What is a Supplier code of conduct?
A supplier code of conduct is created for the purpose of ensuring that a company’s suppliers adhere to high standards of safe working conditions, fair and respectful treatment of employees, and ethical practices. A supplier code of conduct includes components such as:
- Labor practice and standards: This includes compliance with child labor laws, anti-discrimination practices, health and safety standards, working conditions, working hours, compensation, right to association and freely chosen employment.
- Environmental policy: This takes into account product and material use, as well as transportation technology.
- Ethics: These components are in place to establish anti-corruption measures, while also adhering to fair business practices and managing partner relationships (e.g. upstream in the supply chain).
- Review and documentation policy: Outlines how the components are monitored and reviewed.
How to Develop Your Supplier Code of Conduct
1. Assess risk in your supply chain:
- Where are your manufactured products sourced from?
- What is the environmental and labor law enforcement like in those countries?
- Do the manufacturing methods conflict with the environmental, social and ethical goals of your company?
2. Discuss and consult with your suppliers and other companies operating in your industry
If your suppliers are working with customers that already have a code of conduct in place, it is helpful to use consistent terminology and processes.
3. Seek out examples based on industry initiatives or standards
Many industries and socially responsible companies already have initiatives in place to create a common set of standards around supplier codes of conduct that you can use to model your own practices. Examples include the Ethical Trading Initiative, Fair Labor Association and Electronic Industry Citizen Coalition.
International Labor and Environmental Standards
The following international environmental and labor standards have set the standard for many supplier codes of conduct. A company may choose to use these standards as guidelines in their own supplier code of conduct to ensure that their suppliers adhere to these specific standards:
Environmental and social standards
- ISO 14000 : A set of international voluntary standards and guidelines regarding environmental management systems, eco labeling, environmental auditing, environmental performance evaluation, environmental aspects in product standards and life cycle assessments
- SA 8000: An international standard to ensure good working conditions, prevent child and forced labor, workplace safety and health, freedom of association, right to collective bargaining, anti-discrimination, discipline, remuneration, working hours and human resources management systems.
Monitoring your company’s supplier code of conduct is a multi-stakeholder initiative that should include:
- New tools for understanding supplier performance on the topics addressed. These may include assessments and ratings such as those provided by EcoVadis.
- New processes in procurement and supply chain management to integrate these measurements into procurement decisions.
- Commercial enforcement mechanisms such as contract clauses and eligibility for rewards incentives such as “preferred supplier” or “key supplier” status programs.
- Internal management efforts to train employees and suppliers on the code of conduct and its implications for your business.
Supplier Code of Conduct Benefits
- By creating a supplier code of conduct, you set clear expectations for suppliers in a way they can consult and engage with.
- A supplier code of conduct helps protect a company’s brand image in the event of an incident at a supplier’s site.
- A supplier code of conduct is very important if your company sources materials and products from countries where environmental and labor laws are either lacking or underenforced.