Minimising your ethical supply chain risk

Couple shopping for clothing

Organisations across the globe are becoming more aware of the risks that can occur when corners are cut in a supply chain; in order to mitigate these risks, some have increased their focus on ethical sourcing.

In the race to provide the most competitively priced products and services, many organisations have moved towards offshore suppliers with added cheaper labour from developing countries to their supply chain. Organisations that source from an ethically high-risk supply base such as these can put their brand reputation and overall bottom line in jeopardy.

While the need to stay competitive is vital, there are a number of inherent risks in organisations sourcing from high-risk supply bases, including a potential decline in quality, labour exploitation and the risk of breaching an organisation’s own ethical sourcing policies. This strategy will often save money in the short term, however, may not be a sustainable business practice.

Customers are increasingly demanding organisations adhere to ethical sourcing programs in delivering their products and services. An example of this is from the Rama Plaza factory fire in Bangladesh in 2013 that killed 1,134 workers. After the fire, many fashion brands signed the Accord on Fire and Building Safety in Bangladesh in order to protect their supply chain workers from working in unsafe conditions – brands that did not sign the accord faced backlash from their consumers for employing third world labour in potentially unsafe conditions.

Most ethical sourcing compliance audits are done by audit bodies with a ‘tick box’ approach. Demonstrating the value of this approach can be a challenge, however there are some options to assist. Sedex is an organisation with voluntary global membership that helps organisations to manage their performance around labour rights, worker health and safety, the environment and business ethics. As a member of Sedex, suppliers can offer customers verifiable proof of its commitment to sustainable management in all aspects of its business.

SMETA, the Sedex Members Ethical Trade Audit, is an audit methodology that comprises best practice of ethical audit techniques. Designed to reduce duplication of effort in ethical trade auditing, benefitting retailers, consumer brands and their suppliers, SMETA helps auditors to conduct a high quality audit encompassing all aspects of responsible business practice.

SMETA is widely used among global retail and manufacturing brands. Demonstrable compliance of their supply chain against Sedex standards will help these organisations reduce the risk of labour exploitation (including child labour, forced labour, minimum wages, fair work conditions, workers’ rights, etc.) and safeguard against unethical business practices (including bribery and corruption) in their supply chain. Organisations that adhere to supply chain compliance assurance practice increase their brand integrity, shareholder and stakeholder confidence and overall profit in the long term. A growing number of organisations around the world are looking to minimise any negative impacts their operations might have on the environment and society. This means not only adhering to high ethical and sustainable business standards in their operations, but also ensuring the those in their supply chain do the same.

PwC’s Auditor Training is a Sedex-approved training organisation delivering SMETA Foundation Awareness and Social Management Systems Auditing courses in Australia. We can help organisations accelerate compliance with the requirements of the standards, and global best practice in management systems through our accredited certification and compliance auditing services through PwC’s Certification and Compliance services.

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