Contributor Insight: Responsible + Sustainable = Profitable - The Economic Benefits and Best Practices of Taking the Supply Chain High Road

Submitted by: Inspectorio

Contributor Insight - Who knit this sweater? What was the environmental impact of growing these almonds? How was this cell phone made and transported to my home? These aren’t merely idle thoughts for many modern consumers today. They are important criteria for making purchasing decisions, and businesses are increasingly aware of the need for ethical sourcing.

Ethical sourcing is often referred to as the "elephant in the room," stressing business owners to make the right decisions. As defined by the Chartered Institute of Purchasing & Supply (CIPS), ethical sourcing is, “the process of ensuring the products being sourced are obtained in a responsible and sustainable way… that workers involved in making them are safe and treated fairly and that environmental and social impacts are taken into consideration during the sourcing process.”

According to a survey of approximately 27,000 global consumers published in September 2021, the Covid pandemic and its effect on supply chains helped cement this ethos. Close to 88% of respondents said they prioritize buying from companies that have ethical sourcing strategies in place, 83% are willing to spend more on a product if they can be certain it is ethically sourced, and 64% of 18-24-year-olds, nearly two-thirds of the youngest adult consumers, say they would never buy from a company again if it was accused of working with unethical suppliers. The era of corporate grandstanding and greenwashing has disappeared under the weight of social media.

Today, consumers want to feel good about their consumerism and that has led to greater scrutiny of how products are made (child labor? unsafe conditions?), how food is grown (pesticides? deforestation?) and how corporate decisions affect our shared planet.

Economic Benefits

Traditional business wisdom has long viewed it as a conflict: act ethically or operate profitably. Buffeted by regulatory demand and consumer consciousness, however, supply chain-driven brands, manufacturers and retailers are discovering the economic benefits. Along with money-saving green initiatives like efficient lighting, ethical sourcing can reduce costs over the long term, especially with brand-sensitive buyers willing to support marginally higher prices at retail.

A 2015 report by the World Economic Forum estimated that sustainable and ethical sourcing practices decrease supply chain costs between 9%-16% while increasing revenues by up to 20% for responsible products and boosting brand value by 15%-30%. As an adjunct of brand image enhancement, companies also benefit from easier recruitment, increased employee morale and engagement, customer satisfaction and market share. Some even take the leap in becoming certified as a B Corporation, requiring them to meet higher sustainability, environmental and accountability standards. Representing the top echelon of business as “a force for good” can reap greater exposure and attract investors.

Regulatory Requirements

Although there are numerous organizations that set industry standards and award labels, such as Fair Trade certification, which can influence consumer choice, ethical sourcing is increasingly guided by regulations.

In 2010, California, the largest sub-national economy in the world, passed the California Transparency in Supply Chains Act, which requires large manufacturers and retailers doing business in California to publicly disclose their “efforts to eradicate slavery and human trafficking from [their] direct supply chain for tangible goods offered for sale.” Similar regulations have sprung up across the U.S. and worldwide.

The Modern Slavery Act, enacted in 2015, requires large companies doing business in the United Kingdom to publish an annual “slavery and human trafficking statement” that demonstrates the steps they have taken to ensure a free and fairly paid supply chain. These and other regulations govern companies and give consumers information about the products they buy.

Tips for Ethical Sourcing

·     Navigating the narrow straits between governmental regulation and public surveillance requires more than good intentions.

·     To ensure compliance, some key guidelines for ethical sourcing include:

·     Engage trustworthy partners (e.g., manufacturing, farming) with proven reputations

·     Create a mutually agreed-upon code of conduct for partners Establish criteria to evaluate whether partners are upholding standards such as safe working conditions, fair pay and eco-friendly practices

·     Redline areas that need improvement and set measurable goals and deadlines for both corrective and preventive actionsIdentify backup partners in case remedial actions come up short.

While human labor will always remain essential to many industries, technology can make it easier to digitize the supply chain, centralize data collection and communication, and facilitate ethical sourcing.