January 27, 2016
How Do I Prevent Bribery Across My Supply Base?
Incidents of bribery, or attempted bribery, occur every day, across all markets, at all points along the supply chain. There is a widely held belief that immediate termination of a supplier is the only solution. Due to the commercial impact of this practice, few organizations are prepared to confront the issue and a blind eye is often turned allowing the problem to fester.
On a micro level, offering a bribe may result in poorly qualified factories becoming part of your network, manufacturers with egregious ethical issues becoming approved and defective shipments passed. On a macro level, a culture of corruption is demoralizing. Productivity declines, staff turnover increases and otherwise ethical employees become persuaded by corruption or leave the organization. It is critical that businesses develop a coherent strategy to manage supplier corruption which is both preventative and practical.
Omega recommends that you clearly communicate expectations externally. For example, company policies on accepting gifts, business entertainment, meals and transportation should be unambiguous and clearly described. Industry practice is to distribute a Vendor Code of Conduct which suppliers sign and return acknowledging their understanding and acceptance. In reality, these documents are often not even read let alone the information communicated down to the factory level.
A different approach is needed. Omega recommends that you analyze your supply chain, segmenting key partners, characterized by stable commercial relationships and significant business volume. For an apparel or footwear brand this may be 90% of the supply base while, for a home goods retailer, this may represent just 50%. Once you have performed this exercise you should ensure that key suppliers fully understand all requirements and, crucially, that they cascade the information to their factories. This is particularly crucial when vendors and factories are increasingly separate entities with production spread across multiple countries. Omega suggests that the Code of Conduct is followed-up with a phone call and the conversation documented. Omega partners with one client whose VP Sourcing calls each key supplier personally. You may even require your larger suppliers to have their own internal Code of Conduct regulating how their factories operate.
The reality is though that, due to local business cultures, suppliers will sometimes attempt to bribe your employees. It is imperative then that your organization has the requisite procedures to enforce your anti-corruption program. Employees must understand their responsibility to report the attempted bribe and feel comfortable enough to do so. As such, your organization must have an anonymous, ideally multilingual, reporting channel as well as a Non-Retaliation Policy with consequences for anyone in breach.
Should the allegation be substantiated your organization should take necessary measures against the supplier. But bribery is embedded into many business cultures, and immediate termination is not the only option. Depending on the circumstances and the severity of the incident, the supplier could instead be issued with a written warning and then required to go undergo an onsite, scenario-based, ethical training session, at their cost, outlined in the Vendor Code of Conduct.
Should the supplier transgress again, then Omega recommends disqualifying it for a period of 6-12 months. Its reactivation may be contingent upon an onsite integrity audit being performed to assess that adequate management systems are in place to prevent a similar incident recurring.
Managing an anti-corruption program over hundreds, or even thousands, of suppliers across multiple countries can be daunting. Omega has vast experience dealing with supply chain integrity risks. For more information on how Omega can support your business, please contact us.