While traditional supply chain management involves minimizing total operating expenses to maximize gross profits, businesses must increasingly invest in ethical supply chains to engage with today’s consumer. With the traditional equation to develop an optimal supply chain, the company or supply chain management organization considers a number of factors including central purchasing (for price savings and product standardization), inventory, risk management, and management of supplier relationships. However, this equation changes as consumer consciousness increasingly centers on the environmental and social impact of purchases.
History provides evidence that supply strategy evolves to align with organizational strategy and market demands. One past example of a shifting environment is globalization during the 21st century. The advancement of multinational companies initiated development of business partnerships and joint ventures. Until late 1980s, most business did not source globally in their supply chains. And, as these global companies have scaled, supply chain specialization has increased in importance, allowing companies to improve overall competencies — similar to how outsourced manufacturing and distribution allows for companies to focus on core competencies. Another example is the way in which rapid advancements in communications technologies have lowered both real and transaction costs of communication. As a result, parties in the supply chain have changed how they coordinate.
Consumers care
Data shows that consumers have become more interested in the environmental and human aspects of how they spend their money, including the supply chain used to produce their purchases.
A study conducted in 2015 on corporate social responsibility found that nine-in-ten millennials would switch to a brand with an ethical cause. Companies may be concerned about the higher cost of sourcing goods that are ethically made without harming the planet. Yet a 2016 survey found that consumers actively look for sustainable products and are now willing to pay nearly 25% more for them. The study found that up to 66% of consumers would pay more for social good products while 45% were more inclined to buy from businesses that make a social impact!
More companies have started to recognize that supply chains matter since they make up to as much as 75% of a company’s carbon footprint. Companies of various sizes have increased focus on the supply-chained coined SECH (social, ethical, cultural, and health footprint) rating.
Shining examples
The U.K.-based cosmetics company Lush — known for environmentally conscious packaging of products — is a well known company with both healthy profits and an ethical supply chain. Lush’s handmade products use ingredients such as fresh produce sources from local farms and shea butter from women’s cooperatives in Ghana. And the cosmetics are 100% vegetarian (80% are vegan and never tested on animals). With this model, the company has grown to 931 shops across 49 countries as of 2017. Global sales in 2016 were £723 million, an annual increase of 26%.
Lush has a ‘creative buying’ approach in its supply chain. The company purchases products that are safest and that align with Lush’s ethics instead of only factoring in the bottom line.
AmaElla — the sustainable and ethically sourced fashion brand that launched on UpEffect in 2016 — raised over £12,500 (over the £10,000 goal). AmaElla’s mission is to encourage ethical behavior in fashion through sustainable and ethical sourcing. And the company lives by this — only working with ethical fashion manufacturers to make sure workers have good working conditions and a living wage. The garments are made from 100% organic cotton, ensuring that they are free from toxic chemicals and a better alternative for the environment.
Ensuring that your partners care
More than ever, businesses realize that honest practices begin with the supply chain, and that a company’s reputation is an extension of its suppliers’ reputations. So, businesses ought to feel comfortable with the goods that they buy in line with their own missions and should ensure that their suppliers have ethically sound practices and policies.
One step that purchasers and suppliers can take is to build transparency and trust. Purchasers may want to explore working with suppliers that are known to be ethical, free from forced labor, child labor, or other human rights abuses. Many companies rely on supplier to self-monitor performance, though creating a truly ethical supply chain may require that business also audit their suppliers’ claims.
Companies are up against myriad obstacles to ensure that a supply chain is ethical and sustainable. For companies that use raw materials, complex supply chains often source from a number of parties located in sometimes distant locations from around the globe that are not only costly but logistically difficult to monitor. At the same time, outsourced production limits the view into the working conditions of those involved in making products.
Mapping and auditing a supply chain is possible. First, the supply chain mapping process involves documentation of the exact sources of materials, shipments, and processes used in the creation of the product. Software for these purposes exists, including through the U.S. Department of Labor. The Bureau of International Labor Affairs (ILAB) created the Comply Chain app that allows companies with a process to minimize risk of forced labor. During the auditing process, a business can then weigh the risks of sourcing from various suppliers and can flag signs of problematic labor and human rights abuses.
Creating a green supply chain also involves mapping and research though comes with benefits like lower costs for material and transportation, increases in efficiency, and reduced costs to dispose of waste.
In some cases, large companies that have undertaken changes to improve corporate social responsibility in the supply chain have seen significant financial gains. For instance, PepsiCo established a carbon management and energy assessment program with its suppliers in 2010, and as a result, found energy-saving options of more than $60 million.
Across all sizes of companies, ensuring a sustainable and ethical supply chain can create numerous benefits for the planet as well as for long-term business viability.
