Tips for auditing an ethical supply chain
Author: Jerome Brustlein
Tips for auditing an ethical supply chain
Mon, 03/29/2021 - 00:01
Many serious concerns have hung over the supply chains of global corporations for decades, ranging from human rights issues to lack of transparency about sourcing and other matters. In the jewelry industry, the issues have ranged from unsafe mining practices and child labor to money laundering through the supply chains themselves.
The rise of conscious consumers has altered how brands compete, and ethical supply chains have become a source of competitive advantage as brands leverage prestigious certifications such as B Corp status to closely align themselves with mindful consumers who value sustainability, transparency and accountability.
But what defines an ethical supply chain and what does it look like in practice?
Put simply, an ethical supply chain focuses on the need to embrace corporate social responsibility and produce products or services in a way that treats both workers and the environment ethically.
In practice, this means weaving these principles into the fabric of the business. For example, at Fenton, our teams believe everyone involved in the process of creating the company’s beautiful products should benefit from the value creation and come to no harm.
Unsurprisingly, to adhere to these principles, ethical supply chains require much more vigilance to set up and to crucially oversee (in comparison to traditional supply chains).
We’ve regularly conducted unplanned visits to ensure that our conduct expectations are being adhered to and all reports from the team on the floor are accurate and true.
Weekly audits remain an integral aspect of the responsible sourcing process and have been shown to improve working conditions, health and safety, environmental sustainability along with bribery and anti-corruption.
It’s Fenton’s mission to bring transparency and accountability to the jewelry industry, an industry once synonymous with opaque supply chains, riddled with middlemen adding no value to the product and driving prices up. The company’s business model centers around diligently overseeing its supply chain and sourcing exclusively from world leaders in ethical mining, such as Sri Lanka. Thus, I take this opportunity to offer tangible advice on how to audit an ethical supply chain and relate it to my own anecdotal experiences at Fenton.
Embed internal teams on the workshop floor
Audits receive criticism for being deceptive and disconnected from true accountability.
Often audits do not detect unauthorized subcontracting arrangements, and most audit firms have no investigative powers and limited capacity to verify that the information presented to them is both true and accurate.
Secondly, auditors usually only inspect specific areas that suppliers choose to show them and are only able to speak to employees that they happen to see. Thus, it begs the question: What is the true state of play? Can a brand be truly vigilant of its supply chain if this is how it is managed? I suggest not.
Fenton has taken a different approach. The company has embedded several people on the workshop floor in South East Asia on a daily basis to ensure its values, ethical standards and best practices are adhered to at all times. This involves ensuring the right production and quality assurance steps for Fenton pieces are being respected along with coaching the team where needed (for example, on how to set a stone correctly) and ensuring the company’s code of conduct is upheld. Of course, this requires a much greater investment from the business, but it is fundamental to ensuring Fenton’s values are upheld on a daily basis.
Implement stringent Know Your Customer procedures
Know Your Customer (KYC) procedures are a critical function to assess customer risk and a legal requirement to comply with anti-money laundering laws. Effective KYC procedures involve knowing a customer’s identity, the risks it poses and their financial activity.
KYC procedures were first implemented by financial institutions but since have become a core component of ethical supply chain management practice. The process obviously differs depending on the industry, but the core framework behind the KYC procedure remains the same.
Establish a mandatory process of identifying and verifying a customer/client/etc.
Ensure you know and understand the ownership structure of all your suppliers
Validate the legitimacy of their claims
Verify or halt the relationship if the KYC standards are not met
Fenton scrutinizes the operations of any potential supplier before agreeing do to business with it. This includes requiring it to prove the salaries that it pays employees, the beneficial owners of the business, and making sure it is in good stead with its taxes.
Set a strict code of conduct all vendors need to abide by
It’s also vital to expect all suppliers to meet — and where possible exceed — all applicable laws and regulations in force in the countries where your company operates.
Having "boots on the ground" will enable your company to remain attentive to this at all times, and encourage your partners to go beyond legal compliance and abide by all relevant international and brand standards with a commitment to continuous improvements.
Having our team embedded on the workshop floor has been crucial to this process at Fenton. We’ve regularly conducted unplanned visits to ensure that our conduct expectations are being adhered to and all reports from the team on the floor are accurate and true.
Apply for BCorp status
There is obviously notable prestige in being granted such a certification; however, there is a lot of value in the application process itself.
As a brand, it forces your company to place itself under the microscope and scrutinize its processes from a third-party specialist perspective. From my own experience at Fenton, applying (and getting approved) for BCorp status really made our teams think deeply about what we do and how we continually can strive to uphold the values of the certification.
For instance, we realized we could do more to source gemstones from smaller independent dealers and miners directly in Sri Lanka. As a result, Fenton tries to prioritize these sources as opposed to the larger dealers it works with in Mumbai.
This story was originally published by GreenBiz and can be accessed here.