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Have Supplier Ethics, Will Buy!

“We will continually improve the import safety of imported products in a manner that expands global trade and protects the …

“We will continually improve the import safety of imported products in a manner that expands global trade and protects the health and safety of every American,” said President George W. Bush in a statement released on Tuesday following the recommendation of a government-sponsored panel that has called for penalizing companies selling products that are dangerous to consumers. The panel also suggested establishing a stronger certification process for producers or Original Equipment Manufacturers and suppliers to ensure their products meet U.S. safety standards.

The move signals the intent of the administration to crack down on unsafe products that make their way to consumers in the U.S. and is a warning to companies in Corporate America to tighten up measures at their suppliers end, especially in the developing countries, after a spate of recalls from contaminated pet food to lead paint on toys, dangerous “Made-in-China” children’s plastic cups, defective tires and unsafe pharmaceuticals. Cases of human rights violation have also come up, such as, child labor discovered at a sub-contractor unit in India that was manufacturing clothing for San Francisco-based GAP, one of the world’s largest clothing retailers.

Imports to the U.S., which reached $2 trillion last year, are projected to triple by 2015. And most of this trade is carried out with the help of global supply chains that often do not meet even the required quality and safety measures.

A survey of 108 global 2000 companies, released last week by Integrity Interactive Corporation, a company helping corporations on ethics and compliance, found that 78 percent of these companies do not involve suppliers in their code of ethics policy, with 58 percent not even aware if their companies assess potential risks in their supply chains.

As a result, corporations like Mattel Inc. and Starbucks, both Fortune 500 companies have had to face embarrassment due to massive product recalls that were originally manufactured at their supply chains, in both cases, in China. 

“Enterprises are being judged by the company they keep, which means the whole supply chain must be ethical. If a dishonest supplier 6,000 miles away disregards manufacturing standards to make more profit, it reflects on the U.S. company which hired that supplier. The public holds the supplier accountable – not the outsourced vendor. Supplier ethics is a serious and growing problem. It is one of the biggest ethics issues enterprises face today. It impacts revenue and market share because consumers reward companies that deliver a safe product to market and punish those that do not,” says Richard J. Cellini, vice president of Integrity Interactive.  

Integrity Interactive feels that in the globalizing economy, in which manufacturing is outsourced to a network of external suppliers, corporations need to have an effective Supplier Ethics Management (SEM) program. “SEM’s goal is to reduce a purchasing company’s overall risk of corporate integrity failure in the supply chain by aligning supplier conduct with purchaser standards in three major areas of corporate integrity: compliance, ethics and corporate responsibility,” says Integrity Interactive.

Corporations, such as, the Santa Clara, California-based Intel Corporation and Houston, Texas-based Halliburton Company have strict ethics guidelines for their suppliers.

(See: “Intel Supplier Ethics Expectations” and “Supplier Ethics Statement“).

The Integrity Interactive survey also revealed that 56 percent of respondent companies do not audit supplier compliance with their own code standards. And a whopping 88 percent do not maintain a web-based portal for suppliers, an irony in a technologically advanced world. 

Regulatory authorities including the U.S. Food and Drug Administration (FDA) and the Consumer Product Safety Commission have now been empowered to recall products that pose imminent risks to U.S. consumers besides changes that will include stronger import/export standards, product safety rules, and labeling requirements.  

Integrity Interactive says implementations of such measures will result in increase in demand for organized SEM programs that must include: 

  1. Make ethics and compliance a factor in supplier selection
  2. Create and maintain compliance histories profiles of important suppliers
  3. Assign ethics and compliance personnel to major supply relationships
  4. Conduct regular assessments of supplier ethics
  5. Target and segment suppliers by importance and ethics risk

“Being an ethical company isn’t enough anymore,” says Cellini. 

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