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Managing Supply Chain Ethics and Integrity Through Transparency

Complex layered supply chains are at risk of ethics violations, taking buying corporations by surprise and harming the company reputation. Building ethics and integrity into the supply chain requires close monitoring through assessment and monitoring tools that build transparency. -By Lena Haram

Today, most supply chains are global to some degree, making it difficult to monitor ethics and integrity throughout the various tiers of suppliers. Developing and maintaining transparency in the supply chain has become a critical principle for protecting brand reputation, and technology provides the tools that make it possible. Technology enables large amounts of data to be gathered and processed on a continual basis, enabling supply chain managers to detect ethical risks in dispersed and deep supply chains. Yet technology is not a panacea, because it needs to be combined with supplier collaboration and training for greatest transparency. Ethical risks include a broad set of concerns that include sustainability, as well as social and financial integrity. Despite the fact the suppliers are dispersed, buying companies are responsible for ensuring that all suppliers adhere to ethical practices. The challenge is collecting the large amount of data needed for risk monitoring without placing an undue reporting burden on suppliers for control purposes as well as developing an internal communication process that engages suppliers at various levels.

Adding Social Tools and Integration to Advance Ethics

Supply chain transparency is the essential principle for managing ethics and integrity in the supply chain. In Tools and Technologies of Transparency in Sustainable Global Supply Chains the challenges companies face in achieving supply chain transparency include physical remoteness of suppliers, regulatory differences across geographies in environmental and social areas, cultural differences concerning social norms and expectations in transparency, technological capacity of suppliers, data accuracy, and trust with suppliers. Though technology enables these challenges to be overcome, it is important to consider the type and breadth of technologies and tools deployed. The researchers recommend that technologies extend beyond tools such as artificial intelligence, blockchain, enterprise resource planning, and tracking. They also recommend that they include IT-enabled socially focused tools that are designed to improve supplier relationships through improved dialogues and interactions with suppliers. Social tools include technologies used for learning forums, roundtables, and communities of practice.

In studying how technologies are actually used by multinational corporations, researchers found that only a few had seamlessly integrated their supply chain systems and processes into existing business functions that include procurement and risk management. Data gathering technologies include auditing - which could be internal auditing, industry audit platforms, independent third-party audit platforms, or external certification. The UK-based M&S corporation uses Labor link, a real-time mobile platform, to survey workers and obtain anonymous, real-time feedback on working conditions. The Nestlé corporation utilizes a variety of technologies to monitor supplier activities, including the Starling Satellite Service to track the palm oil supply chain and the blockchain Open SC platform to trace, verify, and share data. H&M developed the Sustainable Impact Partnership Program, which assesses suppliers for compliance with corporate sustainability commitments and provides online capacity-building workshops, training, and analysis of supplier management systems. Several companies use electronic feedback loops to flag noncompliance areas and generate an investigatory process and corrective action plan.

Technology Alone is Not Enough

The variety of approaches to achieving supply chain transparency are mostly based on technology tools. There are steps every company can take to implement or improve transparency. The first step is creating a risk profile to determine what the company needs to track, such as child labor, or the source and social impact of materials. Risks should be assessed based on information such as past disruptions and issues concerning suppliers. Danone conducts a materiality assessment to identify internal and external stakeholder interests. The assessment charts identify transparency in product labeling and sustainable sourcing of raw materials. Next, organizations must visualize the supply chain, collect actionable information that provides risk insights, engage suppliers through KPIs, and disclose results. An important point is that technology alone cannot achieve full transparency.

Corporate customers need to engage suppliers through collaboration and provide support to effectively monitor supply chain ethics and integrity. The corporate buying company must also do more than simply communicate ESG criteria. Suppliers need assistance with determining the best way to meet ethics, sustainability, and transparency needs. Donald Moore, chair of One+All, a school wear supplier, uses recognized standards and the base code of the Ethical Trading Initiative to map four tiers of the supply chain. However, he also says that companies should think beyond a "tick box mentality" and support supplier efforts. There is a fine line between encouraging suppliers and using coercion. Coercion can fail, such as when Tesco tried to incentivize green behaviors through its payment terms. Jens Roehrich, professor of supply chain innovation at the UK’s University of Bath School of Management, says: “Feeling autonomous stands in stark contrast to controlled motivation, such as penalties, where the supplier might feel pressured. Collaboration beats contracts in driving green supply chain management.”

Technology and People Working Together

The conclusion is that achieving supply chain transparency depends on a combination of technology and people interactions. This explains why so many companies continue to struggle to achieve transparency in their supply chain, and are suddenly faced with events that cause reputational damage. The companies are relying mostly on technologies to provide the information on ethics compliance.

The Economist Intelligence Unit surveyed global executives about the main barriers their company faces when it comes to deploying a strategy around ethical supply chain sustainability. The results were 38% said increased costs; 29% said monitoring complex supply chains; and 24% said organizational structures. Overcoming these barriers is necessary to develop supply chain transparency. Waiting for a crisis to develop is a poor strategy, that can have long-term consequences on company competitiveness when the corporate reputation is damaged. Monitoring and maintaining supply chain transparency is essential to managing an ethical supply chain. It may not be easy and requires adequate investment in resources, but in the long run, success can lead to long-term business sustainability.