‘’Ethical_Supply_Chain_Management-Is_It_Viable_’’.

There has been a lot of interest generated in the study of ethics in business both locally and globally. This has also evolved in the field of Supply Chain Management (SCM) through the interaction between suppliers and customers in their logistics and material management functions (Tan K.C et al 2002). Ethics and SCM have developed into a strategic business concept through coordination and collaboration of channel partners (Larson P.D, Poist R.F and Halldorsson,A 2007).Consequently, the involvement of various stakeholders through collaboration and coordination in the supply chain has created major challenges in the fulfilment of stakeholder expectations. There are many varying expectations from all different stakeholders involved in supply chains. Stakeholders who include employees,consumers,providers of capital (stockholders), community, government and other organisations look up to firms to behave in a way that satisfies the particular member or group in a supply chain. Consequently it becomes a very difficult balancing act for the companies. This essay will discuss the practicality of the philosophy of ethical supply chain management through the identification of the drivers and barriers. The several recorded incidences of business failures as a result of unethical practices will be cited as key examples of why it is a smart business strategy to have an ethical supply chain. In addition the discussion will further explore the confusion that is brought about by the different operating environments that give rise to different opinions on whether it is really viable to manage a supply chain in an ethical fashion. The discussion will further argue the plausibility of the ethical supply chain management philosophy in the context of a global supply chain. It is important to view the idea of ethically managing a supply chain as a key strategy that guarantees business continuity and profitability in the long term. Skjøtt- Larsen et al., (2007) as cited in Andersen M and Skjøtt- Larsen (2009) view Supply chain management(SCM) as ‘’an area of increasing strategic importance due to global competition, outsourcing of noncore activities to developing countries, short product life cycle, and time compression in all aspects of the supply chain’’. Organisations should be able to create close and long-term relationships with suppliers and other strategic stakeholders to remain competitive in the market. As the need for long term supply relationships becomes more visible in the supply chain a new phenomenon of ethical supply chain management has evolved. What does it mean to manage the supply chain in an ethical way' How viable is ethical supply chain management. Can a supply chain be ethical in a global environment' Webber (1992) and Houlihan (1984) as cited by Andersen,M and Skjøtt- Larsen,(2009) define Supply chain management as “the management of materials across functional boundaries within an organisation”. In addition Wolmack et al (1990),Womack and Jones (1996),Christopher (1998) and Harland and Clark extends the definition to include ‘’management of upstream production chains’’ and ‘’downstream distribution channels’’ with suppliers and customers in order to create enhanced value in the final market at less cost to the supply chain as a whole.(Juttner et al 2004,p2). The relationships with suppliers and customers raises the issues of ethics and how that is applied in the concept of SCM.Scott and Westbrook,(1991) and New and Payne(1995) describes SCM as “the chain linking each element of the manufacturing and supply process from raw materials through to the end user, encompassing several organisational boundaries and...’’. This therefore extends the scope of SCM and brings into play a number of stakeholders who are involved at every level of the supply chain. The dilemma is that these stakeholders expect organisations to act responsibly and ethically. Smith and Quelch (1993) as cited by Lantos G.P (2002) explains that ‘’ethical responsibilities go beyond the law by avoiding harm or social injury ,respecting people’s moral rights and doing what is right, just and fair’’. However there has been a struggle by corporate executives on how to balance “commitments to the company’s owners and obligations” to an ever increasing group of stakeholders who claim both legal and ethical rights Carroll,A.B.(1991). Organisations must observe certain standards in their dealings over and above compliance with the letter of the law.(John Black et al, A dictionary of Economics in Economics and Business). This raises questions in the way the supply chain organisation deals with their customers, suppliers, competitors, society and “the impact of their activities on the environment”, public health and animal welfare. Haynes, P.J and Helms, M.M (1991),p.219 defines ethical behaviour as “the use of recognised social principles involving justice and fairness in situations that are part of business relationships’’. On face value this definition seems like it excludes stakeholders such as the community in which the organisation operates in but to the contrary the firm needs a social licence to operate therefore all business decisions it makes has to be for its economic good and other stakeholders as well. In addition Gallagher S.(2005) and Niesberg (1988) as quoted by Kilcullen M and Kooistra J.O (1999) defines ethics as referring “to a system of moral values that may differ from the incentives of economic systems’’ and which “guides business practices to reflect a concern for society as a whole while pursuing profits”. Eltantawy,R.A., Fox,G.L and Giunipero,L(2009) conceptualises the idea of Supply Chain Management responsibility which they define as “managing the optimal flow of high quality ,value for money materials ,components or services from a suitable set of innovative suppliers in a fair,consistent,and reasonable manner that meets or exceeds societal norms even though not legally required’’.Ethical supply chain management can therefore be said to involve the observation of “extra legal’’(Amaeshi,K;Osuji,K.O and Nnodim,P.,2008) “standards in “managing the optimal flow of materials and information from supplier to customer. It is concerned with two distinct flows (material and information) through the organization”( Eltantawy,R.A., Fox,G.L and Giunipero,L 2009) ,Stevens 1989) in a way accepted by society. The extra legal standards should have a positive effect on the various stakeholders that the supply chain interacts with from source of product through the distribution channels to the end customer. Ethical supply chain management seems to be a necessary and straightforward moral requirement ,however many viability challenges are encountered in its implementation. Milton Friedman(1970) argues that the responsibility of business .. “is to make as much money as possible while conforming to the basic rules of society, both those embedded in the law and those embodied in ethical custom”. From an economic point of view the principal purpose of a business is to create wealth for the shareholders. However as the organisation carries out its mandate it interacts with various stakeholders who demand that certain moral societal standards be observed. Although Milton Friedman seems to be rejecting the need for ethics in business his argument agrees with the concept of the “pyramid of corporate social responsibility”. Carroll A.B (1991).Milton Friedman agrees that the economic endeavours of an organisation must be carried out in conformance to “basic rules of society and ethical custom”. Carroll, A.B (1991) argues that although the profit motive was set as the primary reason for a business the other components of the pyramid are seen as coexisting with the economic responsibility. Although the single objective of an organisation as argued by Milton Friedman is maximisation of profit Drucker as cited by Mullins ,L. J (2007) calls it a “fallacy’’.Drucker argues that a business must meet demands made on the organisation by law or public opinion ,showing responsibility to society and public interest. In the short term an organisation may increase profitability through unethical practices in the supply chain but will likely put at risk the future growth and development of the firm and possibly even the ultimate survival of the organisation. Consequently the behaviour of an organisation will determine its long term sustainability. The viability of an ethical supply chain is embedded on the availability of an appropriate environment that enables the concept to be fully carried out in a supply chain. Carroll ,A.B (2001) suggests that the business environment is overcrowded with immoral and amoral managers and moral (ethical) managers are hard to find. There is need for all organisations in a “supply chain to act in a socially responsible way” (F.Ciliberti et al(2008) but due to shortage of appropriate skills at times businesses are found wanting. However Lantos G.P(2002) argues for the classification of CSR in three categories which include Ethical, Altruistic and Strategic .Lantos argues that the altruistic CSR as immoral for public corporations as this breaches the rights of shareholders and deprives employees of a good welfare and care for customers. On this view Lantos agrees with Milton Friedman on the purpose of a commercial organisation of maximisation of profits. However the views of Milton Friedman fall short when subjected to scrutiny when the various financial scandals that have happened over the years while companies were immersed in making profits. The most recent crisis that comes to mind is 2006-2009 financial meltdown that had the most damaging and significant effects in recent times.(Brenkert ,G.G ,2010,) Many organisations today have taken on board ethical practice as a key requirement in the running of their business. What’s driving the huge interest in business ethics' Cruz ,J.M, states that firms engage in CSR(ethics) to enhance their reputation, pre-empt legal sanction, respond to Non-Governmental Organisations, manage their risk and generate customer loyalty. (Bhattacharya,C.B, Sen,S;Fomrun,C.J;Husted,B.W;Parker,C and Spar,D.L,La Mure,L.T) .Ethicality in a supply chain is mandatory when it is being done to avoid harm or social injuries even if the business might not appear to benefit economically. Lantos G.P (2002), p, 206).It is incumbent upon organisations to ensure that their activities do not harm the society in pursuit of maximum profits. As a result the business agrees to be a good steward of the society’s resources. Some organisations are using standards such as SA8000 to manage and audit their compliance to minimum ethical requirements. Svenson,G and Baath,(2008) also highlight the importance of ethics in business when they state that “the globalisation of markets” have brought about the need for core values and “principles that are universally” applicable and acceptable. Organisations have lost their reputations as they create shortcuts in processes thereby reducing their profitability (Eltantawy.R.A Fox.G.L and Giunipero.L (2009). Frost and Burnett(2007) as cited by Andersen M and Skjoett-Larsen(2009) highlight the cases of Nike,Gap,H&M,Mattel and Wal-Mart for failing the ethical test in the supply chain which included among other transgressions violation of union rights, dangerous working conditions, child labour and race and gender discrimination. Haynes and Helms (1991) ;Kitson and Campbell (1996) as quoted by Pretious,M and Love,M (2006) highlight the importance of ethics in industrial purchasing. Wood G (1995) goes further to show “that there has been an increase in” ethical problems that buyers are faced with. Compounded with the differences in culture, and regulatory environment , in the global supply chain it becomes difficult to implement similar ethical standards. However Sarkis (2006)as cited by Mollenkopf,D (2010) et al states that firms are heeding stakeholder “demands regarding corporate citizenship behaviour and performance”. The extent to which a supplier or buyer is able to ensure an ethical supply chain is determined by the power that they are willing to exert on the other party. Many variables affect the implementation of ethical decisions. Marta, J.K.M and Singhapakadi ,A (2005) highlight that general societal values,decision makers’ experiences and predespositions “including religious faith, attitudes within the firm and industry and diverse emotional forces” are some of the elements that hamstring the taking of ethical decisions. What universally accepted ethical standards can a supply chain organisation implement. Honestly speaking firms are faced with difficult decisions to make regarding ethical standards. Cooper et al (1997) as cited by Mentzer et al (2001) states that firms in the supply chain are affected by the performance of others in the same chain and ultimately by the overall supply chain. Since there is this effect that runs through the downstream chains and upstream channels ,how can a firm ensure that its ethical standards are practiced throughout the supply chain. La Londe and Masters as cited by Mentzer et al (2001) suggest that all firms in the chain must have same goals and focus on serving customers and this includes implementation of an ethical supply chain. To talk of same goals implies that the firms must have some form of policy integration. However policy integration is possible only if the firms have compatible cultures and management techniques.(Mentzer et al 2001) Conflicting interpretations of ethics cause further dissimilarities in the global supply chain. For example Spence,L.J (2005) while reviewing Crane ,A and Matten,D(2007) observe that although European and American legal, historical and cultural environment have some similarities there are some important differences that make the foundations of business ethics incongruent. Spence,L.J cites an example that differentiates the way Americans and Europeans view gun rights. Further arguments on the approach used by different organisations are raised by Fulop,G ;Hisrich,R.D and Szegedi K, (1999) where a comparison of views in Anglo-Saxon, German and Hungarian organisations is done. Fulop et al highlights that the Anglo-Saxon organisations base their view of ethics on individual utility and put emphasis on the importance of individual interests whereas the Germans put emphasis on the importance of social partnerships and political agreements and view companies as social institutions. These different views make it difficult to implement ethics in global supply chain. Moreover the Hungarians approach business ethics from a perception of possible moral conflicts that might arise in business relationships and how these conflicts can be resolved and prevented. Kindler and Szolnai,1993;Csurgo and Hajdu 1994 as cited by Fulop G,Hisrich R.D and Szegedi.K,(1999).These differences in how organisations view ethics in the supply chain make it extremely difficult to implement, however organisations in the same chain can integrate their processes to enable implementation across the global supply chain.Moreso the key actors in the supply chain can use their market power to enforce ethics on other members of the supply chain. Globalisation by its nature is amoral and it concentrates more on economic objectives. (O’Higgins E.R.E 2003).O’Higgins goes further to state that morality and responsibility can be a part of globalisation as long as it satisfies economic aims. Beck (2000) and Giddons (1990) as cited by Scherer et al (2009) defines globalisation as “the intensification of social interrelations among distant locations”. Ethics is acknowledged as important in the global supply chain(Haynes and Helms,1991).However there are many complications in international supply chains with regards to movement of information.Houlihan J.B,(1987).There are difficulties in integrating operating procedures, systems and standards such as Customs requirements. In addition globalisation poses challenges in that normally the expectation is that one size fits all(O’Higgins E,2003).Consequently it becomes impractical to adapt ethical standards derived from different cultural background. Some have proposed localisation of economic interaction to regional rather than global(Barkin,J.S,(2003).However this will not be possible since there are interdependencies in global economies where developing economies import finished goods e.g. capital equipment in exchange for exporting raw materials such as minerals. As views differ from one organisation to the other and from one supply chain to another it also presents a problem in measuring whether an ethical standard is appropriate. Further different supply chains are managed in different management techniques. This increases the problem of having a single or scientific measurement acceptable by members of the whole chain. Svensson, G and Wood, G (2011) highlight the dilemma that organisations have in terms of evaluation of performance of ethics in “organisational chain management’’ since there is no specific details on how ethics is managed across organisations.Svensson and Wood,(2011) further argue “that it is difficult to determine what may be classified as ethical or unethical”. This is caused by different expectations and perceptions that are embedded in the various stakeholders in a supply chain. The measurement is also constrained by the differences in culture, economic environment, legal and political systems and expectation.Wotruba as cited by Karande,A,Rao,C.P and Vitell,S.J,(1999). Svennson ,G and Wood 2003 as cited by Svennson ,G and Wood (2007) argue that ethical performance evaluation is dependent on five principles. Svennson ,G and Wood (2007) identify the principles as Time,Context,Gap,Outcome and Consequence. These parameters determine whether a decision is ethical and thus acceptable or unethical and unacceptable. Their argument shows that a decision can be considered ethical or unethical based on the time it is taken and the context. Therefore in looking at all these parameters it becomes increasingly difficult to evaluate whether a business decision is ethical or unethical. Ethicality is therefore inconsistent based on the variability of time and context that the decision is taken and ,gap, outcome and consequence of the decision. Ethical supply chain management has become a complex web of relationships between organisations(Eltantawy.R.A Fox.G.L and Giunipero.L (2009). Competitive advantage is being created by having “long term relationships with suppliers and other strategic stakeholders” (Andersen and Skjoett-Larsen.T (2009). A good example is that of IKEA in Sweden which has engaged in “long term relationships with fewer suppliers and has put focus on buying capacities” Andersen,M and Skjoett-Larsen(2009). Supply Chain Management has moved from a transactional function “concerned with prices”, sourcing reliability and “quality issues to a strategic view with a focus on long term relationships with strategic suppliers”. (Andersen and Skjoett-Larsen.T,2009).Consequently with this development raises the need to maintain these relationships to ensure the viability and profitability of the organisation.Gallager (2005) argues that “acting ethically is a way” of minimising “the effects of change” that can happen in the socio-cultural environment. In conclusion, Ethics in Supply Chain Management is very important in today’s business practices. The transgressions of major corporations such as Enron, WorldCom, Arthur Andersen and Parmalat have brought to the fore the importance of ethics. (Svensson .G and Baath.G, 2008).Failure to act ethically led to the demise of these organisations. The strategic Direction states that “The experience of putting ethical principles before profit suggests that the neoclassical economic model” as advanced by Milton Friedman and Adam Smith, “which focuses on the pursuit of personal wealth should be abandoned for one in which integrity and self-interest can coexist”. Gallagher, (2005) citing the Wall street Journal quotes “Warren Buffett’s most famous ethical statement to his employees, ‘Lose money for the firm and I will be understanding, lose a shred of reputation for the firm, and I will be ruthless.” This is an indication that even big business is worried about their reputation and thus strategise on the basis of an ethical business which runs across the whole supply chain. However many organisations still battle with coming up with a standard definition of ethical supply chain management as a result creating confusion as to how this must be implemented and measured. Svensson and Wood (2007) provide four empirical examples of companies of which two have been successful and the other two unsuccessful in their ethical performance evaluation. 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