An ethical supply chain doesn't just happen

Two events—the Summer Olympics and the U.S. presidential campaign—bring to mind people who do—or should be doing—the right thing.

With that comes thoughts of procurement and ethics. Chief procurement officers (CPOs) are responsible for sourcing goods and services on behalf of their companies with the utmost integrity. To do so, they develop policy and procedures for communicating the standards inside their own companies and to suppliers. They're aware that an ethical lapse, even the perception of one, can harm a company's reputation, sales, and stock price.

Once, an ethical lapse meant a purchasing agent was accepting tickets for a sporting event from a supplier, perhaps in exchange for additional business. It still does. But today, as the supply chain becomes more complex, (that is, global) companies expect more from procurement and suppliers, even tier-two and tier-three suppliers. They want to do business all along the supply chain with companies that pay workers fairly, provide safe working conditions, and respect the environment. Consumers do too.

The stakes are high, and an ethical organization and its supply chain doesn't just happen; it has to be managed. To ensure ethical procurement, CPOs should follow these best practices:

• Ensure the procurement ethics policy is current and aligns with company policy. The technology company Philips, for example, has made its Procurement Code of Ethics an integral part of its General Business Principles. Like Philips, companies should make sure that their procurement ethics policy is clear and that it is communicated throughout the procurement organization. Additionally, CPOs should ensure that employees receive proper training about the policy as needed.
• Measure performance of direct reports on metrics other than price or cost. While price and cost metrics, of course, still need to be included, procurement professionals should also be measured in terms of quality, service, and innovation. Be aware that too much pressure to meet financial goals can cause an ethical slip.
• With the CEO's support, establish procurement as the lead on supply chain ethics. Procurement should be responsible for sharing the ethics policy with cross-functional sourcing team members, stakeholders, and internal customers. For example, colleagues may need reminders about why it's not okay to talk about a supplier's competition with an incumbent.
• Include high ethical standards as a criterion in the supplier-selection process. Procurement professionals may need to explain to stakeholders and internal customers why the company may pay more for goods and services provided by suppliers adhering to ethical guidelines. Additionally, supplier performance on this criterion should be measured, and the results should be discussed during quarterly business reviews. These efforts will help to reinforce the behavior that procurement leaders seek from the providers.

These standards need to be clearly communicated to all suppliers, according to Shelley Stewart Jr., DuPont CPO and vice president, DuPont Sourcing and Logistics. In an article that he recently wrote for Ethisphere magazine, Stewart explains that DuPont's Supplier Code of Conduct clarifies expectations for suppliers in four areas, each corresponding to a corporate core value: safety, environmental stewardship, respect for people, and ethics. "[It's] important to establish early and stress that there are no gray areas," he says. "Each communication with suppliers is another opportunity to reinforce good behavior."

Procurement leaders like Stewart understand the importance of establishing policy, communicating it, and managing it. For best practices, resources, and advice on how to accomplish this, industry associations and professional organizations like Ethisphere Institute—which defines and advances ethical business practices—can help. So too can benchmarking and sharing best practices with colleagues at other world-class companies.