Three ways technology helps maintain ethical supply chains

posted by Vivek Bharti
26 October 2020

Recent events surrounding unethical business practices in the supply chains of major companies have sparked many organisations to consider just how well they know their own supply chain. 

In our hyperconnected world, one company can very easily source a part or material from another business, then that business itself may source components or raw materials from a separate firm, and this chain generally has little control over the level of adherence to ethical sourcing.

In a structure like this, the company at the top of the supply chain can often continue to work without any contact with organisations further down the supply chain. However, should a supplier fail to comply with regulation, or worse, break the law, every company involved will suffer and face understandable criticism and harm to their brand.

A technological approach to supply management can go a long way to help organisations ensure parties throughout their supply chain are complying with laws and regulations.

1. Managing ethical risk

The best protection against malpractice within a supply chain is ultimately a contract. While this doesn’t guarantee organisations won’t break them, a clear agreement from all parties to comply with certain standards means that should one supplier fail to meet a requirement, the relationships can be easily terminated – more importantly, it shows effort to comply with ethical sourcing requirements, and encourages positive changes in the supply chain.

A central digital repository of such contracts makes a really big difference, providing fast and easy access to agreements that can be evaluated and referenced when required.

2. Reducing maverick contracting

Intelligent contracting enables legal and procurement teams to ensure all parties throughout a supply chain are fully compliant. If left unchecked, maverick contracting - whereby a contract is negotiated outside of pre-agreed terms or with key compliance clauses missing - can pose a significant risk to businesses.

A digital first contracting process can house pre-approved templates to be used throughout a supply chain and provide a means to monitor and check for improper or missing clauses. Advanced analytics can also identify deviations from negotiated terms and conditions, allowing legal and procurement teams to take preventative action to ensure that minor issues do not become major problems.

3. Providing full visibility

The biggest challenge at the top of any supply chain is understanding where precisely specific raw materials or components came from, particularly when they are a few tiers away from the top. Visibility and transparency is critical for modern enterprises that build their businesses around ethical and sustainable sourcing.

Blockchain has been positioned as a potential solution, providing a decentralised but unchangeable record of contractual agreements determining compliance with ethics clauses and regulations. In such a system, each new and existing supplier would guarantee compliance by submitting key documentation through the blockchain, providing transparency but protective of competitive information to mitigate risks for all parties.

In today’s world, ethics are both critical and good for business – particularly amongst the next generation leading the workforce. Putting contract focused technology solutions at the centre of a business means procurement teams don’t need to sacrifice control or visibility, enabling them to ensure ethical and compliant supply chains. Technology has a large part to play – through the right application of AI and blockchain, the world can aspire to be a better place for the future.

☛ Vivek Bharti is the general manager of product management at Icertis

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