By Beroe Inc.
By Sairamnath A, Lead Analyst, Capex & MRO, Beroe, Inc.
In business, financial necessities have been prioritized over certain values such as ethical behavior and social responsibility. In spite of advances in technology, supply chain even at a global level is based on the interaction between people which gives rise to ethical issues at several stages of the process. The reason for such ambiguity in prioritizing values is due to the fact that corporations are focused on containing cost. Cost has been the single driving force behind the unethical behavior of certain corporations.
Nike was famous for outsourcing manufacturing operations to a cheaper destination and became a trendsetter with this practice as they could get the business done at a fraction of the cost that they would incur at any plant in the US. An agreement with the contract manufacturer consisted of ‘no liabilities’ towards labor conditions at the manufacturing site. This would prove to be an image buster for the company later as the company founder Phil Knight admitted that his products have become synonymous with labour exploitation after facing backlash in U.S. Nike felt that the code of conduct that it laid down for its suppliers/contract manufacturers needed to be more stringent after this case. Laying the code of conduct is only the initial step. Monitoring whether the codes are put into practice makes the process more effective. Acting ethically responsible is a Corporate Social Responsibility (CSR) activity by itself, for a company.
So what are the factors contributing to unhealthy decision making of companies? Growing demand for low cost products, fierce business competition, easier availability of counterfeit products etc., are major drivers, according to companies. So steps/strategies taken by companies depends on management.
Product innovation, cheaper but suitable alternatives of existing raw materials, effective supplier shortlisting process etc., are some of the measures a successful company adopts and practices.
A laissez-faire attitude of top management to tackle such issues prevailing in the market will only add to their misery. Proactive management will always look to analyze every link of the supply chain and thereby reduce cost by adopting best practices and morality simultaneously.
The supply chain consists of a series of links that enable the movement of product from the producer to the customer. This movement incurs a series of costs for the various entities involved. The management of supply chain is called supply chain management in plain text. But supply chain management is a process which involves goods, place, time, quantity and cost all acquired in right proportions.
Supply Chain Management Activities
The functions of supply chain management are broadly classified as:
All of these are vital links of the supply chain which needs constant monitoring so that it will be a seamless process. All of the above links could be possibly kept intact by an organization provided there is a belief in the culture called planning. An organization in order to reap the benefits of a successful supply chain has to do three kinds of planning. They are:
While strategic planning is generally done to realize a long-term prospect and devised by a pro-active top management, the operational planning and the administrative level are done at the middle and the lower management respectively. These two planning process are for mid-term and short-term respectively. All these are emphasized or should be so that the supply chain process that starts from the producer’s end smoothly transitions to the other links of the supply chain process.
Supply Chain Entities
The supply chain process is about movement of goods from one end to the other end. On a broader note, they are characterized by the involvement of different entities/parties in the loop.
Emergence of Ethical Issues
With different parties involved in the supply chain process there is always a question of who is being fair and otherwise. Tensions arise in supply chain mainly due to the perceived understanding of ‘fair play’ between various parties. What may seem as a legitimate course of carrying out the business may be perceived as an unfair trade practice by the other. So below are some of the ethical issues faced by the parties involved in the supply chain process.
Another quality that is expected of consumers is ethical consumerism. It is a trait among individuals to look beyond the purchase of product. They are not focused on self or about the harm that would occur on the product usage/consumption but also possess a higher moral understanding that connects people across culture, creed, gender and nation. For example, during the festive month of Diwali in India, certain people abstain from purchasing crackers citing the reason that lot of child labour had gone into the making of the crackers which is still widely prevalent in South India.
Code of Business Ethics
Mostly developing countries don’t have stringent laws regarding labor working conditions and Bangladesh was no different. Now after this tragedy global corporations have started focusing more on labor rights and working conditions. Even companies have started to insist on understanding the details of the premises that they want to purchase (For example, the age of the building, quality of material used etc.) or acquire through lease. Maybe a more pro-active approach would have saved many lives as our neighbors didn’t deserve such a gruesome end.
So the key focus area to improve the supply chain process is public interest. What are the three factors if mismanaged can put the interests of the public at stake? Environment, safety and consumer rights are those critical factors in which disruptions in either of these links will jolt the entire supply chain process. Companies need to procure, design, manufacture and distribute products that will have minimum life cycle impact on the environment. People are involved inevitably in the process of supply chain and any compromise on their rights or the work environment will lead to serious damage of the supply chain. All products reach the end user and any exploitation will lead to legal issues as well damaging the reputation of the company. Pseudo-marketing techniques such as claims of being an eco-friendly product or contribution towards noble cause (cause-related marketing) through the purchase of a product will eventually hit the image of the company. Focusing on innovations in developing a product, strategizing on cost reductions, adopting best practices and new technology development will only help a company to re-invent itself in a changing business world.
Ethics in Supply Chain Management, Abedullah Zaman
Building Ethical Supply Chains, Forbes
Ethical Issues in the Global Supply Chain, Bodo B Schlegelmilch , Magdalena Oberseder
Bangladesh Tragedy, Steve New
Sairamnath A is a Lead Analyst with Beroe Inc., a global provider of customized procurement services specializing in sourcing, supply chain visibility, financial risk analysis and environmental impact to Fortune 500 organizations. Sairamnath A specializes in tracking CAPEX (Capital Equipment) in the Pharmaceutical & CPG Industry. He has worked on multiple projects for many Fortune 500 clients involving categories such as Form, Fill and Seal machinery, Cleanroom equipment etc. Sairamnath A has earned his degree in Bachelor of Mechanical Engineering from Anna University (Chennai) & Masters in Business Administration from the SRM University, Chennai.
Beroe is a global provider of customized procurement services specializing in sourcing, supply chain visibility, financial risk analysis and environmental impact to Fortune 500 organizations. With nearly 400 dedicated procurement specialists in 38 domains, across 9 industries, Beroe proactively invests in knowledge assets to build valuable, real-time procurement insight. For more information, visit Beroe Inc. online.
George E. Krauter
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