Ethical Sourcing’s Economic Benefits And Best Practices

by Editorial Team

Purchasing decisions are based on these criteria, and businesses are increasingly aware of the need to make ethical sourcing decisions.

The Chartered Institute of Procurement & Supply (CIPS) defines ethical sourcing as ensuring that products are sourced responsibly and sustainably, that workers involved in making them are treated fairly and that environmental and social impacts are taken into consideration during the sourcing process, according to Spend Matters and CIPS.

The Covid pandemic and its effect on supply chains helped cement this ethos, according to a survey of approximately 27,000 global consumers published in September 2021.

About 88% of the participants expressed prioritizing purchases from companies that implement ethical sourcing practices. Around 83% are willing to pay more for an ethically sourced product. In addition, 64% of 18 to 24-year-olds, representing almost two-thirds of the smallest adult buyers, said they would never buy from a company if it was accused of working with unethical suppliers again.

Social media is erasing corporate grandstanding and greenwashing. Consumers want to feel good about their consumerism today, which has led to more scrutiny of how products are made (if child labor or unsafe conditions were involved), how food is produced (the use of pesticides and the effects of deforestation) and how corporate decisions affect our environment.

Benefits to the economy

Supply chain-driven brands, manufacturers, and retailers are discovering the economic benefits when they act ethically and profitably.

With brand-sensitive buyers willing to support marginally higher retail prices, ethical sourcing can reduce costs in other ways besides money-saving green initiatives like efficient lighting. According to a report published in 2015 by the World Economic Forum, sustainable and ethical sourcing practices can decrease supply chain costs by 9% to 16% while increasing revenues by 20% and brand value by 15% to 30%.

Additionally, I have seen companies benefit from easier recruitment, increased employee morale and engagement, increased customer satisfaction and market share as a result of brand image enhancement. Some even take the step of becoming certified as a B Corporation, which requires them to meet higher sustainability, environmental and accountability standards. It is possible to gain greater exposure and attract investors when the top echelons of business are portrayed as a force for good.

Requirements for regulatory compliance

Government regulations are increasingly driving ethical sourcing, even though there are numerous organizations that set industry standards and award labels that help influence consumer choice.

In 2010, California, the largest sub-national economy in the world, passed the California Transparency in Supply Chains Act, requiring large manufacturers and retailers to publicly disclose their “efforts to eradicate slavery and human trafficking from [their] direct supply chain for tangible goods offered for sale.”

It has become commonplace for similar regulations to emerge across the U.S. and around the world. 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 fair supply chain. Consumers learn about the products they buy through these and other regulations.

Ethical Sourcing Tips

The narrow strait between government regulation and public surveillance requires more than good intentions. Here are some key guidelines for ethical sourcing:

Engage reputable manufacturers and farmers.

Develop a code of conduct for partners that is mutually agreed upon.

Evaluate whether partners uphold standards such as safe working conditions, fair pay, and eco-friendliness.

Set measurable goals and deadlines for corrective and preventive actions in areas that need improvement.

In case remedial actions fail, identify backup partners.

There will always be a need for humans in many industries, but technology can help digitize the supply chain, centralize data collection and communication, and facilitate ethical sourcing programs.

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