Introduction
Supply Chain Management (SCM) is the integration of critical business operations in order to efficiently provide products and services to customers (Tariq & Rehman, 2012).
Relationships along the supply chain generally tend to show how collaborating companies come together to offer reliable services that enable them retain their customers.
Zaraté, Belaud and Camilleri (2008), defined a supply chain as a set of three or more companies linked together by the flow of products, finance, services, and information in an ideally seamless web. In the supply chain, companies move things, make things, store things, and throw things away.
It is a part of an organization’s strategy to stay ahead of its competitors. Supply chain management thus has to do with the integration of both ethical and operational practices of a company and is a proven way to reduce the chances of a company being seen to be irresponsible.
This paper addresses the general nature of a supply chain as a human artifact with the potential for greatness and for failure like any other. The exact nature of the possible failures and successes are discussed, and the ethical issues are highlighted with regard to finance, research and development, and supplier/vendor management.
E-commerce and Supply Chain
Today, supply chain is widely recognized as a means of shortening cycle time, reducing inventories, decreasing logistic costs, and streamlining communication processes across a network.
It is a mechanism through which diverse organizations are able to form alliances to meet a new form of Internet oriented consumer demand. For companies intending to take their supply chain to positions of market leadership, the addition of e-commerce services is a distinct advantage (Poirier & Bauer, 2001).
For many firms, e-commerce provides a strong foundation on which the supply chain can be built and strengthened. The availability of the Internet infrastructure and accompanying services present an incredible opportunity for companies to form supply chain networks that are smooth and effective.
According to Ferrell and Hartline (2010), the goal of a supply chain is to facilitate the flow of goods or services across a network.
This is, however, best achieved by ensuring that there is a smooth flow of information. Without an effective way of exchanging information, supply chain performance will be affected. E-commerce is thus an effective means of integrating customers and suppliers via the Web.
Ethical Issues in Supply Chain
According to Ferrell and Hartline (2010), true supply chain integration requires a fundamental change in how channel members work together.
Among these changes is a move from a win-lose competitive attitude to a win-win collaborative approach in which there is a common realization that all firms in the supply chain must prosper.
Rather than selling to the next level in the chain, channel members focus on selling products through the channel, to a satisfied customer. Information flows are meant to move from guarded secrecy to open, honest and frequent communications (Ferrell & Hartline, 2010).
In doing this, however, there are many ethical issues that must be addressed in order to satisfy the expectations of supply chain members. Generally, ethical questions center on whether actions are right or wrong, good or bad, bringing good or harm, are praise worthy or worthy of blame.
Achieving a high degree of channel integration is a challenging task and the reasons for this are almost easily noticeable. In the first place, each firm has its own mission, goals, objectives, and strategies that are unique to it.
Secondly, the recognition and acceptance of mutual interdependence within the supply chain goes against our natural self interest seeking tendencies (Ferrell & Hartline, 2010).
The following subsections look at some of these issues classified into three broad categories. Under each category, ethical issues are discussed with regard to the topics of finance, research and development, and supplier/vendor management.
Regulatory Issues
Financially, adherence to accounting rules and regulations is an important regulatory issue. It is wrong for any supply chain member to indulge in any form of corruption that may affect other supply chain members.
Supply chain management professionals must therefore take it upon themselves to alert senior management of any suspicious activities that could affect supply chain performance.
As far as research and development is concerned, all the supply chain members have an obligation to ensure that relevant regulatory guidelines are followed strictly.
Although compliance with product related regulations such as the EU directive on restriction of hazardous substances is primarily the responsibility of manufacturing departments, supply chain professionals must ensure that their research and development activities do not go against such directives.
It is also necessary for supply chain professionals to be aware of the main regulatory issues raised by the existing diversity of regulations in different countries.
The geographic range of governmental regulation extends from planning commissions via regional, state, and national governments to global and intergovernmental organizations such as the United Nations or European Union.
A recent example of an international, intergovernmental agreement of relevance to supply chains is the Kyoto Protocol which entered into force in 2005. The protocol established binding requirements for the reduction of certain green house gas emissions at national, and consequently, at company level.
With regard to supplier/vendor management, it is the responsibility of each member of the supply chain to ensure that all regulatory issues are observed.
In most countries, regulatory issues have to do with carriage and handling of goods, employment and working conditions, road safety, drivers’ hours, health and safety, pollution prevention, environmental protection, noise protection and many others.
Besides these complexities, there is also a growing variety of regulatory instruments directly or indirectly related to logistics and transport. These include laws, directives, technical specifications, bans, and rules.
To guarantee that the supply chain relationship operates smoothly, all members of the chain must be accountable. Every member should seek to protect the interests of other supply chain members and any company that refuses to comply with the regulatory requirements should be warned.
Legal Issues
Financially, any disagreements that end up in the courts will lead to huge financial loses to the involved parties. Such misunderstandings eventually damage the reputation of the affected supply chain partners in the eyes of the public.
In most cases, small firms in the supply chain are made to suffer if the big firms decide to make nasty decisions (Zaraté et al, 2008). Consider the case of a manufacturer who operates through a dealer network.
If the manufacturer chooses to distribute through its own factory outlets in addition to the dealer network, a number of ethical issues with financial implications may arise.
The dealer may, for example, start distributing products from other firms in addition, switch completely to another manufacturer, move to court in case the involved parties had a contract signed and there is proof that the other party has not honored their part of the deal.
This is certainly not inspiring and, depending on the dealer’s power in the market, the company may have a reason to be worry as the dealer may decide to respond in a way that may harm the company.
With their meager resources, small firms may not be in a position to engage in lengthy legal tussles. Any involvement by such firms in legal wars will only serve to create financial problems.
Under research and development, all supply chain members must be ready to abide by the agreed upon rules. Any research and development activities must be undertaken in line with the existing legal requirements.
Supply chain professionals must be familiar with legal requirements in different geographical areas so as to ensure that any research done does not put the supply chain members at risk.
A common error is the lack of respect for intellectual property rights. This is a crime that if discovered could prompt the offended party to open a legal suit against the offending supply chain member. It is therefore essential for all supply chain members to respect and protect intellectual property rights.
When it comes to supplier/vendor management, all supply chain members must do their best to protect any private information linked to a particular chain partner. In most situations, leakage of private information easily creates an environment of mistrust and this can affect the performance of the supply chain.
Although there are cases where it is common for private information to be shared among members of the supply chain, including those who are competitors of the firm that gave the information, this may sometimes be taken wrongly.
Therefore, it is important for supply chain members to know when it is in order to share private information and when doing so will constitute a serious criminal offence that could see the end of the supply chain relationship and give rise to a civil law suit (Zaraté et al, 2008).
Ethical Issues
For most firms, a reduction in the number of employees is an important cost cutting element. There are, however, ethical and unethical ways of going about the downsizing task.
The less ethical way is an abrupt shutdown of a facility without notice (Neef, 2004). If not handled ethically, this can lead to a damaged reputation for the company.
As an example, Caterpillar has never recovered from the local loss of reputation it incurred in the United Kingdom from its abrupt closure of a factory. It is important to treat people as an end in themselves and never just as a means to an end (Zaraté et al, 2008).
A firm that understands the art of dealing with people will seek to remove them by redeployment, by voluntary release supported by a payout, by providing counseling and consultancy and, perhaps by providing an office and a phone to assist them in their job search.
A reputation for being a good employer in bad times is likely to give firm a great advantage when business picks up again (Neef, 2004). Clearly, the way downsizing is carried out will have severe financial implications on the supply chain members.
Unfortunately, a mistake by one member of the supply chain may equally affect other supply chain members. When a downsizing activity is not properly handled by a particular chain member, the smoothness of the supply chain operations may be interfered with and may be left in an unhappy state.
This in turn creates a wrong impression of the affected companies in the eyes of the customers and eventually, loss of income to the supply chain members. It is therefore important for all supply chain members to take a human approach in handling issues that may eventually interfere with cash flow.
Unlike in the past, business organizations are today faced with pressure from various sources including government, consumer forums, and competition to improve upon working conditions in their supply chain.
As far as research and development is concerned, supply chain professionals must ensure that all supply chain members undertake their activities in a selfless manner.
Every supply chain member must carry out honest research that is directed towards ensuring that the customer receives the best products or services. No avenues should exist for supply chain members to take advantage of and carry out substandard research.
At the supplier/vendor management level, a number of issues may arise given that supply chain members possess different resources, skills, and advantages that may lead to varying degrees of authority or power in managing or controlling the activities across a supply chain.
Depending on how it is used by a channel member, power can create considerable conflict, or it can make the entire supply chain operate more smoothly and effectively.
The different types of power include expert power, reward power, legitimate power, coercive power, and referent power (Rendtorff, 2009). It is unethical for any supply chain member to use power to treat others unfairly.
Conclusion
In the present business environment, where stiff competition is the order of the day, it is not enough to be an ethical company. The choice of partners is equally an important consideration and must be taken seriously.
Generally, the adoption of ethical practices may have positive effects on brand image, perception and loyalty both in customers and in suppliers. Failure to have ethical policies or to apply them in practice exposes members of the supply chain to significant risks with respect to both brand perception and legal issues.
As has been demonstrated in this paper, a number of ethical issues must be considered in a supply chain context. To protect themselves from allegations of social irresponsibility, organizations need to consider very carefully those companies they do business with.
Although carrying out a thorough financial audit of potential partners is important, any firm that intends to form a supply chain must be ready to go an extra mile in understanding partners.
Focusing only on financial viability of a potential partner may ultimately have an adverse impact on the operations of a supply chain member.
To some stakeholders, effective management of the issues in supply chain is one of the indicators of how well a company is ethically run.
Supply chain members are therefore left with no option but to work extremely hard in ensuring that an effective and ethically managed supply chain exists. By so doing, the collaborating companies will be able to retain their loyal customers and attract new customers.
References
Ferrell, O. C. & Hartline, M. (2010). Marketing Strategy. Mason, OH: Cengage Learning.
Neef, D. (2004). The Supply Chain Imperative. New York, NY: AMACOM Division of American Management Association.
Poirier, C. C. & Bauer, M. J. (2001). E-Supply Chain: Using the Internet to Revoltionize Your Business: How Market Leaders Focus Their Entire Organization to Driving Value to Customers. San Francisco, CA: Berrett-Koehler Publishers.
Rendtorff, J. D. (2009). Responsibility, Ethics and Legitimacy of Corporations. Copenhagen, Denmark: Copenhagen Business School Press DK.
Tariq, M. & Rehman, S. (2012). From Suppliers’ Supplier to the Buyers’ Buyers – A Relationship Perspective. Interdisciplinary Journal of Contemporary Research in Business, 3 (11): 604 – 610.
Zaraté, P., Belaud, J. P. & Camilleri, G. (2008). Collaborative Decision Making: Perspectives and Challenges. Fairfax, VA: IOS Press, Inc.