How Are Ethics and Supply Chain Management Related?

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Ethics come into play in every business industry, and certainly in Supply Chain Management. For starters, vendors need to be ethically vetted before being used. And, what does a company do with its excess stock that it charged to a customer? A supply chain management company needs to make sure that every link in its supply chain is ethically sound, or the entire chain could fall apart.

Supply Chain Management 101

Supply Chain Management is “a set of policies in place to help integrate the flow of products, financial information, and other vital information from manufacturers, wholesalers, distributors, retailers, and supplies, to the final customer, and back through the chain again.”

How are ethics and supply-chain management related? The supply chain process is lengthy, it starts when an order is placed and ends when it is delivered to the customer. A happy customer only sees an end product. But, the behind the scenes of supply chain involves a lot of ethical decisions. Customers want to know that they are not paying more than they should. If your company stocks 100 widgets on the shelf, and never sells half of them, who pays for the other 50? Are customers being overcharged because they are essentially paying for stock to sit on shelves?

To be ethical, a company needs to make sure it’s not overcharging its customers to pay for stock that might not sell. The customer should be charged exactly the value of the particular item he is buying.

Ethics and Excess Stock

Excess stock is a part of any supply chain. It’s the nature of the beast. You want to make just enough product to satisfy the customers, but you do not want to run out of product or put customer demands on back-order, so you end up stocking more goods than you need to. The goal is always to minimize excess stock and minimize waste. What do companies do with excess stock, and do they charge the customer for more stock than the customer needs?

A lot of times, what to do with excess stock depends on your industry. If you are building fighter jets or submarines, you might be able to use that excess stock a few years down the road. Or, there might be government requirements that mandate you dispose of that stock before it becomes obsolete. Who pays for the obsolete stock that never gets used? Taxpayers? If you have to pay to dispose of excess stock, who pays for that?

Shelf-life of any product is a concern. How long can an item sit on a shelf “in stock” before it goes bad? If your company has 10 widgets in stock, and someone buys 1 of them, which of the 10 do you provide to the customer? Do you provide the item that is almost out of shelf life? This means it might break and malfunction for the customer in as little as a month or two after purchase. But, it would be out of your inventory and count as a sale.

On the other hand, do you provide the item that has years of shelf-life remaining? This means you might not ever be able to sell that item with little to no shelf life remaining. In short, you either have to eat the cost of an expired item, or you provide a product to the customer that is not of the highest quality.

Ethics Is More Than Just Legalities

Gone are the days when a supply chain company just had to worry about not breaking the law. To be considered ethical, a good company now needs to do more than just ensure its customers are happy. Companies are judged now on the diversity of their boardrooms and if they produce their products in an environmentally friendly manner. No company wants to be associated with a vendor that was producing parts illegally or unethically.

For example, would you rather buy a tomato that was locally harvested by a farmer down the street or a tomato that was pumped full of chemicals in another country and shipped to you? Any product in any industry has the same considerations in the supply chain world. Sourcing is now a big issue. How are products made? Sweatshops in foreign countries have never been more frowned upon than they are today. Are your products ethically sourced? It is no longer just about breaking the law, now companies need to make sure they are operating with morals and ethics in consideration at all times.

Vetting Suppliers

Vetting suppliers has never been more important. Due diligence used to involve visiting the manufacturing plant to personally see operations. After the global pandemic that has become more difficult. With limited travel, suppliers need to trust vendors more than ever. The ethics of vendors that supply chain companies outsource to are just as important as the ethics of the supply chain company itself, as it is a direct representation of the supply chain company. Do not get caught hiring a shoddy supplier just because you could not travel and vet their manufacturing process in person.

You are only as strong as your weakest link — a supply chain is full of links by definition, perhaps more than any other industry in the world. If one link in the chain is weak ethically, the entire chain fails. If a supplier is subpar, producing subpar products, or producing them in an unethical manner by using sweatshops, child labor, or some other illegal means, then the entire supply chain company will fail.

How Are Ethics and Supply Chain Related?

Every component of the supply chain is affected by ethics. From hiring a diverse team to vetting suppliers to environmentally friendly products down to the disposal methods of excess stock, supply chain companies are now being ranked across the board on their ethical practices. It is worth it to spend extra time, money, and resources ensuring every link of your supply chain is ethical. While it might cost resources up front, strong ethical practices will help make more satisfied customers in the long run.

Reach out and contact us for any questions about how technology can ethically support your existing supply chain management practices.

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