Can businesses police the behavior of global suppliers?

Executive Summary

Under pressure from a growing movement of activists determined to make supply chains more ethical, businesses that once disclaimed responsibility for their overseas suppliers' behavior are re-examining that stance. Companies are scrutinizing the supply chain on questions ranging from environmental standards and product safety to the treatment of workers. Some businesses are adopting corporate responsibility codes, while others are wielding new technologies to enhance transparency. As they try to meet this challenge, companies are confronting numerous obstacles, including far-flung supply chains and regulatory standards that vary by country. But the consequences of failure can be high: Bad news about a company's supply chain can damage reputation, depress sales and alienate investors—and the negative reviews can spread quickly in today's hyperkinetic information environment. These are among the issues companies and their critics are debating: Do ethical supply chains enhance profitability? Is it possible for a company to ensure its supply chain is ethical? Are voluntary standards, industry certifications and governmental regulations doing enough?

Resources

Bibliography

Books

Henderson, Hazel, “Ethical Markets: Growing the Green Economy,” Chelsea Green Publishing, 2007. An economist who owns the media company Ethical Markets Media outlines the history of ethical business.

Lacy, Peter, and Jakob Rutqvist, “Waste to Wealth: The Circular Economy Advantage,” Palgrave Macmillan, 2015. Two experts in sustainability explain the circular economy—an economy that strives to produce no waste—and outline five circular business models.

Locke, Richard M., “The Promise and Limits of Private Power: Promoting Labor Standards in a Global Economy,” Cambridge University Press, 2013. Brown University's provost evaluates enforcement of fair-labor standards in global supply chains.

Morrison, John, “The Social License: How to Keep Your Organization Legitimate,” Palgrave Macmillan, 2014. The executive director of the Institute for Human Rights and Business, a British think tank, introduces the concept of a “social license,” in which a good reputation results from ethical behavior.

Williams, E. Freya, “Green Giants: How Smart Companies Turn Sustainability Into Billion-Dollar Businesses,” American Management Association, 2015. An executive at the public-relations firm Edelman analyzes a handful of companies that she says are using ethical sourcing and other socially responsible practices.

Articles

“When the jobs inspector calls: Do campaigns for ‘ethical supply chains’ help workers?” The Economist, March 31, 2012, http://tinyurl.com/jb9h2bo. The British news magazine cites the controversy over Apple's labor practices to question whether standards and audits, even by outside organizations, can improve working conditions at overseas factories.

Ferdman, Roberto A., “Don't Eat That Shrimp,” The Washington Post, Dec. 15, 2015, http://tinyurl.com/hdmsvyl. A journalist uncovers evidence of slavery in the Thai shrimp industry.

Hobbs, Michael, “The Myth of the Ethical Shopper,” The Huffington Post, July 2015, http://tinyurl.com/o6crh29. A human rights consultant argues that current corporate social responsibility practices fail to improve labor conditions because underlying business models in supply chains have changed in the last 20 years.

Seal, Tom, “Sustainable supply chains: why placing ethics over profits pays off,” The Guardian, Aug. 28, 2013, http://tinyurl.com/hwwgvp4. The head of research for a network serving procurement executives discusses the challenges of monitoring and auditing ethical supply chains.

Reports and Studies

“Beyond Supply Chains: Empowering Responsible Value Chains,” World Economic Forum, in collaboration with Accenture, January 2015, http://tinyurl.com/z3ldam6. The Swiss foundation fostering public-private cooperation describes how companies achieve what it calls the triple supply chain advantage, in which ethical supply chains increase profits, help society and protect the environment.

“Chain Reaction: How top restaurants rate on reducing the use of antibiotics in their meat supply,” Friends of the Earth et al., September 2015, http://tinyurl.com/ooduwly. A coalition of environmental and consumer groups issues a report card on U.S. fast-food chains' use of meat and poultry raised with antibiotics.

“Flawed Fabrics: The abuse of girls and women workers in the South Indian textile industry,” Centre for Research on Multinational Corporations and the India Committee of the Netherlands, October 2014, http://tinyurl.com/oaxspnf. Two corporate watchdog groups highlight labor and human rights violations in Indian textile mills, which supply fabric for many brand-name clothing lines.

“The Sustainability Imperative: New insights on consumer expectations,” Nielsen Co., October 2015, http://tinyurl.com/gpkdxlu. The survey research firm gives an overview of consumer reaction to the sustainability reputations of major brands.

“Walking the Talk,” Oxfam America, March 2015, http://tinyurl.com/o86ya6v. The anti-poverty group issues its second annual report ranking food and beverage companies based on their sustainability and labor practices.

Lake, Quinton, et al., “Corporate Approaches to addressing modern slavery in supply chains: A snapshot of current practice,” Ethical Trading Initiative and the Ashridge Centre for Business and Sustainability, 2015, http://tinyurl.com/jd7cehb. Two organizations survey companies on whether and how they uncovered slavery in their supply chains and what they were doing about it.

LeBaron, Genevieve, and Jane Lister, “Ethical Audits and the Supply Chains of Global Corporations,” Sheffield Political Economy Research Institute, January 2016, http://tinyurl.com/hxodytp. Researchers at England's University of Sheffield argue that audits fail to ensure ethical supply chains.

The Next Step

Certification and Standards

Chao, Loretta, “Supply Chain Association APICS Takes in Transport and Logistics Group,” The Wall Street Journal, July 15, 2015, http://tinyurl.com/z3pb6ux. Supply chain industry association APICS and the American Society of Transportation, both of which set industry certification standards, agreed to combine to broaden their research into supply chain issues.

Freeman, Rick, “Guarantee of ethical practices in seafood products still a long way off,” Aljazeera America, Dec. 24, 2015, http://tinyurl.com/zo8lpk9. Some human-rights activists are seeking a stronger certification process for seafood products after investigations revealed American grocery chains were selling shrimp caught in Thailand using slave labor, but an international labor expert says most nongovernmental certifications are ineffective.

Van Vark, Caspar, “Behind the label: can we trust certification to give us fairer products?” The Guardian, March 10, 2016, http://tinyurl.com/jbphj3v. Fair-trade certifications alone do not make products more sustainable, experts say, and some companies have raised supply chain standards without seeking certification for their products.

Conflict Minerals

Chasan, Emily, “Apple Says Supply Chain Now 100% Audited for Conflict Minerals,” Bloomberg Business, http://tinyurl.com/hwyu85w. Technology company Apple spent five years auditing smelters and refiners of minerals used in its mobile-phone processors, motherboards and screen displays to ensure that no supplier was processing minerals that funded guerrilla groups in the Democratic Republic of Congo.

Clancy, Heather, “Tracing conflict minerals proves elusive — and expensive,” GreenBiz, Aug. 10, 2015, http://tinyurl.com/jlz5byq. Nearly 1,300 companies spent $710 million tracking the origins of conflict minerals used in their products in 2014, as required under the Dodd-Frank Act of 2010, although few said their supply chains were “conflict-free” based on their research.

Kaufman, Alexander C., “How Intel Eliminated War From Its Supply Chain,” The Huffington Post, Jan. 12, 2016, http://tinyurl.com/z2e7y6d. Intel has helped to develop a system for nonprofit groups and local governments in the Democratic Republic of Congo to compile a listing of mines that are not using “conflict minerals.”

Transparency

Brat, Ilan, and Annie Gasparro, “Companies Step Up Efforts to Reveal More Details on Food You Eat,” The Wall Street Journal, March 13, 2016, http://tinyurl.com/zxy39ge. Small seafood companies, large-scale food producers and retailers are introducing digital tools on their websites or labels with codes on packaging that allow shoppers to see where and how their products were caught or grown.

New, Steve, “McDonald's and the Challenges of a Modern Supply Chain,” Harvard Business Review, Feb. 4, 2015, http://tinyurl.com/ncbwlor. McDonald's could address long-term reputational challenges over food safety by making its supply chain more transparent, says a professor of operations management at Oxford University's Said Business School.

Palacio, Juan, “From Food To Flowers: The Push For Supply Chain Transparency,” TechCrunch, Feb. 18, 2016, http://tinyurl.com/gptjcny. A growing number of companies in the floral and food industries are making their supply chains more transparent, which benefits consumers by giving them more ethically produced products and helps farmers by treating them more fairly, says the founder of a flower-delivery service.

Waste

“Supermarkets pledge to cut food and drink waste by a fifth,” The Telegraph, March 15, 2016, http://tinyurl.com/jd9kl38. Numerous global brands and several leading U.K. supermarket chains agreed to help reduce food and drink waste by one-fifth by 2025 by improving the efficiency of their supply chains.

Lang, Marissa, “Eco-conscious CEO develops alternatives to plastic packaging,” San Francisco Chronicle, March 9, 2016, http://tinyurl.com/hoq67pk. Consumer products companies wanting eco-friendly custom packaging made from recycled paper and agricultural waste are turning to San Francisco-based Pulpworks.

Wee, Heesun, “How businesses, families can profit from reducing food waste,” CNBC, March 9, 2016, http://tinyurl.com/zc8olsu. Recycling and the reduction of food waste in U.S. businesses' supply chains could boost the companies' profits by $1.9 billion annually, according to a report by a coalition of business, nonprofit and government leaders.

Organizations

AIM-Progress
Avenue des Gaulois 9, BE – 1040 Brussels, Belgium
+32 2 736 03 05 or +44 20 7902 2322
http://aim-progress.com/
A global forum of “fast-moving consumer goods” manufacturers that promotes responsible sourcing practices and sustainable supply chains.

Council of Supply Chain Management Professionals
333 E. Butterfield Road, Suite 140, Lombard, IL 60148
630-574-0985
https://cscmp.org/
Professional association that works to advance and publish research and knowledge on supply chain management.

Ellen MacArthur Foundation
The Sail Loft, 42 Medina Road, Cowes, Isle of Wight, PO31 7BX, UK
+44 (0) 1983 296463
http://www.ellenmacarthurfoundation.org/
Nonprofit organization that promotes the circular economy—an economy that strives to produce no waste—and circular supply chains.

Ethical Corp.
7-9 Fashion St., London, E1 6PX, UK
+44 (0) 20 7375 1400
www.ethicalcorp.com/
Consultancy that advises on responsible business practices, including ethical sourcing.

Ethisphere Institute
6263 N. Scottsdale Road, Suite 205, Scottsdale, AZ 85250
888-229-3207
www.ethisphere.com
Organization that publishes standards for ethical business practices, assesses corporate ethics based on those standards and recognizes top performers with the “World's Most Ethical Company” designation.

Fairphone
Jollemanhof 17 Floor 3, 1019 GW Amsterdam, The Netherlands
+31 (0)20-788 4400
https://www.fairphone.com/
Social enterprise that is attempting to build a movement for ethically sourced supply chains in the electronics industry.

Institute for Supply Management
2055 E. Centennial Circle, Tempe, AZ 85284-1802
480-752-6276
https://www.instituteforsupplymanagement.org/
Global organization dedicated to advancing the practices of procurement and supply management.

Sedex
Southwark Bridge Rd., London SE1 9HF, UK
+44 (0)20 7902 2320
http://www.sedexglobal.com/
A nonprofit organization seeking more responsible and ethical business practices in global supply chains. It runs an online database where members can store, share and report on supply chains.

Sustainable Apparel Coalition
82 Second St., San Francisco, CA 94105
http://apparelcoalition.org/
An alliance of apparel brands, manufacturers, NGOs, government and academics that promotes sustainable production; it has built the Higg Index, a standard that measures environmental, social and labor impacts of the supply chain.

Verité
44 Belchertown Road, Amherst, MA 01002
413-253-9227
http://www.verite.org/
An international not-for-profit training, consulting and research organization specializing in supply chain social responsibility and sustainability.

DOI: 10.1177/237455680209.n1