The Business Case for Ethical Sourcing Practices

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Ethical sourcing best practices.

In my time working in the sourcing sphere I have become passionate about ethical sourcing. Mexico, where I have lived for nearly eight years, is where many companies source cheap, nearshore labor and is a resource for bilingual, cost-saving talent. I have witnessed unethical sourcing practices in my time here and I am always looking to educate myself and others on the benefits of ethical sourcing. As companies chase better costs to remain viable, the possibility of building a supply chain with poor ethical practices increases. Ensuring ethical sourcing practices in your supply chain can be labor intensive but the benefits are immense.

According to 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 the workers involved in making them are safe and treated fairly and that environmental and social impacts are taken into consideration during the sourcing process. Ethical sourcing also means the procurement process respects international standards against criminal conduct and human rights abuses and responds to these issues immediately if identified. 

The good news is that  84 percent of businesses report having a supplier code of conduct  in place to ensure ethical sourcing practices.

According to Karen Elaine Gray, Senior Supply Management Specialist at LexisNexis, there many benefits to making ethical sourcing a focus of your supply chain management program. Just a few include the following:

Ethical sourcing keeps members of your organization out of the courtroom and in the boardroom.

There are over  24.9 million individuals trapped in forced labor  globally making slave labor and ethical sourcing an issue that has to be acknowledged.

Luckily,  anti-slavery laws are growing worldwide. Ethical sourcing as a practice can keep your company in compliance with these laws which include: California's Transparency in Supply Chains Act of 2010, the  UK Modern Slavery Act of 2015  and the End Modern Slavery Initiative Act. The End Modern Slavery Initiative Act was included in the National Defense Authorization Act of 2017, which overwhelmingly passed the Senate on December 8, 2016.

Ethical sourcing satisfies the growing expectations of your customers.

Making ethical sourcing practices a key part of your business strategy can make you more popular and attractive to your customers. According to Padmini Ranganathan, Vice President, Products and Innovation for Supplier Risk, Compliance and Sustainability Solutions at Ariba, a few years ago, companies emphasized their commitment to ethical sourcing practices to differentiate themselves from the competition, but today it is the expectation.

A 2014  study by Nielsen  reported that 55 percent of global online consumers value brands that commit to and actively pursue positive social or environmental impact, so much so that they're willing to pay more for ethically sourced products.

According to Amy Fenton, the global leader of public development and sustainability at Nielsen, "Consumers around the world are saying loud and clear that a brand's social purpose is among the factors that influence purchase decisions." Price still matters, of course, but in a competitive marketplace, ethical sourcing could be a game-changer, particularly among millennial consumers.

Ethical sourcing makes companies more attractive to employees.

Talent quality, talent management and talent retention are top priorities and a challenge for companies. Not only does ethical sourcing make businesses more attractive to their customers and clients, but it also makes you a more attractive employer.

A  study conducted by the Society for Human Resources Management found that companies with corporate social responsibility programs enjoy 55 percent better employee morale, 43 percent more efficient business processes, 43 percent stronger public image and 38 percent higher employee loyalty. These factors translate to a financial bonus. Productivity climbs and employee turnover declines and the company saves money as a whole. 

The benefits of ethical sourcing will make you feel good about your company’s impact on the world but the additional benefits for your company’s well-being make it a no-brainer. 

 

Hailey Corr, Junior Editor and Marketing Associate, Outsource and SIG

Hailey is a Junior Editor with Outsource Magazine and Marketing Associate at SIG. She is also SIG’s in-house yoga instructor for the Global Executive Summits. Hailey’s professional background includes sales, data analytics, social media marketing and customer relations.  Hailey holds a Bachelor’s Degree in Mass Communications and Dance from the University of Colorado at Boulder.