Last updated: The ethical supply chain: Definition, examples, stats

The ethical supply chain: Definition, examples, stats


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Consumers expect more from the brands they buy from than ever before, and an ethical supply chain is now a requirement in the experience economy.

As they gain awareness about issues related to the environment, sustainability and forced labor, shoppers are demanding that supply chains meet ethical standards related to environmental stewardship, sustainable sourcing, reducing waste, and better worker conditions.

An Accenture Strategy survey of nearly 30,000 consumers in 35 countries found that more than half of UK customers “want companies to take a stand on issues they care about such as sustainability, transparency and fair employment practices.”

What is an ethical supply chain?

An ethical supply chain is a practice that focuses on the need for corporate social responsibility, working to produce products and services in a way that treats its workers and the environment ethically. Supporting an ethical supply chain means that companies will incorporate social and human rights and environmental considerations into how they do business across the world.

The supply chain is no longer a back-office function that consumers have never heard of. Over the past ten years, it’s taken on a more forward-facing role that’s a competitive differentiator and part of the corporate business model.

Following are some questions that consumers are asking about brands and their supply chains:

  1. Do you trust your suppliers and supply chain partners? Do they keep their word regarding ethics and morals, regardless of possible additional costs?
  2. Does each link in the supply chain take care of its workers with fair pay, sustainable work loads, and ethical work conduct?
  3. Is the sourcing of materials done from sources with renewable or low impact extraction methods? Is this certified?
  4. If unethical behavior is discovered, how will it be remedied? Will each partner in the supply chain actively work to make sure it’s corrected?

Do you need an ethical supply chain? Yes.

Not surprisingly, companies of all sizes are asking themselves if they need a responsible, ethical supply chain. The answer is an obvious “yes.”

It can help protect brand reputation, build long-term loyalty, and provide a better customer experience. It can even help boost the bottom line: Studies have shown that three-quarters of Millennials are willing to pay more for sustainable goods.

The tougher question, of course, is how to make it a reality. It’s certainly easier said than done. After all, the sheer scale and complexity of today’s global supply chains is mind-boggling.

Take Walmart, for example, which deals with over 100,000 suppliers — a massive network of manufacturers, distributors and subcontractors, from different countries with varying laws and regulations.

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New standards of supply chain 

The good news is that research from APICS, Supply Chain Management Review, and Loyola University Chicago found that more companies are prioritizing ethical supply chains.

In fact, 83% of supply chain professionals said that ethics are extremely (53%) or very important (30%) to their organizations.

In addition, the Association for Supply Chain Management (ASCM) released new standards in June 2019 designed to “help customers assess the ethical, ecological and economic aspects of their supply chain.” Those who meet the standards are eligible to apply for the ASCM Enterprise Certification, a designation that demonstrates supply chain excellence and transparency.

“More than ever, consumers want to know that the products they buy are not only economically sound but also manufactured through practices that are ethically and environmentally conscious,” says ASCM CEO Abe Eshkenazi about the new standards. “Building these ‘triple E’ supply chains provide innovative companies with another platform to achieve competitive advantage, grow their market share and make the world better through supply chain – at the same time.”

Making the move towards an ethical supply chain

There are many actions that need to be taken in order to move towards an ethical supply chain, including simplifying processes; efficient planning; visibility into supplier actions; optimizing transportation routes to reduce fuel consumption; monitoring environmental risks; and much more.

Technology is also an essential part: IoT sensors, blockchain, AI-driven bots and advanced real-time analytics can help detect risk, boost efficiency, reduce redundancies and improve planning.

The bottom line is that as an increasing number of consumers demand social responsibility from brands in exchange for loyalty, more and more companies realize they need to take specific steps towards an ethical supply chain.

Researchers have found:

  • 69% of surveyed companies are eliminating discrimination in the workplace
  • 63% are making efforts to uphold environmental responsibility
  • 57% are monitoring labor conditions
  • 56% are fighting corruption (extortion, bribery)
  • 55% are deploying environmentally-friendly technologies

That said, the ethical supply chain is an evolving practice, rather than a one-and-done event. There is clearly more work to be done, but the key to success, say experts, is getting in the game for the long haul.

Clearly, it’s good for business — and those that don’t invest in it are at risk of being left behind.

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Frequently asked questions (FAQs):

Ethics refers to the principles and value-system that guide decisions and actions to ensure equity, respect, and accountability. Supply chain management is a set of business processes that companies use to decide how goods are produced, transported, and delivered to the end-customer. Ethics guides these decisions by setting standards for fairness, safety, and sustainability. For example, a business that adopts ethical supply chain practices may choose suppliers that pay workers fairly, avoid harmful environmental practices, and source materials responsibly. This ensures that products are not only made efficiently but also with respect for people and the planet.

An example of an ethical supply chain is one that emphasizes corporate social responsibility (CSR), ensuring products and services are produced in a manner that respects both workers and the environment. The fashion industry is well known for its significant carbon emissions and wastewater production. Businesses in the fashion industry can demonstrate its commitment towards an ethical supply chain by incorporating considerations like environmental stewardship, sustainable sourcing, waste reduction, and improved worker conditions. Such supply chain practices prioritize transparency, fairness, and sustainability at every stage.

Building an ethical supply chain involves ensuring products are made and delivered in ways that respect people, the environment, and ethical standards. Businesses can build these practices into their supply chain processes by:

  1. setting clear values: decide what ethical practices, like fair wages or environmental care, are important to your company.
  2. choosing the right suppliers: find partners who share your company’s ethical values. Make sure they treat workers fairly, use sustainable materials, and avoid harmful practices.
  3. staying connected and maintaining transparency: use technology to maintain oversight, management, and control over the interactions, transactions, and adherence to ethical standards within the supply chain.
  4. tracking the product’s journey: use tools like sensors and digital records to know where your products come from and how they’re made, ensuring they meet your business’ ethical guidelines.
  5. collaborating on better standards: collaborate with suppliers, listen to their challenges, and help them improve. This ensures everyone in the supply chain is working ethically.
  6. monitoring, learning, and improving: utilize advanced tools and technology to regularly assess the ethics of your business’ supply chain and continuously seek opportunities for enhancement.

Absolutely! An ethical supply chain is not only worth the cost but is also a strategic investment for businesses in the long run. Here’s why:

  • Risk mitigation: ethical supply chains reduce the likelihood of disruptions caused by labor disputes, environmental issues, or ethical scandals. This can lead to cost savings and improved operational efficiency.
  • Reputation and brand Loyalty: ethical practices enhance a company’s reputation among consumers, investors, and stakeholders. This can lead to increased sales and customer loyalty. A strong reputation can also lower financing costs and attract better talent.
  • Consumer demand: consumers are more informed today than ever before in history, and they demand ethically sourced products. Meeting this demand not only attracts and retains customers but can also command premium pricing.
  • Employee morale and retention: employees are more engaged and productive when they know they are working for a company that values ethical conduct. This can lead to increased productivity and reduced turnover.
  • Long-term sustainability: ethical supply chains are more sustainable, reducing potential damage to the environment or worker exploitation.
  • Cost savings: while adopting ethical supply chain practices may involve significant initial capital investment, however, over the long-run ethical practices can lead to net-savings.
  • Meeting regulatory and ESG targets: ethical practices help companies meet environmental, social, and corporate governance (ESG) targets and comply with evolving government legislation.
  • Moral imperative: beyond the tangible benefits, there’s an intrinsic value in doing what’s right. Ethical practices protect human rights, the environment, and promote overall community well-being.

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