5 Reasons To Prioritize Ethical Sourcing

By Hugo Britt | September 14, 2021

There’s no question that ethical sourcing is high on the agenda of organizations across the globe.

Earlier this year, for example, APQC released its Supply Chain Management Priorities and Challenges research, which outlined the top trends anticipated to impact supply chains by 2023. Environmental, social, and corporate governance (ESG) factors ranked as the second biggest trend predicted to have a major or moderate impact on organizations in the coming years.

But what exactly is ethical sourcing, and why is it so important?

What is ethical sourcing?

The pressure to reduce costs and improve efficiencies through the supply chain can lead to poor and unethical procurement practices such as corruption, modern-day slavery, trafficking, child labor, and fraud.

Ethical sourcing describes the process by which products and services are sourced through sustainable and responsible methods.

Establishing an ethical supply chain will see organizations prioritizing human rights by treating their workers fairly and ensuring their safety. It also requires procurement and supply chain professionals to address the environmental and social impact of all their sourcing activities. 

Today, an increasing number of organizations are implementing a supplier code of conduct to drive ethical sourcing practices throughout their supply chain. It’s the right thing to do, but there are also significant benefits.

5 Benefits of ethical sourcing

1. Value-add

There are several ways that ethical sourcing impacts your organization’s bottom line.

According to The Chartered Institute of Procurement and Supply (CIPS), ethical sourcing can be a means to gaining a competitive advantage. By deploying best practices, reducing operational risk, and growing your brand’s reputation (when other companies are failing to do so), your competitor’s shortcomings will ultimately result in your competitive gain.

By aligning your brand with ethically sourced and sustainable products, you will likely foster a highly loyal and trusting customer base, which can serve to increase your organization’s market share. Notably, the world’s major credit agencies such as S&P and Moody’s have integrated ESG factors into their rating methodologies.

Finally, prioritizing ethics and sustainability in all that you do can significantly lower your organization’s operating costs. This ranges from establishing energy-efficient office spaces to sourcing locally to reduce your shipping, transportation, and warehousing costs.

2. Addressing modern slavery

It’s estimated that, at any given time, around 40 million people are victims of modern slavery.

This includes 24.9 million people who are being subjected to forced labor, whether in the private sector (such as domestic work, construction, and agriculture), forced sexual exploitation, or forced labor imposed by state authorities.

Although anti-slavery laws are increasingly being implemented across the globe, this is an issue that procurement and supply chain professionals can, and must, address because it is often the mismanagement of complex global supply chains that allow modern slavery to thrive.

Professionals can take action by identifying and closely monitoring high-risk areas, carrying out regular audits, holding their suppliers to account, and insisting on transparency and visibility throughout the entire supply chain.

3. Customer satisfaction and brand reputation

Consumers today are both more aware and more mindful about issues such as sustainability and forced labor. As a result, not only will they support brands pursuing ethical sourcing but they will also pay more for the products and services they provide.

In fact, environmental tech firm GreenPrint recently released its Business of Sustainability Index, which found that 64% of Americans will pay more for sustainable products and 78% are more likely to purchase a product if it is clearly labeled as environmentally friendly.

Your customers expect you to explicitly define your company’s moral standpoint and they will hold you accountable for what you say. By following through on your promises and clearly demonstrating your efforts to build an ethical supply chain, you will improve your brand’s reputation and ultimately expand your customer base.

As traceability technology such as Blockchain becomes mainstream, businesses are taking the opportunity to include information (such as scannable QR codes) on product packaging to provide proof of sustainability claims.

4. Employee satisfaction and talent attraction

It’s not just the consumer that cares about responsible sourcing. Working for a morally sound company is now a top priority for many employees, which means if you want to attract top talent and reduce your turnover rates, ethical sourcing should be at the top of your agenda.

In general, companies with robust CSR programs boast a happier and more motivated workforce. Employees are proud to be associated with their employer, passionate about what they do, and more determined to work hard and make a difference. In addition, they will be more likely to advocate for your company online and within their personal networks, which will help you to recruit more high-performing team members.

5. Innovation

Historically, there has been a misconception that CSR programs and ethical sourcing initiatives stifle creativity and innovation – but that couldn’t be further from the truth.

Prioritizing responsible and ethical practices means procurement and supply chain professionals no longer have the option to cut corners by opting for the cheapest or quickest option. Instead, they have to think outside the box and find ways to drive efficiencies and add value without compromising on ethics. By abandoning the status quo and trying out new suppliers, companies are more likely to arrive at creative solutions and produce better products.

To learn more, contact Una today.


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