Supply chain corruption remains a significant risk in the business world. According to a recent report by the Economist Intelligence Unit, 70 percent of businesses ignore supply chain risks. Practices like bribery, bid rigging, kickbacks, and facilitation payments can put your business at risk even when you and your employees are not involved. An unethical link in your supply chain can do irreparable damage to your business’ reputation.
You must look beyond your core business risks to protect yourself from potential exposure within the different roles of your supply chain. To do this, you need a process in place to manage compliance against corruption.
Unethical supply chain practices
Corruption within a supply chain is a major risk. Some unethical activities include:
- Accepting or paying bribes in connection with supply chain roles
- Paying a company’s employee to influence internal decision makers to do business with a supplier
- Paying government officials to overlook a business’ improper paperwork filings
- Colluding to overcharge a business
The Foreign Corrupt Practices Act (FCPA) specifically prohibits the payment of bribes to foreign officials and addresses accounting transparency requirements. Recent changes to anti-corruption laws are expanding to include a range of unethical transactions.
There are so many roles within a supply chain in the U.S. and in supplier countries that often have different ethics and compliance rules that the risk of bribery and corruption is very real.
Your business could face corruption allegations just by partnering with the wrong suppliers. A supplier within your chain that routinely bribes local officials or accepts kickbacks could have negative impacts on you. Your association with them could lead to the following short- and long-term consequences:
- Investigation of your business
- Risk of criminal liability
- Interruption to supply
- Loss of future customer contracts
- Reputation damage
How to avoid unethical supply chain practices
As your supply chain expands, so does your exposure to corruption risks. Here are some tips that can help you avoid unethical practices.
Map out your supply chain
You know your direct suppliers, however, you may not know who they buy from. Mapping out your supply chain will allow you to identify each actor in your supply chain eliminating suppliers with less than ethical practices. It can also help you create efficiencies, streamline your processes and identify vulnerabilities.
Distance between you and your suppliers can make it difficult to monitor their business practices. Being familiar with the suppliers who make up every link in your supply chain is vital to ensuring ethical standards are being met.
People these days are more socially conscious and want to buy from brands that care about their laborers and their working conditions. They will ask questions, investigate, watch reports and Youtube videos, and take their business elsewhere if they are not satisfied.
Promoting transparency within your supply chain allows you to build valuable trust and long-term relationships with your customers, as well as detect and eradicate any unethical behavior lessening your exposure to financial and operational liabilities.
Use a supply chain questionnaire
A supply chain questionnaire is a valuable tool you can send to all your suppliers. It can help you gain insight on their business practices, policies, procedures, local laws and requirements, ethics and management style. Questionnaire responses can help filter unsuitable suppliers or act as a checkup between audits.
Filling out a questionnaire doesn’t mean suppliers are telling the truth about their business practices, but it does create accountability.
Audit your suppliers
You’ll need to audit your suppliers regularly to verify their compliance to your standards. Out-of-country suppliers may well warrant the business expense of an onsite visit when compared to the high cost of a corruption lawsuit and the ensuing damage to your company’s reputation. Suppliers that know their clients may visit them will also be more vigilant in their business practices.
Supplier audits also ensure that your products are ethically produced and ethically sourced, two major selling points for today’s consumers. It enforces your relationship with your suppliers, which is always good for business, provides networking opportunities and may even result in process innovation or product development ideas.
Finally, auditing suppliers will provide an opportunity to see how your standards are upheld, where your supplier shines most, where he is most vulnerable and what to improve next.
Reward your suppliers
Always reward your good suppliers. No personal gifts, perks, payouts or vacations, just recognition for work well done and a renewed commitment to do business with them. If one supplier performs better than another providing a similar product, you’ll probably want to give them a bigger piece of the pie.
You can also provide other incentives, such as better payment terms, bonuses for exceeding benchmarks or for speed of execution. If your supplier is a key player in your supply chain, you may want to invest your R&D budget with them to create new or improved products.
Demonstrating that you are serious about being ethical, that you are holding them accountable and that compliance will be rewarded will have positive impacts on every actor in your supply chain.
Ethical companies build strong relationships with their customers and establish a good reputation in the business community. All that good work can go away in seconds if you turn a blind eye to your supply chain. Protect yourself from unethical practices and review your supply chain to ensure that every link in the chain is a solid one.
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