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Fighting Bribery Within the Supply Chain of Purchasing Companies

Topic: Supply Chain Corruption University Involved: Richard Ivey School of Business (Western University) Students Involved: 4 Year: 2012

A "supply chain" involves the supply of materials to a manufacturer, the manufacturing process, and the distribution of finished goods through a network of distributors and retailers to a final customer. A study conducted by Deloitte in 2011 reveals that the supply chain is the most vulnerable corporate area to fraud and corruption. Common forms of corruption include false invoicing, bribery, kick-back schemes, inventory theft and sale of sub-standard goods. From suppliers, distributors and competitors, to employees and third-parties, various levels of organization within the supply chain are prone to fraud. Although one can find research reports on mitigating risks within the supply chain and articles regarding anti-bribery practices in corporations, there remains limited literature specifically on bribery within the supply chain. Thus, students from the Richard Ivey School of Business attempted to increase our understanding of supply chain corruption by researching existing academic and business literature and conducting in-depth company and expert interviews.

Key Findings

1)      Agents Threat is Under-Estimated

Among the three parties that are embedded within the supply chain: employees, suppliers and agents, the latter was identified as a major threat. This is surprising, as the common belief is that suppliers have to be addressed mostly by purchasing companies. It could be due to the fact that custom brokers and agents that operate on behalf of the company are much more difficult to monitor. Therefore, it is challenging to control them for compliance with anti-bribery practices set by purchasing companies.

2) Lack of Standards

There is neither one bribery definition, nor a single worldwide anti-bribery law that applies to everyone. Therefore, it does not come as a surprise that there is a lack of well-known standards in conducting audits or ranking of suppliers. If there was a universally embraced ranking system, it could decrease the costs that come with conducting due-diligence, audits, trainings and other precautionary actions on suppliers

3) Inefficiencies Exist!

There are replication efforts in conducting background checks, audits, and trainings for the purchasing companies’ suppliers. To start with, limited resources have been set aside for bribery elimination within the supply chains of purchasing companies. Subsequently, this appears to be an area with potential for improvement via the use of databases and sharing platforms.

4) Do Your Homework!

Companies need to prioritize on which suppliers it should perform rigorous due diligence. Purchasing companies do not have enough resources to do thorough investigations on all its suppliers. Consequently, it needs to know what suppliers that involve the highest risk. Factors that companies here should look at include industry, country, project size and size of the supplier.

5) One Size Doesn’t Fit All

All companies and experts agree that best practices should be used in order to ensure an effective approach in fighting bribery. Nevertheless, the extent and the way in which practices are used by the companies vary widely. This suggests that companies should not use “off the shelf” anti-bribery mechanisms; instead they need to identify how practices such as due-diligence, training and whistle-blowing can be tailored to reduce bribery risks.

Author :

15 Nov 2013

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