Ethics and the supply chain – a challenge to your brand?

Recent events such as the UK horsemeat scandal and of course, the tragic consequences of the collapse of a factory complex in Bangladesh, have focused attention once again on the supply chain.

Big brands are getting tarnished as a result of accidents and incidents that may expose weaknesses in business ethics and responsibility. It also exposes a weakness in risk and reputation management.

In assessing risk as part of good governance, John Hurrell, the Chief Executive of the risk managers’ association AIRMIC, has recently emphasised that if you only change one thing in revising your approach to risk, make sure it is giving greater attention to the importance of reputation. Managing reputation is about far more than planning for a crisis; action to help prevent reasonably foreseeable risks becoming a reality should pay dividends…sometimes literally.

In the world of instant global communication, this has never been more important. Any organisation that fails to acknowledge this and act accordingly is taking an unnecessary risk.

So what is the best approach for those organisations that are serious about applying appropriate standards throughout the supply chain? Here are four essential steps.

1. Nobody’s perfect

Mistakes will occur and they may have understandable, if regrettable, root causes. Treatment, therefore, not punishment may often be the best answer.  Many of the best businesses respond to problems by working closely with their suppliers to help them meet and exceed the quality required. In some of the recent car recalls, manufacturers enhanced their reputations through exceptional customer service combined with skilful supplier negotiation. Working in this way enhances reputation with customer, dealer and supplier.

2. Rapid response

As Anthony Fry of the BBC Trust has argued, “Crisis is the new normal”. Things tend to go wrong at the busiest period such as the run-up to Christmas or a sensitive financial reporting time. Rapid responses are called for, even demanded, by an impatient media. But this should not be done at the expense of establishing the facts. To handle this properly, businesses need a measured and pre-planned response process, with clear lines of communications that are properly understood and respected throughout the organisation.

3. Identify the risk

With scandals increasingly originating in the supply chain it is vital to ask questions of prospective and actual suppliers. It’s OK to be positively sceptical. While audits and other site visits are not the whole solution, they are a vital part of finding “ground truth”. If they weren’t then everyone from private companies to insurers would not be using them. Simply preparing for an audit can be invaluable. If real issues are found, acted upon and afforded a higher priority in future, then the audit has achieved something even before it has begun.

4. Mean it

If you find a supplier is persistently trying to cheat, or subcontracting without notice to inferior, cheaper providers, you need to act.

While it may be true that nobody’s perfect, it is essential to ensure the right processes are in place to protect reputation. When signing contracts with suppliers it is good to have an agreed audit framework in place covering anti-bribery and human rights so that any necessary action can be based on fair warning and a demonstrably equal approach to all suppliers.

If you find that suppliers are breaking the law by making facilitation payments, for example, it is essential that swift action is taken as the payments themselves are likely to be evidence that an adequate procedure to prevent bribery is either not in place, or is not sufficiently robust. This is a real challenge to global businesses and those that operate in few countries but whose products and services depend on increasingly “global” supply chains.

In this interconnected world it is increasingly the case that ‘who cares may well win’.

Posted by Charles Toomer: July 2013