Minimising your ethical supply chain risk

Couple shopping for clothing

Companies 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 organisations have increased their focus on ethical sourcing. Read more about ethical supply risk below.

Many companies, in the race to provide the most competitively priced products and services, have offshored suppliers with added cheaper labour from third world countries to their supply chain. Companies 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 decline in quality, labour exploitation and the risk of breaching an organisation’s own ethical sourcing policies. This strategy may save money in the short term, however, it is not a sustainable business practice.

Customers and/or buyers are demanding organisations adhere to ethical sourcing programs in delivering their products and services. We saw this after 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 unsafe conditions.

As a result of the customer backlash such as that after the Rama Plaza fire, companies increasingly want to ensure that their suppliers employ ethical business practices, and are now asking for their suppliers to be audited against their ethical sourcing programs. But do these go far enough?

We do not believe so.

Most ethical sourcing compliance audits are done by audit bodies with a ‘tick box’ approach. But does this approach provide any value?

Demonstrating this value can be a challenge. That is where Sedex can help. Sedex is an organisation with voluntary global membership that helps companies 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. 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) and safeguard against unethical business practices (including bribery and corruption) in their supply chain. Companies 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 companies around the world are looking to minimize 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 companies 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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