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Jonathan Gilpin

Supply Chain

Ethical Dangers of a Global Supply Chain

Communicating with and understanding suppliers should be the first steps toward sound decision making

Published: Thursday, April 21, 2022 - 12:03

Regardless of how much we, as a society, are able to implement and use technologies in business, global supply chains will always be dependent on the ways in which people interact with one another.

Even local supply chains can be problematic, but it’s predominantly global ones that can pose challenges for buyers and suppliers looking to do business ethically and work with companies with a strong code of ethics. Some of the problems that can arise include poor working conditions, poor wages, forced labor, and other forms of modern slavery, gender discrimination, and failure to mitigate against climate change.

Why are ethical supply chains important?

Did you know that 83 percent of supply chain professionals say that ethics are extremely or very important to their organizations?

Ethical supply chain management is being fueled by consumer demand, profitability, and visibility. The concept of ethical sourcing has risen in popularity during the past four years. Terms relating to the topic generated an average of 6,530 average monthly Google searches in January 2022, compared with just 2,640 monthly searches worldwide in February 2018.

Ethical supply-chain management tools carry particular importance for organizations looking to improve their social standing.

When the global supply chain presents ethical risks

During the pandemic, two particularly high-profile cases come to light in regard to global supply chains and forced labor. First, a Malaysian palm oil producer that was set to supply Nestlé, L’Oréal, and Unilever was reported to be exploiting staff; this was followed by the Supermax scandal. Supermax is a Malaysian business that had won a National Health Service contract in Britain to supply 88.5 million rubber gloves worth £316 million. After the manufacturer won the contract, the United States banned the company from selling its products in the United States when a subsequent inquiry established that Supermax had used forced labor to manufacture the rubber gloves.

The U.S. ban, alongside pressure from Jeremy Purvis, the U.K. Liberal Democrat peer, prompted the U.K. government to launch its own investigation into Supermax in a bid to ensure that products created by victims of modern slavery wouldn’t be used in Britain. The U.S. inquiry followed earlier accusations that employees of Malaysian rubber glove manufacturers were being forced to work long hours, had their passports confiscated, were being paying incredibly low wages, and were working in conditions in which Covid-19 protocol was completely disregarded. In January 2022, The Guardian reported that the U.K. government was set to face legal action after approving the Supermax firm as a PPE supplier and failing to cut government contracts with them, despite the fact that the United States and Canada did.

Four in five consumers claim the ethical standards of a business matter to them. Businesses and organizations that can prove they’re committing to an ethical future will undoubtedly outperform their competitors in years to come. Patagonia, a California-based clothing brand, actually publishes a list of farms, factories, and mills they work with, highlighting their commitment to full visibility and transparency.

Delta eSourcing advises that getting to know your suppliers should be your first step when you’re thinking about supply chain ethics. If you know that your suppliers are verified, you can successfully manage any associated risk and make informed decisions.

Perhaps one of the biggest issues of modern-day supply chains is knowing what to look for. Although businesses might be able to say they’re actively working to eradicate unethical behavior from the supply chain, if they don’t know what the problems are, then how can they stop them? How can a U.K. or U.S. company keep on top of what happens in another country?

The Chartered Institute of Procurement and Supply (CIPS) notes how technology can help reduce the risks associated with global sourcing and, ultimately, enable buyers or those further up the supply chain to get a better grasp on how ethical their suppliers are, even if they’re not geographically near one another.

First, you can manage ethical risk by introducing structured, well-laid-out contracts that explain what standards are expected from all parties and detail what will lead to termination of a contract. Technology can be used to house these contracts, making agreements easily accessible and referenced when necessary.

Second, author Vivek Bharti notes that “advanced analytics can also identify deviations from negotiated terms and conditions, allowing legal and procurement teams to take preventive action to ensure that minor issues do not become major problems.”

Finally, blockchain is being used as a way of storing unchangeable records of contractual agreements, which improves visibility and transparency. According to CIPS, “Each new and existing supplier would guarantee compliance by submitting key documentation through the blockchain.”

Environmental damage

Consultancy firm McKinsey reported that 90 percent of companies’ impact on the environment comes from supply chains. Issues relating to the environment include deforestation, excessive energy usage, hazardous emissions, and water pollution.

The effects of global supply inefficiencies are stark. According to a report by the World Economic Forum, “eight global supply-chain inefficiencies account for more than 50 percent of all carbon emissions.”

Wired journalist Alex Rinke detailed how “global supply chains must get smart—and sustainable, in 2022.”

Ethically, businesses should act to support environmental protection, which would help make the planet a greener place, rather than allowing their actions to have detrimental impacts.

Above, we’ve considered just a few of the issues that buyers can encounter when sourcing globally. Although ensuring that you don’t fall foul of any ethical dangers is certainly complex, communicating with and understanding suppliers should be the first steps toward sound decision making.

My next article will delve into what you can do to ensure that your global supply chain is operating in an ethically sound manner.

Discuss

About The Author

Jonathan Gilpin’s picture

Jonathan Gilpin

Jonathan Gilpin is a content executive for BiP Solutions. Having worked for six years in journalism and marketing, he currently specializes in procurement and employment.