Last updated: Why businesses need an ethical supply chain: 5 compelling reasons

Why businesses need an ethical supply chain: 5 compelling reasons

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The number of consumers who demand social and environmental responsibility from the companies they buy from just keeps growing. Many buyers today actively look for brands that share their values by making sustainable products – which is just one of the reasons why businesses need an ethical supply chain.

We’ll see even more conscious consumers as young Gen Z buyers become a dominate force in the retail landscape.

This means incorporating social and environmental considerations into global supply chains is becoming a business imperative. In fact, it won’t be long before supporting responsible treatment of workers and the environment throughout the supply chain will be essential for driving long-term business growth.

A lot of companies get it and are far along, but many still have a long way to go.

A study of 700 supply chain management professionals found that while 83% believe supply chain ethics are important, only 31% believe they’re responsible for it.

It’s time to step up to the plate. Here’s why.

Why businesses need an ethical supply chain: 5 compelling reasons

  1. Build customer loyalty

In today’s fiercely competitive business environment, where consumers have endless choices, building brand loyalty can be challenging. An ethical supply chain is a key differentiator that helps attract customers and keep them for the long term.

According to an Accenture Strategy survey of about 30,000 consumers found that more than half want companies to take a stand on issues they care about, such as sustainability and fair labor practices.

A McKinsey & Company survey found that 70% of respondents try to purchase products from companies they consider ethical and 65% try to learn the origins of anything they buy. A whopping 80% refuse to buy from companies involved in ethics scandals.

Gen-Z consumers, born beginning in the late 90s, are transforming the consumer landscape with their view of consumption as a matter of ethical concern, according to McKinsey.

Winning over this new idealistic generation will require a laser-like focus on corporate social responsibility with products and services that treat workers and the environment ethically.

  1. Boost the bottom line

Ensuring a transparent, ethical supply chain can seem daunting, given the sprawling, complex nature of global supply chains. But it pays off.

Companies that integrate sustainability principals into their businesses promote growth and return on capital, according to another McKinsey & Company report. A Harvard Business Review article on the growing importance of supply chain visibility cites research from the MIT Sloan School of Management that found consumers would pay up to 10% more for products from

Meanwhile, a survey by Label Insight found that 76% of respondents would pay more for a brand that’s completely transparent about their mission and practices.

  1. Protect brand reputation

There are real reputational risks for companies that don’t support ethical practices in their supply chain. Making headlines for the wrong reasons — unsafe working conditions or harming the environment — can damage a brand.

Major retailers such as British company Marks & Spencer and Japanese casual clothing company Uniqlo have been rocked by investigations into human rights abuses within their supply chains, and an environmental group dubbed agricultural product giant Cargill the “worst company in the world.”

The focus on ethics and corporate responsibility won’t wane in the wake of the global spread of COVID-19. Consumers will scrutinize how brands react to the pandemic as companies scramble to shore up vulnerabilities in their supply chains.

In a Harvard Business Review article, experts from BCG, a business management consulting firm, urged business leaders to look at their supply chains holistically as they respond to the virus: “Solutions that solve for an individual company at the expense of or neglecting the interests of others will create mistrust and damage the business in the longer term.”

  1. Regulatory compliance

The consumer focus on ethical supply chains is shared by governments, which have implemented requirements for businesses to monitor their suppliers. For example, the state of California requires large retailers and manufactures to disclose their efforts to uncover and prevent human trafficking and slavery in the product supply chains.

Regulatory violations can be costly. Not only is there the potential for damage to a brand’s reputation, but experts say shipments without origin documentation are being turned away at ports, causing costly delays.

  1. Healthier population and planet

The business benefits to maintaining an ethical supply chain are clear and will only become more so with the growing number of conscious consumers and increasing regulation.

But the most compelling reason to get serious about maintaining an ethical supply chain is obvious: a positive impact on the world. After all, business growth depends on a strong, healthy population living on a clean, healthy planet.

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