this whole thing?

Michels: In my opinion, that has to be a C-level responsibility. But I also believe you have that responsibility across the whole procurement team. When selecting a supplier, they’re architecting the supply chain for the future, so it’s critical that they have compliance and education. Otherwise it could damage the reputation of the company.