Supply Chain Ethics

Objectives
Business ethics Ethics in purchase, manufacturing and distribution Conformance to applicable laws and industry practices Confidentiality and proprietary information Ethical code of conduct

Business Ethics
Business and ethics cannot be separated
Business is subset of ethical structure of the society Business must play by the rules of ethics of community Business ethics guides the activities of business

Legal and Ethics Dilemmas

Legal ? Unethical Ethical

Illegal

Five Stages of Ethical Erosion Wherein One Would Likely To Get Caught Doing

Actions most people think are acceptable in work place

Illegal

Unethical

Against policy

Not in clients best interest

Does not benefit clients

Legal and Ethics Dilemmas

Ethics should be a part of every business. The eyecatching headlines like; Mattel does damage control after recall, and Toshiba Laptop Batteries Pose Fire Hazard are a real-world example of a leading brand taking the hit for ethics or compliance breaches committed by suppliers. If a company does not adhere to business ethics and breaks the laws, they usually end up being fined. Billion dollar profits blind the companies to their lack of business ethics, and finally the money wins.

The problem of unethical behavior is common in good times and bad too. Companies dont always understand the impact of their actions, and if consumers are unaware of how products get to market, there wont be a price to pay for cutting corners. The situation is changing, however, as companies do a better job of auditing their operations and working environments. They might be motivated in part by the desire to act ethically, but there are more immediate reasons for their change. Consumers today are becoming better educated about working conditions, and the unfair treatment of workers and that can seriously harm brand image. The publics growing awareness of environmental issues also puts pressure on companies to build more sustainable supply chains. The law is yet another powerful motivator. Industry groups have formed to address the issue, as governments clamp down on violations of labor standards. And when one company is caught, others scramble to re-evaluate their own policies and practices. Ethical behavior is good business. Companies that mistreat their employees often experience huge losses from internal fraud and theft by a demoralized workforce. The less time a corporation spends taking care of those employees, the more likely they are to have those kinds of problems.

ETHICS

The supply chain encompasses many if not most of the processes that are subject to unethical behavior. For gaining competitiveness the firms have to conduct their business in accordance with high ethical and business standards. The firm should seek to have its vendors, suppliers and licensees to conduct themselves ethically. Firms should have concerns about the quality and character of working conditions in their establishments. Implementation of the ethics principles enables firms to ensure that manufacturing facilities involved in the production of products understand and adhere to the customer and industry requirements. The main areas of concern for unethical behavior would be purchasing, manufacturing or distribution in supply chain. The supply chain is a prime location for taking action. It covers many if not most of the processes that are subject to unethical behavior.

Why Ethics?
Government bodies and private organizations put a lot of concern towards ethical business practices. Ethics scandals are the biggest business risks most leading companies face today.

Business organizations are facing pressures from various sources to improve the working conditions in
their supply chains. Stakeholders are focusing more on the ethical issues, CSR, environmental issues.

Why Business Ethics?

Being an ethical company isnt enough anymore. Consumers, investors, business partners, regulators, and media organizations now expect a company and its entire supply chain to be ethical. With the supplier-generated ethics scandal there is probability of the biggest business risks most leading companies face today. As the damage may be great, and protective measures can and should be adopted immediately. Today the business organizations are facing pressures from various sources (government, consumer forums and competition) to improve upon the working conditions in their supply chains. The stakeholders are focusing more on the ethical issues, corporate social responsibilities and environmental issues. Hence, managing the issues in supply chain is one of the indicators of how well a company is ethically run. The pressure on companies is increasing and media is gunning on business practices.

 In a free market the self interest of producers and consumers will produce an outcome desirable to all concerned. The market can also lead to inequality of income, wealth and market power. The monopoly suppliers can exploit consumers, monopoly buyers can exploit supply firms and world wide inequality of income can result in unethical practices such as the child labor. Today, the prominent ethical issues in the society are involvement in the community, honesty, truthfulness and fairness in marketing, use of animals in product testing, agricultural practices (intensive farming), degree of safety built into product design, donation to good causes etc. The real ethical issue in the business is the extent to which a business accepts its alleged responsibilities for mishaps, spillages, leaks and selling of addictive products. Some of the ethical issues arising from industry practices are: Treatment of customers Organizations loyalty to employees in difficult economic conditions Working conditions and treatment of workers Supply firms business practices Child labor

Why Business Ethics?

Ethical Decisions
Morally correct and honest

Just and equal

Imparts good to all concerned Appropriate and acceptable

Ethical Issues in Procurement

The purchasing is an important and strategic function in the organization. Procurement is the process of acquisition of goods and services in a responsible manner for conducting a business. The approaches by organizations to ethical procurement often concentrate only on supplier standards and practices rather than on the organization's own policies and practices. According to the UKs Institute of Business Ethics, ethical issues arise mainly in three areas of procurement practice:

Procurement Ethical Issues

Procurement Conduct - Manifestation of the Organization culture. It encourages and supports the employees to act with integrity and in line with firms ethical values. This refers to the way the firms staff does the business i.e. organization culture. The buying firm provides adequate transparency during purchasing activity. Selection of Suppliers - Set criteria and guidelines rather than the subjective decision-making. In the process of supplier selection, there is set criteria and guidelines rather than the subjective decision making base of likes and dislikes and personal gains. Suppliers Practice - In this the firm will go to the extent of understanding the suppliers supply chain and also their procurement practices. The buying firm imposes social and environmental standards on their suppliers. This covers health and safety standard.

Establishing Ethical Practices in Purchase

Establish a Code of Conduct in purchasing Integrate ethical purchasing into existing management systems Use rewards and performance review system Ensure top management support for establishing ethical code Understand the business environment and culture of the countries

Establishing Ethical Practices in Purchase (Contd.)

Develop skills and knowledge appropriate to ethical buying Develop a communication strategy for all stakeholders Provide ethical training for purchasing staff Ensure that labour standards are a key criterion when selecting suppliers Visit factories and workplaces of suppliers for ethical audits

Ethical Practices in Manufacturing

This area covers the duties of a company to ensure that the manufacturing processes do not cause harm to employees and society. In manufacturing to define a degree of permissibility depend on the changing state of preventative technologies or changing social perceptions of acceptable risk. It deals with defective, addictive and inherently dangerous products and services, ethical relations between the company and the environment, ethical problems arising out of new technologies, product testing ethics (animal rights and animal testing, use of economically disadvantaged groups as test objects).

The leading business organizations in general follow the following ethical policies in manufacturing: No forced and child labor Following applicable/prevailing working hours and compensation national guidelines Providing a clean, safe and healthy place to work and all facilities No abuse and discrimination Proper communication of principles Taking care of the issues of environmental through proper programs and practices Allow freedom of Association Monitoring working and living conditions. Compliance with Applicable Laws Fair dealing with customers and suppliers Manufacturing products that meet the quality standards. Keep confidentiality of information

Ethical Issues in Manufacturing

Forced Labuor Child Labuor Working Hours Compensation Health and Safety Abuse and Discrimination Communication of Principles Freedom of Association Monitoring Compliance with Applicable Quality Management System Confidentiality Environmental Pollution

Establishing Ethical Practices in Manufacturing

Establish code of conduct Not to deals with defective, addictive and dangerous products and services No forced labour, child labour, long working hours and differential and low compensation Keep safe and healthy working conditions Manufacturing processes designed for environmental concern, energy conservation and workers safety

Ethical Practices in Marketing

In the marketing the common ethical issues are lack of clarity in pricing, selling at a loss to increase market share and destroy competition in order to subsequently raise prices, price fixing cartels, encouraging people to claim prizes when they phoning premium rate numbers, Bait and switch selling, high pressure selling to the elderly, counterfeit goods and brand piracy, copying the style of packaging in an attempt to mislead consumers, deceptive advertising, irresponsible issue of credit cards and the irresponsible raising of credit limits, unethical practices in market research and competitor intelligence. The ethical issues relating to products are selling goods abroad, which are banned at home, omitting to provide information on side effects, unsafe products, built in obsolescence, wasteful and unnecessary packaging, deception on size and content, inaccurate and incomplete testing of products and treatment of animals in product testing. In organizations a sales manager faces ethical issues that cover the ethical dilemmas of his sales people as well as the ethical aspects pertaining to his decisions regarding hiring and evaluating of salespersons, assigning territories etc.

Ethical Practices in Marketing

Product safety should be a top priority for firm. Firm should stand behind every product it makes and takes product safety very seriously. Product safety and quality assurance systems are based on a comprehensive and stringent review process at every stage of product development. Products shall be reviewed from the design stage to the point where they are ready for shipment to the store shelves. In the areas of Environment, Health and Safety (EHS) at both the corporate and industry levels, firm should have longstanding commitment to sustainability. The firms commitment should include specific short- and long-term goals at manufacturing sites, including solid waste reduction goals, paper and chipboard recycling goals, plastic recycling, and emissions reduction goals. Some of the EHS compliance should include:

Environment, Health and Safety (EHS) Compliances

Industrial Fire Protection and Emergency Preparedness guide Environmental Protection Agency (EPA) Program EPA Waste Wise Programs (US) ISO14001 Environmental Management System registration Occupational Safety and Health Association (OSHA) Voluntary Protection Program (VPP) STAR site certification of manufacturing facility

Marketing: Ethical Issues

Lack of clarity in pricing

Price manipulation to kill competition

Price fixing cartels

Piracy and counterfeit goods

Copying the product and packaging Treatment of animal during testing Deception on size and content

Designing and Implementing Ethical Code

Ethical code is a set of principles governing morality and acceptable behavior. It covers personal behavior e.g. when dealing with customers and suppliers, corporate behavior e.g. when negotiating deals, behavior towards society e.g. when recruiting and behavior towards the environment e.g. when deciding on process. Organizations should issue statements of ethical practice in respect of: Relations with stake holders Environment and society International business Mergers, acquisitions and takeovers Governance

To check the implementation of ethical codes, the companies should conduct ethical audits. This is an audit of the firms activities with the purpose to check that ethical principles are being pursued or check the extent to which actions are consistent with the organizations stated ethical intentions.

Ethical Issues in Supply Chain

Codes and Compliance Companies should have purchasing codes in purchase manuals. Limits of Audits Audits should be used to improve labor standards. Challenges Align commercial and ethical agendas, building suppliers capacity to manage the issues for themselves and engaging with local governments and organizations to widen the impact of activities. Governance Structures Organizations should have proper governance structure for network of vendors, suppliers, customers, distributors, and business partners.