How to maintain an ethical supply chain during the COVID-19 crisis.
When I talk to clients about the COVID-19 crisis I'm often reminded that beneath the headlines about the impact on business and the economy are countless human stories of workers facing hardship and farms and factories under pressure as facilities are shut down and demand declines.
How companies treat people and suppliers in the crisis matters and will be remembered. In such conditions it can be tempting to cut corners or compromise standards in supply chains to prioritise trading and cash flow. But the businesses that emerge strongest from the turmoil will be those that protect their brands and supply chains by acting ethically.
Well-known UK brands are already in the spotlight for the ethics they demonstrate and this scrutiny is likely to increase as the crisis unfolds. This point was underlined recently when investors with $4.5 trillion of assets wrote to 95 well-known brands urging them to uphold human rights and take care of people in their supply chains during the crisis.
With this in mind, here are a number of key points I think businesses need to consider to maintain an ethical supply chain during the COVID-19 crisis.
Companies are being forced to go to new vendors to maintain the supply of products. I’ve spoken to a retailer that previously sourced all its rocket leaves from Italy. Now this retailer is having to look elsewhere but it hasn’t got the time to carry out the same level of due diligence as it did for its established supplier.
These situations can expose your supply chain to a range of risks spanning modern slavery, health and safety, bribery and corruption and the abuse of the environment. Companies in this predicament are looking for ways to do rapid due diligence on the new supplier’s financial position, the integrity of individuals and its regulatory record.
Even established suppliers may feel pressure to keep customers happy by telling people to work who should be at home or opening a factory when it should be closed. You need to monitor all suppliers closely.
In times of stress it is also up to businesses to treat their suppliers fairly.
Large companies with lots of smaller suppliers should consider their responsibility to shoulder the burden and take pressure off these suppliers. Instead of simply changing your vendor, consider ways you can enable your current supplier to stay in business. In this way you can work with your trusted suppliers and support the economy.
We have seen big British companies announce measures to help suppliers, including early payments and other cashflow support. These actions aren’t just made through an ethical lens. Companies that maintain their supply chains will keep customers happy and be in a stronger position when the crisis is over.
Some aspects of doing business ethically are newer than others. One thing we can rely on is that fraud increases when businesses and individuals struggle. Common examples include accounting manipulation to improve results or duplicate invoicing to boost cash.
Finance teams working from home may be more likely to miss some of these incidents and remote working can leave companies more open to phishing attacks by organised crime.
Everyone is under pressure in times like these. That’s why boards need to make sure their ethical policies are embedded throughout the business so that employees are not tempted to take risks with supply chains to cut costs or keep products moving.
At the same time, some longer-term goals may be relaxed to get essential items to the public and keep businesses afloat. Examples might include increasing your use of plastic or water in the short term. If so, you need to be clear that these measures are temporary and your ethical goals remain.
Building an ethical supply chain has always involved competing pressures – including meeting the demands of different stakeholders and short-term performance versus longer-term goals. Consumers want both cheap products and stronger ethics.
The current crisis has increased these tensions. But with businesses already in the spotlight your reputation is at stake. Ensuring you have an ethical supply chain, and that you in turn are treating your supply chain ethically, will help protect your brand and business during the crisis and beyond.
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