Consumers are increasingly becoming more aware of issues related to the environment, sustainability, and forced labor. Meaning their expectations from brands are rising. In such a scenario, an ethical supply chain that meets the ethical standards related to sustainable sourcing, environmental stewardship, better working conditions, and reducing waste is a requirement rather than a luxury.
According to Ipsos MORI, four in five customers said the ethical standards of retailers matter to them. Additionally, 38 percent of consumers also revealed that they are willing to spend more on a product if the company acts ethically.
That brings us to the question—what are ethical supply chains?
Ethical supply chains are more of a practice than a definition. Supporting an ethical supply chain refers to companies incorporating social and human rights and environmental considerations into how they do business globally. Or an ethical supply chain focuses on the importance of incorporating social responsibility, developing products and services to treat the environment and workers ethically.
Though the ethical supply chain is still a new management method/idea, it will be even more prominent in the future. Hence, business owners should play by the book to rise above the rest.
Why Are Ethical Supply Chains Important?
When sourcing became more global, several instances of malpractice and exploitation came to light, thereby raising questions about how ethical factors are often cut to manufacture goods cheaply. When it comes to ethics in the supply chain, experts typically focus on the following aspects:
- The eradication of child labor
- Appropriate pay and working hours
- Environmental awareness
- Freedom of employment and association
- Humane and non-discriminatory treatment
- Safe and hygienic working conditions
- Anti-bribery and corruption
Previously, these factors of the ethical supply chain were governed mainly through the values of individual businesses and countries. However, in the last few years, this became a part of international law.
Not surprisingly, this resulted in businesses of all sizes asking themselves if a responsible, ethical supply chain is essential. The obvious answer is “yes.”
When businesses think of an ethical supply chain, the first thing that comes to mind is the additional expenses. But on the flip side, an ethical supply chain can improve the bottom line. Various studies proved that three-quarters of Millennials are willing to pay more for sustainable products. This means that the public thinks of it too. Furthermore, the transparency and visibility associated with an ethical supply chain mean you can cut costs while improving quality.
In a transparent supply chain, managers at each phase of the manufacturing process know where the products are coming from and where they are going at any given time. This helps to continuously make improvements in the warehouse and other areas of the supply chain.
Furthermore, an ethical supply chain helps protect brand reputation, offer a better customer experience, and build long-term loyalty. Companies that don’t support ethical practices in their supply chain are always at the risk of reputation loss. They can make headlines for the wrong reasons, such as harming the environment or unsafe working conditions, which can damage their brand.
Changing Consumer Demands
The golden rule of ethical supply chains is “knowing your consumers.” In the future, businesses will have to closely watch and understand the changing consumers’ expectations and tailor their ethical supply chains to appeal to them. Here are some of the questions that consumers often ask brands about their supply chains:
- Does each link in the supply chain care for its workers with sustainable workloads, fair pay, and ethical work conduct?
- How will unethical behavior be remedied if discovered? Will each partner involved in the supply chain work to ensure it is corrected?
- Do you trust your supply chain partners and suppliers? Are they honest about ethics and morals regardless of additional costs?
- Are raw materials sourced from sources with renewable or low impact extraction methods? Is this certified?
A great example of a company with ethical supply chains is Patagonia. An American outdoor clothing company, it uses organically grown cotton to manufacture all its products. Patagonia also changed its entire supply chain to make sure it’s environmentally friendly, has ethical e-commerce order fulfillment operations, and has safe working conditions.
What’s more, the company also offers health insurance and paid paternity and maternity leave for all its workers. Patagonia, alongside other businesses like Starbucks, H&M, and The Dr. Pepper Snapple Group, have very strong reputations for being ethical, environmentally friendly, and using ethical sourcing. This positive reputation serves as an incentive for its customers to make more purchases in the future.
Towards an Ethical Supply Chain
The journey towards an ethical supply chain involves numerous actions, including efficient planning, simplifying the processes, optimizing transportation routes to decrease fuel consumption, visibility into supplier actions, monitoring environmental risks, and more.
The bottom line is that the increasing consumer demand for brand social responsibility comes in exchange for loyalty. Therefore, the more ethical your business is the more steps you take towards creating an ethical supply chain, and the more you can retain your consumers.