Corruption in supply chains: an overview

Corruption in supply chains has long been a persistent problem for may businesses which can lead to sever consequences, both in terms of cost and the reputation of the business. Because of the globalized nature of today’s business systems, supply chain corruption can be hard to pinpoint and even harder to weed out. 

The COVID-19 pandemic has further amplified the fragility of today's global supply chains. Suddenly, everything from toilet paper to baby food became scarce, with a streamlined model that focused on profits struggling to cope with an ever-increasing demand. This type of situation has proven to increase the risk of supply chain corruption even more.

In this blog post will take you through What supply chain corruption is and where it can occur. We will also give you actionable steps on how you can mitigate risk.    

What is corruption?

Depending on your location, corruption may or may not be endemic. As a concept, it’s typically dishonest or illegal behavior, achieving goals through improper or unlawful means. In many areas, such as Latin America, it can be a persistent problem which can, in the long run, affect the productivity and profitability of your supply chain. 

Transparency International found that the “2019 Corruption Perceptions Index shows anti-corruption efforts stagnating in G7 countries”, with the United States receiving its lowest score (69 out of 100) in eight years. The UN Global Compact released a report on fighting corruption in the supply chain and found that “the cost of corruption equals more than 5% of global GDP (US $2.6 trillion), with over US $1 trillion paid in bribes each year.”

Corruption boils down to money and power, so it’s no surprise that it’s a valid concern for businesses, as well as their respective supply chains. Today it is no longer enough to not be aware of hidden corruption in your supply chain – if discovered by outside parties, it can lead lengthy legal procedures and heavy fine's.  

Corruption in the supply chain

Briberyand fraud are two common forms of corruption in business. Collusion can include kickbacks to ensure a supplier is awarded a contract or misrepresentation of goods and services.

The practices are accepted in some regions, while they may be prevalent - and even widely accepted by society as a whole. 

For instance, the jurisdiction may not enforce white-collar laws, or they might be used to dealing with collusion between suppliers to raise the overall prices. Suppliers may circumvent protocols to cut costs or skim from the top, and there are also other, more esoteric issues to think about. 

Corruption in the supply chain can lead to environmental issues, while aspects like human rights and worker safety also have to be considered. Bypassing health and safety requirements is a common complaint, affecting even the largest companies worldwide.

Apple’s Foxconn facilities in China regularly make the news, as China Labor Watch continues to report on worker conditions. They claim that Apple’s factories don’t report injuries, and that “the factory does not provide workers with adequate personal protective equipment and workers do not receive any occupational health and safety training.”

There’s also a reputational risk that will be difficult to shake off if corruption in the supply chain is made public. This could lead to further problems with customers and suppliers in the future.

Regions with less reported supply chain corruption are still at risk, be it through diversion of public/business funds or conflicts of interest. But what steps can be taken to improve the strength of your supply chains?