SCDigest Editorial Staff

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While it’s a good notion that suppliers operate consistently with a customer’s corporate policies around ethics, operating conditions, sustainability, and other elements, the practicality of such a concept can be elusive. What do you say? Send us your comments here

Under a wide array of pressures, from Sarbanes-Oxley to sustainability programs, many companies have really increased their internal focus on programs related to compliance and ethics. But recent data shows these programs have had little migration back into the supply chain – which itself raises the question of just how far such corporate programs could or should go.

A recent study by consulting company Integrity Interactive, based on a survey of 108 Global 2000 companies, shows even large companies have challenges driving their standards down to suppliers.

For example, the survey found that 78 percent of companies do not include suppliers in their company compliance and ethics programs, and nearly 58 percent were not sure if their company regularly assessed ethics risks in the supply chain.

Some see this as a source of risk. For example, in the face of negative publicity, many companies, especially in the apparel and soft goods areas, have developed standards for labor practices by their offshore suppliers. But many have not yet adopted this practice, and monitoring and enforcement even by those that have is difficult. The survey also found, for example, that 56 percent of respondent companies do not audit supplier compliance with Code standards, which would include things like labor conditions and pay.

There are also many complexities related to Sarbanes-Oxley. For example, while the regulations generally require recognition about supply commitments to direct suppliers, the visibility to commitments further down the supply chain – such as the supplier’s supplier – is often murky, and sometimes the reporting requirements are not fully clear across a complex supply chain network.

(Supply Chain Trends and Issues Article - Continued Below)

Supplier Ethics Management?

Financial and some operating compliance issues are challenging enough across a large supply chain, but the problem and questions become even larger when it comes to supplier “ethics.”

A new discipline called by some “Supplier Ethics Management” is one attempt to develop an organized approach through strategies, programs and metrics that better align supplier business conduct with the buyer’s standards.

While it’s a good notion that suppliers operate consistently with a customer’s corporate policies around ethics, operating conditions, sustainability, and other elements, the practicality of such a concept can be elusive.

Start with the simple fact that companies have widely varying ethical standards, codes of conduct, and other compliance-related program elements. That’s just within a given country. The problem is even worse when viewed from a global perspective, where different countries and cultures may have very different views about these issues. One company’s view of a “sweat shop” may vary dramatically from that of another company, especially across country borders. The issue is even more complicated for more subtle areas of business ethics.

While global standards will eventually develop in many areas, it will take some time, and always be subject to some level of disagreement and interpretation.

In an increasingly global economy, it is tough for suppliers to meet the requirements of all of its customers, which in some cases could even be contradictory. The growth in the consumer economies of countries such as China and India will also be a factor – manufacturers in those countries or others may become less dependent on contracts with companies in Europe, Asia and Japan, and thus feel less pressure to kow-tow to various ethics mandates issued from companies located there.

There is also the question of how much overhead a company is willing to expend on achieving compliance in the supply chain. While examples like the Mattel toy recall of 2007 and other recent, high-profile product quality incidents are causing many companies to increase spending on infrastructure to mitigate the costly risks there, it is likely that many will choose profits over spending on program development and monitoring of suppliers on issues less directly related to financial cost and risk.

How far do you think supplier compliance programs and monitoring should go? How much of a company’s “ethics” is it reasonable for a supplier to be expected to embrace? What happens when a supplier is hit with differing requirements, or those unique to one customer? Let us know your thoughts at the Feedback button below.