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How Ethical Practices Enhance Supply Chain Stability

Where Do Your Materials Come From? Ethics and Supply Chain Stability

6Jun

A few years ago, product sourcing and supply chain discussions focused largely on efficiency, but as supply chain visibility concerns have become a prominent industry issue, how companies source materials has become a hot topic.

Why are companies and consumers alike so concerned about supply chain practices? There are two main factors – ethics and stability – and they go hand in hand. Ethical supply chains are almost always more secure and reliable from a business perspective, and they’re also more desirable to the buyer. For companies that can sustain a balance between ethical supply, price, and efficiency, this is the modern business model.

Know Your Vulnerabilities

If you’re going to use ethical sources to bolster supply chain stability, companies should start by identifying key vulnerabilities, and often those vulnerabilities arise precisely where you’d want to make corrections from a visibility standpoint.

For example, multinationals that are known to contract with international factories often struggle to control human rights issues at the production site. If you know your factories are at risk for corruption, you’ve got a visibility problem, an ethics problem, and ultimately a stability problem if and when the issue comes to light.

One of the best ways to familiarize yourself with supply line vulnerabilities is by hitting the ground and inspecting production practices yourself. This can be hard if you’re a small company with a long supply chain, but it’s worth doing. You also might consider hiring professional inspectors since there are problems that might not be visible to the untrained eye.

Overseas factories, for example, are more likely to use asbestos in the production process. In the US, that would likely lead to an asbestos injury lawsuit – a trained inspector can let you know whether such safety breaches are occurring abroad.

The Struggle With Subcontracting

Perhaps the biggest difficulty for companies trying to maintain ethical supply lines is that of subcontracting. Although a brand may choose to work with a putatively responsible company for manufacturing or sourcing, those manufacturers likely work down the line with the goal of reducing material and labor costs, ultimately joining up with disreputable subcontractors. When this happens, the main company may claim ignorance of the subcontractors’ practices.

In today’s day and age, claiming ignorance of subcontractor practices is more than a weak argument – it’s disingenuous, dangerous, and can make your company excessively vulnerable. If you don’t think you have the knowledge or budget to run the inspections yourself, there are plenty of external groups and statistical indicators that can help you establish the credentials of subcontractors.

Those businesses that rely on materials that reside within the category of conflict minerals – for example, a common concern in the realms of technology and transportation – it’s smart to assume that subcontractors will rely on unethical practices and seek ways around this. Knowing even the minimum about the materials you need can help your company assess supply line risks.

Another strong indicator that businesses can use to avoid supply line issues in the first place is press rights scoring. According to Reporters Without Borders, every ten-point increase in press freedoms on their scale corresponds with an approximately 10% decrease in factory-based violations. Choosing to operate out of countries with a high level of freedom of the press, then, is a good way to ensure ethical worker conditions.

Ethical supply lines are the least likely to be disrupted by worker disputes and protests, to be boycotted by consumers, or to suffer conditions-based tragedies such as fires and worker deaths, making a moral issue a performance issue as well. It’s time for businesses to stop feigning ignorance of factory conditions, subcontractors, and stabilize the foundations of production. Ethics, stability, and company visuals go hand in hand; a misstep in any of these areas can be ruinous in the modern news cycle.

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