February 19, 2013
The ongoing European horsemeat scandal may be the most high profile example of what happens when companies lose sight of what is going on in their supply chain, but according to a new report from Ernst & Young, ignorance of the ethical standards and activities of suppliers in the UK is endemic. Over half of UK businesses do not carry out due diligence on their suppliers and 30 percent admit to carrying out no checks at all. In turn, this inevitably throws doubts on the ethical standards of the same companies as well as any environmental or other aspects of corporate social responsibility. The survey interviewed procurement managers and found that the majority of companies simply do not know whether unethical or improper activity is going on in their supply chain because they are not carrying out due diligence. Just 48 per cent of UK firms carry out due diligence on their supply chain. The report also revealed that an astonishing 14 per cent of respondents did not even understand what was meant by third party due diligence and only 6 per cent had received notification of unethical activity in their supply chain.
John Smart, partner and UK head of Ernst & Young’s fraud investigation team, said: “The current issues around contamination of products have highlighted the importance of understanding and ensuring the integrity of the supply chain, which is a big part of the DNA of many businesses. Companies are, in most cases responsible for the actions of third parties acting in their name; however our research reveals that firms, across a range of sectors, are not carrying out basic checks.”