Ethicality is a top KPI for Supply Chain Sustainability.

Globalization, technology and the strife for competitive advantage have brought out the worst in several world-recognized organizations.

Profitability isn’t an indication of good quality or performance if it comes at the expense of people or planet.

This notion has become the rationale behind environmental action and sustainable development in the activities of business globally. Yet still, headlines pop-up — like mushrooms in the Swedish woods — every week, profiling organizations that have neglected unsustainable activities in their supply chain.

But, how?

How can companies be so conscious of the risks related with operating in unsustainable contexts, but continue to do so?

Of course, the complexities of today’s global supply chains would be impossible to manage with 100% transparency. That much, most can agree upon.

However, I have theorized why companies continue to place themselves in unhealthy collaborations with suppliers. Simply, because they aren’t focused on the correct criterion of sustainable development. I truly believe the majority of businesses, operating globally, contain supply chains working towards widely accepted sustainability goals.

But, has ‘sustainability’s’ keyword voodoo become a boundary, to actually performing, on the KPI’s that drive sustainable development?

In specifics, I believe the ethicality of global supply chain operations is among the most commonly neglected/overlooked focus area for creating true sustainable development.

It ain’t easy being ethical.

Governmental and non-governmental organizations (NGOs) have been cracking down (building alliances, passing ethics acts, implementing sanctions, etc.) in the recent years to combat unethical activities, amidst the globalization of supply chain operations.

“The United Kingdom for example passed the Modern Slavery Act in March 2015, requiring organizations netting over $37.6 million a year to publish the steps they will take to root out slavery from their supply chains. In February 2016, the U.S. followed suit in enacting the Trade Facilitation and Trade Enforcement Act, which includes a section (H.R. 644 Section 910) restricting the import of goods produced with forced labor” (Supply Chain Dive 2016).

Regulations, supported by politically backed movements, bode well for the ethical development in supply chain operations globally. But, without the compliance of instated regulations there is no true realization or action to monitor supply chain ethicality.

Abiding by ethical, moral, and sustainable guidelines- set internationally, domestically, and organizationally — is a tall task for any supply chain management operation. There is a plethora of actions required in assuring suppliers performance is delivering upon expectations of ethicality: communicating internal expectations to suppliers, assessing their performance in ethicality parameters, conducting factory-based audits, providing incentive for positive development, running supplier development programs, inflicting penalties in cases of violation, drafting/signing of collaboration agreements, and sometimes sacrificing profitability.

Some of the world’s largest brands have failed to keep suppliers in check (ethically), despite proper compliance and governance activities. And it hasn’t just cost them money, but human lives…

Human right’s violations, in the form of overworked employees, resulted in two work-related deaths of factory workers at the Zhengzou Plant in China. Foxconn Technology, a company responsible for the production of Apple iPhones, ran this plant. Overworked and underpaid workers, neglected by the system in which they were employed, became victims to the horrors of unethical operations (SCD 2016).

The ethicality of supply chains globally has become a growing concern of stakeholders (internally and externally), and the inability of businesses to ease such concerns is just casting fuel onto the fire.

Below is a result of Nielsen’s Global Survey of CSR in 2015. This highlights that consumers’ concerns/parameters for measurement, within sustainability, continuously skew towards climate and environmental related issues. While climate & environmental issues hold extreme importance for the well being of our planet, and subsequently humans, social & ethical issues typically take a back seat to their center stage.

Source: Nielsen Company

So, let’s change the positioning of the spotlight for a few minutes.

Ethicality: as a Key Performance Indicator.

Compliance and governance have become core values of supply chain management activities. Companies that plan on driving sustainable supplier-performance must transcend normative thinking when building a sustainability strategy.

To truly implement ethicality into a supply chain, supply chain ethics must be seen as a key performance indicator rather than just a guideline for regulation.

Evaluation and assessment of supplier’s ethicality should be a measurement, held as a priority, during supplier selection and collaboration.

Progressing top-line value and organizational performance doesn’t rely solely on profitability anymore.

So… when constructing parameters for gauging supplier performance, think less about the cost and more about ethicality, quality, service, and overall stability.

Ethical sourcing and procurement activities are best implemented by holding standards of ethicality as a top criterion for selecting suppliers. Some parameters for consideration are: human rights, worker conditions, child labor, modern slavery, governmental stability, health & safety and compliance to code of conduct.

“Procurement professionals may need to explain to stakeholders and internal customers why the company may pay more for goods and services provided by suppliers adhering to ethical guidelines. Additionally, supplier performance on this criterion should be measured, and the results should be discussed during quarterly business reviews. These efforts will help to reinforce the behavior that procurement leaders seek from the providers” (supplychainquarterly.com 2017).

Ethicality is where the future of supply chain sustainability lies.

I urge you as a reader, consumer, and potentially even a supply chain professional: address ethicality as a priority, and respect it as a key indicator of supplier quality and performance. Therein lies the actualization of supply chain sustainability

Until next week.


This publication is brought to you by author Sam Jenks, but also on part by Kodiak Rating — A Supplier Relationship Management SaaS functioning out of Stockholm, Sweden. Kodiak Community intends to challenge traditional business practices with innovative thinking and creation.