Ethics in Supply Chain Management

1. Ethics in Supply Chain Management Ryan Hughes Andy Frederick

2. Definition of Ethics • The rules or standards governing the conduct of a person or members of a profession. • The discipline dealing with what is good and bad and with moral duty and obligation.

3. Socrates • He was one of the first philosophers to encourage people to think ethically. • He suggested that people will naturally do what is good, if they know what is right. • Evil or bad actions are the result of ignorance. • Any person who knows what is truly right will automatically do it.

4. Supply Chain Management • The integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders. • It encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities.

5. Supply Chain Management cont. • Supply Chain Management lets an organization get the right goods and services to the place they're needed at the right time, in the proper quantity, and at an acceptable cost. • Efficiently managing this process involves overseeing relationships with suppliers and customers, controlling inventory, forecasting demand and getting constant feedback on what's happening at every link in the chain.

6. Benefits of an Ethical Supply Chain • Sends a clear message to every part of the supply chain that ethical behavior is a priority. • Improves relationships with suppliers. • Ensures trust, reliability, and lower costs. • Li and Fung • Gives the company a good reputation and brand image. • Companies are judged based on their suppliers. • Reduces the risk of unethical behavior by suppliers. • Avoids expensive recalls and brand damage resulting in unethical behavior or lack of control throughout the supply chain. • Mattel • Reduces risk by having more control of the different areas of the supply chain.

7. Problems • Most companies do not include suppliers in their company code of conduct • Companies don’t regularly assess ethics risks in the supply chain. • Multi-cultural differences. • Lack of leadership. • Ineffective communication.

8. Problems cont. • Ineffective training. • Different standards across functions. • Supplier pressures and pressures to perform. • Lack of monitoring. • No internal consequences or punishment. • Only concerned with short term goals and meeting deadlines.

9. Methods for Obtaining an Ethical Supply Chain • Audits. • Proper training. • Technology advancements for checking and monitoring. • Ethical CEO’s and management team. • Codes and principles • ISM, CSCMP, etc.. • Mission and values. • Policies that include punishments for unethical behavior. • Supplier Ethics Management (SEM).

10. Supplier Ethics Management (SEM) • This is a practice that enables companies to manage their suppliers and supply relationships through strategies, programs and metrics that better align supplier business conduct with purchaser standards. • The goal is to reduce a purchasing company's overall risk of corporate integrity failure in the supply chain by aligning supplier conduct with purchaser standards in three major areas of corporate integrity: compliance, ethics and corporate responsibility.

11. SEM Goal • Make ethics and compliance a factor in supplier selection. • Create and maintain profiles of important suppliers. • Assign ethics and compliance personnel to major supply relationships. • Conduct regular assessment of supplier ethics. • Evaluate supplier ethics data regularly. • Target and segment suppliers by importance and ethics risk.

12. Council of Supply Chain Management Professionals (CSCMP) • Exist to • Provide opportunities for supply chain professionals to communicate in order to develop and improve their supply chain management skills. • Identify and conduct research which adds to the knowledge base of supply chain theory and practice. • Create awareness of the significance of supply chain to business and to the economy. • Goals • Provides leadership in developing, defining, understanding, and enhancing the logistics and supply chain management profession. • Enhances member value through education, networking, research, communication, and other services • Operates with sound business practices.

13. Institute for Supply Management (ISM) • The principles and standards of ethical supply management conduct are established to encourage adherence to an uncompromising level of integrity. • They are designed to heighten awareness and acceptance of appropriate conduct and to emphasize the role of ethics in the decision-making process. • They are recommended as guidelines to all those who influence the supply management process, including supply management professionals, engineers, quality control personnel, sales representatives and senior management. • How far do you think supplier compliance programs and monitoring should go?

14. Nike • In 1997 Vietnam Labor Watch (VLW) came out with a report that accused Nike of violating many labor laws. • Nike did not pay the minimum wage. • Did not provide proper working conditions. • Excessive overtime. • Did not take adequate health and safety measures. • Did not pay attention to child labor and sexual harassment in its factories.

15. Nike • The issue is that there was a major difference between the practices of the factories in Vietnam and the U.S. • Nike’s U.S. image was quite different than the factories in Vietnam and other Asian countries. • The company had developed and published both a "Code of Conduct" and an agreement with its Asian subcontractors, stating the company's position on wages and working conditions.

16. Nike • Nike claimed that it was trying to monitor and enforce its code • However they did not have an effective system in place for monitoring and enforcement. • There were not enough Nike supervisors in all of Nike's factories in Vietnam to ensure that its contractors were complying with the Code of Conduct on a daily, shift to shift basis. • This proves the importance of ensuring that a companies Ethics and Codes must be implemented in all areas of the supply chain, globally and domestic. • What measures do you think Nike could have taken to avoid this?

17. Hewlett-Packard • Commitment • Integrate supplier SER into our sourcing operations. • Protect worker rights. • Improve suppliers’ working conditions and health and safety. • Reduce suppliers’ environmental footprints. • Collaborate with non-governmental organizations (NGO) and stakeholders to validate, inform and improve our efforts. • Participate in industry-wide initiatives to leverage our efforts across the electronics sector.

18. Health and safety 30% Labor 25% Labor management system 16% Environment 12% EHS management system 9% General 5% Ethics 3% Total major nonconformance's by EICC section for global audits of high-risk suppliers, 2005-2007 [% by section]

19. Percentage improvement of major nonconformance's, 2005-2007 (based on verification audits of 97 sites)

20. The End Questions?