The Importance of Supplier Ethics Management

This morning I attended the ISM-Nevada Breakfast Meeting in Las Vegas and had the pleasure of listening to Dr. Keong Leong speak about Supplier Ethics Management. Dr. Leong is Professor and MBA Director in the Lee Business School at UNLV. His research is in the areas of supply chain management and international operations and he has published in various scholarly journals including the Journal of Operations Management and International Journal of Logistics Management and has co-authored three books.

Dr. Leong focused on the importance of Supplier Ethics Management and emphasized the consequences that companies face when their suppliers are not operating or acting ethically. It truly hit home how great a role this important component of Supplier Management plays when addressing overall critical supplier risk issues and concerns.

The first half of the presentation covered examples of suppliers using poor and/or unethical practices, often causing companies to suffer serious threats to their reputations. Examples, many recent, include:

  • The Mattel recall in 2007 where toys were discovered containing lead paint and small magnet pieces were found to be defective (here Dr. Leong states this is more due to poor product design)
  • Food from China is loaded with fake ingredients, along with chemicals and dyes (not even good enough for dog food)
  • The Tesco horsemeat scandal
  • Wal-Mart fires clothing supplier in connection with the Bangladesh tragedy, where a facility collapsed, killing over 1000 workers
  • Foxconn employees continue to commit suicide in China

Dr. Leong provided interesting results from a Supplier Ethics Management survey of Global 2000 companies that was compiled by Integrity Interactive. Here are some of those results:

  •  20% think they are doing enough to manage supplier ethics
  •  50% have a supplier code of conduct, and 50% need one
  •  60% plan to extend their code to their supply chain soon
  •  80% think they should be doing MORE to manage supplier ethics

Concerning Supplier Ethics Management, here are recommended ways to manage tiered suppliers:

  • Establish a collaborative environment with your suppliers
  • Have multi-tier visibility (and tight coordination across multiple tiers of the supply base)
  • Supplier certification
  • Help your suppliers improve (implement corrective actions before these problems result in a major financial loss)
  • Make ethics and compliance a factor in supplier selection (assign ethics and compliance personnel to major supply relationships)
  • Focus on sustainability and human rights issues

Thank you Dr. Leong!

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