Ethical Decision Making in Supply Chain Management

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Ethical Decision Making in Supply Chain Management

Over the course of this year, I have learned much about supply chain management. I have learned tactics to use during negotiations, competitive bidding processes, and other business situations. My internship this summer allowed me to have a one on one experience with supply chain management. This internship shed a brief light of what supply chain was and the situations that come with it. Ethics plays a role in your life every day. They shape the person you truly are, and even an honest person can make an unethical decision. In life we are all faced with decisions and I can guarantee that everyone in their lifetime will make an unethical decision. Before we move on we need to know what ethics means. Ethics is a hard word to explain. There is a variety of different definitions of ethics, and the view of ethics is different to every person. Some believe that ethics is described as what the law requires you to do. Others believe that ethics is what your religion preaches for you to do. Some people do not know what the word ethics means. An article from Santa Clara University summed up ethics correctly. Within this article it stated, “Ethics is two things. First, ethics refers to well-founded standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues” (Velasquez, 2010). I completely agree with the following statement; ethics is a standard of right and wrong that usually benefits society and is fair. It further states, “ ethics refers to the study and development of one's ethical standards” (Velasquez, 2010). The feelings and laws which we are supposed to follow as humans describe what is ethical. To remain ethical, we must continuously study and examine our ethical practices. Much like businesses, ethics seem to change regularly and adapt to our culture and needs. By studying our ethical practices we can continue to live up to the standards that we set for ourselves and our institutions.

There is a vast amount of definitions of ethics, and there are also many different kinds of ethical approaches. The three types of ethical approaches that I believe pertain to supply chain management are virtue ethics, duty ethics, and consequential ethics. According to a BBC article, virtue ethics is about a person rather than action-based: it looks at the moral character of the individual carrying out an action, rather than at ethical duty, or the consequences of those actions (“Virtue Ethics”, 2013). Virtue ethics deals with the perceptions of a person. It is human nature to assess a person on their character. Aristotle declared that a virtuous person is someone who has ideal character traits (Athanassoulis, 2014). These characteristics are usually natural and learned from your past experiences; they are generally stable and fixed throughout your life. Everyone is born with tendencies, some of these tendencies will dissipate, and others will grow. There are a number of factors that affect your virtues, such as your parents, teachers, and situations. An example of how companies can apply virtue ethics to their practice is by hiring a manager who strives to achieve moral excellence. In John Dobson article they state, “Companies should hire a manager who virtues are honesty, fairness, prudence, and courage” (Dobson, 2007). A manager hired for a company should include all of the virtues above and should place personal virtues over any material considerations. This will allow employees to see ethical morals and practices being used in upper management.

When it comes to duty based ethics, it is all about doing the right thing. In other words, duty based ethics is doing the right thing because it is the right thing to do, even if you do not agree with it. In the article “Workplace Example of Duty Based Ethics” they define a person who uses duty based ethics as, “a person who believes that the highest virtue comes from doing what you are supposed to do -- either because you have to, e.g., following the law, or because you agreed to, e.g., following an employer's policies (Gillikin, 2012). Much like virtue ethics, duty based ethics does not take into account if the action leads to a good or bad consequence. Obviously duty based ethics has its flaws. Humans have and will continue to break rules that are set for them. Many companies will require policies that their employees are to follow. Duty based ethics is seen throughout the supply chain. People have an obligation to do the right thing, even if that task produces a negative result. A good example of duty based ethics in the supply chain is a company’s code of conduct. Each employee must follow this code of conduct. Each employee follows this ethical code because they believe that the highest virtue comes from doing what you are supposed to do. This employee either follows this code of conduct because they have to, agreed to follow it, or it follows the law. There are obvious flaws in duty based ethics. Based on duty based ethics if you are an employee and your manager asks you to do something unethical in the supply chain, you must follow this request. Obviously duty based ethics is needed in the supply chain, but there needs to be a common median between right and wrong. If an action will produce terrible outcomes for the common good, it must be weighed with your decision making.

The last ethical approach I see in supply chain management is consequentialism or result based ethics. The Internet Encyclopedia of Philosophy defines consequentialism ethics as, the action is morally right if the consequences of that action are more favorable than unfavorable (Fieser, 2013). Results based ethics is seen throughout the supply chain. When companies make a decision they usually have different options, and they choose the option that is more favorable, often cutting down on cost and increasing profit. There are obvious flaws with results based ethics as well. For example, a company begins to employ children, an unethical decision, but by doing this they can drastically cut their cost and pay their U.S employees more money. Even though this sounds like an extreme case, this does happen in the supply chain. Although result based ethics seems like it can really work in a business’s favor, it usually doesn’t. It is true that you can see parts of virtue ethics, duty based ethics, and consequential based ethics in the supply chain. However, many of these approaches do not take into account human rights. No person is perfectly locked into one of these approaches, but some of these approaches can be seen in supply chain management. The results of following virtue ethics, duty based ethics, and consequential based ethics to a degree can lead to unethical decision making. Employees and companies must find a common median between virtue ethics, duty based ethics, and consequential based ethics and the role they play in the environment around them.

Much like ethics, supply chain management is a very broad topic. A supply chain is a series of links that enable the movement of products from the producer to the customer (Sairamnath, 2014). In other words, it is how a product moves from point A to point B. However, supply chain management encompasses the management of both relationships among intermediaries and logistics activities but also includes numerous businesses and various marketing functional areas, including product decisions, promotion, pricing, procurement, and strategic alignment among organizational members (Ferrell, 2013). As you can tell, supply chain and supply chain management are very broad topics that seem to cover every aspect of a business. Not only does supply chain management control the relationships among logistical activities it also includes coordination and collaboration with channel partners. An example of collaboration and channel partners would be suppliers, third-party service providers, and customers. Many companies use supply chain management activities to improve profitability, cut cost, and to create a competitive advantage compared to their competition. It is obvious that corporations place a tremendous amount of trust in its employees, customers, and suppliers. However, we live in an extremely competitive market that seems to demand results. This will always put pressure on employees to succeed, whatever the cost. This is where many of us run into problems with ethical decision making. We may know that this is not right, but it would look good to our superiors.

Building a sustainable supply chain is a must, but making an ethical and lasting supply chain is harder than it seems. For many companies profits often out way social responsibility and ethics. An article by summed up the marketplace perfectly. It stated, “Corporations strive to mitigate costs and reduce uncertainty. Nowhere is that drive for certainty and cost containment more compelling than in corporate supply chain (Guthrie, 2014). Globalization within the supply chain industry has created an opportunity for new suppliers overseas, but these global suppliers also can cause unethical practices. An example of a company that has been linked to unethical supply chain practices is Apple. While producing the iPhone 5, an Apple supplier recruited people for their factory assembly line. According to the article, the supplier hired brokers, who charged families high fees, often a year’s worth of wages with interest. It also stated that factory workers were reportedly obliged to surrender their passports as payment until they could repay their debt (Opam, 2013). Obviously Apple is against the abuse of migrant workers or any workers in general, but this example shows that even companies that claim to be against unethical practices still have trouble with eliminating them. The quest for a competitive advantage can have an impact on how and whom the products were made by. Human rights abuse has also been a hot topic in the use of global supply chains. It is no secret that companies employ illegal workers, often some are sold into slavery. The Thai seafood industry is known for having thousands of “slaves”. The Thai government and many of the suppliers understand this “slave” market and still continue to use the Thai seafood suppliers. In 2013, a report found that the country of Thailand has failed to make sufficient progress in tackling human trafficking (Trent, 2014). Although many of the companies audit these locations, they seem to miss this. These companies have the power to demand accountability from their suppliers. They should be monitoring who their suppliers hire, how the products are produced, and if they are using ethical practices.

Ethical issues such as child labor have played an enormous role in supply chain management. The increasing global marketplace has made companies temporarily unaware of supplier practices. It has been widely known that shifting some of our production overseas would cut down on your firms cost and produce a higher profit. However, the result of this greater profit could potentially be the use of child labor or another unethical practice. Recently chocolate companies such as Nestlé and Cargill have come under fire from having suppliers who employ children. According to the article written by Rich Steeves, “the 9th Circuit Court of Appeals has stated that these companies tolerated child labor on cocoa farms in order to cut costs. Driven by the goal to reduce expenses in any way possible, the defendants allegedly supported the use of child slavery, the cheapest form of labor available” (Steeves, 2014). Although these companies do not own the cocoa farms, the supplier is still part of their supply chain. The global market has allowed companies to produce a tremendous amount of profit. However, is this profit worth the consequences that comes with it? This example brings me back to results based ethics. Obviously companies enjoy seeing their costs cut and a substantial amount of profit, but does this action help the greater good? With this recent scandal, Nestlé has decided to take measures into their own hands. Nestlé and its partners are now becoming increasingly involved in the communities in Côte d’Ivoire. An action plan has been drawn up by Nestlé to counteract the use of child labor. Nestlé’s executive vice president of operations stated, “The use of child labor in our cocoa supply chain goes against everything we stand for. As the FLA report makes clear, no company sourcing cocoa from Côte d’Ivoire can guarantee that it doesn’t happen, but what we can say is that tackling child labor is a top priority for our company” (“Nestlé Sets Out Actions”, 2014). Nestlé will now work closely with its suppliers, partners, and other channels throughout its cocoa supply chain. Nestlé will also collaborate closely with the Ivorian government to eradicate the use of child labor in their cocoa supply chain. This is the first step of many coming from the Nestlé Corporation, and I believe that with these new programs and teaming up with the local government they can cut down on the unethical practice of employing children.

Many companies are increasing their focus on ethical behavior more and more. The example above shows unethical practices that happen outside of the United States. However, there are a vast amount of unethical practices that occur in the states as well. When you are hired as an employee, you’re entrusted with the company’s secrets and relationships. However, personal relationships may seem to cloud your judgment when it comes to decision making for your firm. Conflicts of interests can occur in many areas of the supply chain, and it is important that you try to avoid or mediate the potential conflicts that come with them. An example which I ran into this summer in my internship was receiving gifts from suppliers. While working for a transportation brokerage company this summer we were sent gifts, such as pens, pencils, coupons, and clocks. This can obviously be seen as a conflict of interest. My boss made it specifically clear that if any of us were to receive any gifts that we should alert him immediately to assess the situation. Not only can giving or receiving gifts be seen as a conflict of interest, but family relationships, investments, and the use of company resources can also be viewed as conflicts of interests. Employees should not feel pressured to report any of these possible conflicts of interests, but many of them fear for the safety of their job.

Companies have been providing a variety of means to counteract some of these unethical behaviors. One of the easiest ways to prevent unethical behavior in the supply chain is to lead by example. Now this may sound like it is a given, but many managers do not make ethical decisions. This brings be back to the three types of ethical approaches I discussed earlier in my paper. A manager should use all 3 ethical approaches in his management style, and he must make an ethical decision that help the individual, company, and the environment. However, the power should not be in the hands of only one person in your company. An excellent way to cut down on unethical practices is to create a system of checks and balances within your company. This will allow multiple employees the opportunity to voice their opinions on a matter and to determine if the solution or situation is ethical. This can be very beneficial in the procurement, sourcing, and outsourcing business practices in a supply chain. In an article written by Rob Handfield, it states 3 methods that many companies have incorporated in their reporting procedures. The three methods used are self-reporting, internet/email, and an ethics hotline. The three methods are shown below:

  1. Self-reporting – Process relies on employees to report any potential conflicts of interest that they may face. Typically a verbal notification system between an employee and his supervisor (Handfield, 2004).
  2. Ethics hotline - is a hotline that allow employees to anonymously report when they observe fellow employees or management engaging in unethical behavior” (Handfield, 2004).
  3. Internet/Email – many companies have developed an anonymous reporting system via email or internet submission. Employees have the ability to report conflicts of interest or any other ethical behaviors to an email account, which allows the reporter to be anonymous (Handfield, 2004).

These potential programs are only a handful that companies could use. It is critical for a company to have programs to counteract unethical practices. A company’s image can be drastically affected by an unethical decision it has made. Although these programs may cost the company more in the short run, it could potentially save them millions in the future. Consumers, investors, business partners, and stakeholders expect a company and its entire supply chain line to be ethical. It is known that the longer a supply chain is, the larger amount of risk that usually comes with it. The product must go through multiple suppliers before getting to the end customer. Implementing only a couple of these programs and establishing a supply chain ethics team could be very beneficial. This team would only focus on the companies supply chain and the decisions that they make. They would closely monitor suppliers and establish an audit team that would show up unannounced. Effective auditing not only sends a strong message to suppliers, it increases transparency and helps identify problems that need remedying. Whilst the cost of a thorough auditing process may seem prohibitive in the short-term, the long-term benefits of a well-designed process will almost always pay off (Seal, 2013). Combating unethical behaviors is a challenge and takes a considerable amount of time and effort. However, the reward of having a company that is known for being highly ethical in its practices can improve your profits, image, and supplier relationships.

After researching the various types of ethical approaches, unethical practices used in the supply chain, and the potential programs to counteract unethical practices I believe that companies should begin to actually adopt the outlook of placing ethics over profits. An example of switching over to this perspective of putting ethics over profits is by using suppliers that are known for having safe and suitable products. This will allow consumers to see the company as a trusted partner that prides themselves on raising the standards in their industry, while producing quality and safe product. Many companies are seeking to find the most efficient and lowest cost methods to build and deliver their products. However, many of these companies fail to take into account if the decisions are ethical or unethical. Thus, companies should begin to focus more on their overall supply chain and to place more emphasis on ethics over profits.