Understanding Ethical Sourcing

Starting from later last century the social impact of sourcing has been increasing, since the products, independent of the type, are transported from any point of the world. Initially, the response from companies was just a philanthropy-based strategy, but eventually, the effort from civil society organisations, environmentalists and most importantly the end consumer purchase decisions, made it vital for the businesses to protect their images and take more responsibility.

We will be focusing on the importance of ethical sourcing, the existing standards and certifications and modern ways to trace and monitor ethical sourcing, as well as the challenges related to this topic.

How can we define the Ethical Sourcing?

We need to first understand the differences and similarities among the widely used terms.

Ethical Sourcing

Ethical Sourcing mainly focuses on the moral and social aspects of sourcing

Sustainable Sourcing

Sustainable Sourcing focuses on the environmental impact of the supply chain and sourcing activities.

Fair Trade

Fair Trade takes into account concerns about the working environment of workers, predominantly in the developing countries

In general, the approaches are still similar - to provide socially and morally accepted, transparent and traceable, environmentally friendly supply chain activities that satisfy consumers' requirements, even though the behaviours of the companies are voluntary.

Ethical sourcing in my opinion is not a narrow approach but instead arises from moral aspects and covers monitoring down and upstream supply chain, responding perfectly to the concerns of all participants of the supply chain.

Compare this to Fair Trade, which is currently labelled under the term "Fairtrade", a specific certification model acting as a standard that the companies consider social, economic and environmental aspects in trading - briefly fair trading.

What are the challenges in Ethical Sourcing?

After understanding the end customers' stands on ethical sourcing, businesses aim to compromise and bring modern solutions:

Traceability: Technologies can support to trace and monitor every stage of the sourcing, so the customer feel confident and aware what they are purchasing

Cost Increase: Ethical sourcing doesn't come for free, since peopel and material resouces should also be well paid and sustainable. Besides it's an ongoing process, which must be in the centre of attention for improvement.

Supplier Compliance: Businesses should have certain well defined standards and accordingly their trade partners - suppliers should comply with those regulations. Apparently this requires involving third-party auditors.

Customer Awareness: Although it sounds more like push strategy, but there are still customers that also should be aware of the importance of ethical sourcing

The survey conducted among 25,000 participants across 12 countries by OpenText showed that around 81% of customers are ready to pay more if the products are proven to be sourced ethically. These statistics explain already the degree and moral readiness of the customers.

In our previous posts, we have already touched on supply chain traceability solutions like RFID and NFC technology, implementing proper ERP systems, using Blockchain technology and so on, which bring competitive advantages for businesses, and will help them to have solid foundations in the globalised world.

Source

Trade Finance Global: Top challenges facing sustainable sourcing and procurement

Forbes: Why Ethical Sourcing is Crucial for Businesses Today

McKinsey: Traceability Systems and Technologies for Better Food Supply Chain Management

OpenText: OpenText Survey Shows Increase in Demand for Ethically Sourced Goods