Doing the Right Thing: The Importance of Ethical Supply Chains

By Rafael Vela / Feb 5, 2023

Ethics is concerned with how a person should behave in a matter that is considered morally correct or good. It means trying to figure out why one should behave morally, as well as understanding the motivating factors for that behavior. It also examines what, exactly, makes something “good” or “bad.” It is, at its simplest, a system of moral principles. They affect how we make decisions as it provides us with a moral map, a framework that can often help us find our way through difficult issues. Ethics is concerned with what is good for individuals and society.

That being said, what constitutes an ethical supply chain?

An ethical supply chain operates in a way that delivers the highest levels of ethical and sustainable operations always considering the impact of their actions on the economic, environmental, and social arena.

Today′s supply chain operations are no longer considered a back-office function. The Supply chain is one of the most important functions of any organization and as such is always in the spotlight, has become much more customer-facing, and its activities and consequences are now more visible to the public.

When determining the ethics of a supply chain, several aspects are taken into consideration, including:

1. Labor practices: Are workers treated fairly and paid a living wage? Are they given safe working conditions and protected from exploitation?
2. Environmental impact: Does the supply chain harm the environment through pollution, resource depletion, or other negative impacts?
3. Transparency: Is the supply chain transparent and open to scrutiny, or is it secretive and prone to unethical practices?
4. Corporate responsibility: Does the company take responsibility for its actions and strive to do better, or does it ignore ethical concerns in the pursuit of profit?

Ethical supply chains focus on:

• Eliminating child and slave labor.
• Ensuring humane and non-discriminatory treatment.
• Providing safe and hygienic working conditions.
• Establishing and maintaining policies that ensure fair pay and working hours.
• Implementing and following anti-bribery and corruption processes.
• Maintaining ethical sourcing and procurement functions.
• Attaining a high level of environmental awareness and sustainability.
• Allowing freedom of employment and association.

BENEFITS OF AN ETHICAL SUPPLY CHAIN

Among the many advantages of having an ethical supply chain in place, we can list the following:

1. Reduced environmental impact. Reducing your corporate footprint is number one on the agenda for many companies and the supply chain plays a significant role here due to the number of functions under its umbrella (sourcing, procurement, logistics, manufacturing, vendor relationship, warehousing, distribution, returns, fleet management, etc.).
2. Greater business efficiency. An ethical supply chain requires processes that are lean and simple to execute with minimum resources. These processes produce higher efficiency which in turn drives a reduction in operating costs. ?This is a welcome side effect of a smaller corporate footprint; greater efficiency not only improves your performance, but it can also significantly reduce your business costs.
3. Better continuity of supply. To attain an ethical supply chain, it is necessary to maintain a high-level communication level with your suppliers. Sustainability and reliability are intrinsically linked when it comes to supply chains. Working with suppliers on their business continuity strategies and building a more diverse and robust supply chain pays well when the unexpected happens.
4. Better brand reputation. Increased brand loyalty. Most of the time, not always, unfortunately, customers prefer to buy ethically sourced products. Committing to brands that utilize ethical sourcing will boost your company’s reputation potentially increasing your market share. This brand boost can easily be extended to your suppliers. You need to make sure that your suppliers adhere to the highest ethical sourcing standards, and this is achieved by aligning your and your suppliers’ practices. This, in turn, will improve communications and build trust between you and your suppliers. Ethical procurement is essential for brand loyalty.
5. Improved organizational reputation. Properly managed and overseen, your supply chain can help you avoid reputational damage, while companies that fail to confront supplier risks can invite negative publicity. Ethical supply chains help organizations maintain their ESG credentials in good standing. No organization wants to risk its ESG ratings now that these ratings become more central to buyers and investors.
6. Opportunities to expand partnerships. Collaboration with suppliers is paramount in any attempt to reach ethicality in the supply chain. It is this collaboration that opens new doors for more strategic and productive partnerships and new business opportunities.
7. Helps to win new business. If your customers believe in your products and your organization they can make a huge difference for your organization by transmitting their satisfaction to others thus increasing your customer base.
8. Facilitates innovation. Improving the sustainability of your supply chain requires working closely with your suppliers, getting to know them, and explaining your vision and purpose. As a result, your suppliers gain a clear view of your goals, becoming invaluable partners who are far better positioned to suggest improvements to products, services, and processes.
9. Improved talent attraction and retention. People — especially the younger generation of job-seekers — want to work for companies with impeccable ESG records. Supply chain sustainability will help you attract and retain a more engaged workforce. You will save money via lower recruitment costs and reduced employee attrition and by avoiding the need to up compensation to make your sector more attractive to potential recruits.
10. Better risk mitigation throughout your supply chain. No matter how thoroughly you investigate your suppliers, working with third-party suppliers will always expose you to a degree of risk. There will be vulnerabilities among your suppliers that you need to mitigate, whether these relate to cybersecurity, the potential for regulatory non-compliance, or financial or operational vulnerabilities. Risks decrease significantly when your organization and its suppliers are all on the same page when it comes to sustainability and maintaining an ethical supply chain.

HOW TO MAKE YOUR SUPPLY CHAIN ETHICAL.

Companies worldwide are more than ever under scrutiny about their ethical and sustainability practices. Every day more and more consumers realize the impact that unsustainable activities have on their lives and as a result, they are paying more attention to how organizations operate and how they impact society.

Some organizations have taken steps to change the way they operate by embracing greener, more sustainable ways of working and deploying corporate social responsibility initiatives.

The following are some fundamental steps that must be taken to build and maintain an ethical and sustainable supply chain:

1. Develop a code of conduct: Establish a code of conduct that sets out ethical standards for all stakeholders in your supply chain. This should include principles such as fair labor practices, environmental sustainability, and anti-corruption measures.
2. Conduct regular audits: Regularly audit suppliers and other partners in your supply chain to ensure that they are adhering to your code of conduct and other ethical standards.
3. Communicate with suppliers to understand their own ethical standards, and work together to identify and address any issues.
4. Train employees on ethical issues and supply chain management, so they are aware of their responsibilities and can identify and address ethical issues.
5. Implement a whistleblower policy that allows employees and other stakeholders to report ethical issues without fear of retaliation.
6. Use sustainable sourcing practices to minimize the environmental impact of your supply chain.
7. Prioritize fair labor practices and ensure that all suppliers and partners adhere to international labor standards.
8. Implement a traceability system to track the movement of goods throughout your supply chain and identify potential ethical issues.
9. Foster transparency in your supply chain by publicly disclosing information about your suppliers and partners.
10. Build relationships with suppliers for a more effective communication and collaboration on ethical issues.
11. Encourage supplier diversity to ensure that you are working with a wide range of suppliers, which can help to identify and address ethical issues.
12. Use technology such as blockchain, to increase transparency and traceability in your supply chain.
13. Be aware of human rights risks in your supply chain and take steps to mitigate these risks.
14. Implement environmental standards for your suppliers and partners to ensure that your supply chain is in line with environmental regulations and that the environmental impact is minimized.
15. Assess the risk of modern slavery and child labor and take steps to mitigate these risks.
16. Invest in sustainable technologies that can help to reduce the environmental impact of your supply chain and also can help to improve efficiency and traceability.

And finally, when it comes to fostering diversity within your organization and among your partners:

1. Establish a diversity and inclusion policy that outlines the company's commitment to diversity and inclusion in the supply chain, yours and your suppliers’. This should include a commitment to equal opportunities and fair treatment for all employees, suppliers, and partners regardless of their background.
2. Conduct supplier diversity assessments to identify areas where the supplier base is not diverse and take steps to address any imbalances.
3. Encourage supplier diversity: Encourage supplier diversity by actively seeking out and working with suppliers from underrepresented groups.
4. Partner with organizations that promote diversity in the supply chain and work together to identify and address any issues.
5. Provide training for employees on diversity and inclusion in the supply chain. This will help them to identify and address any issues that may arise.
6. Foster an inclusive culture within your organization that values and respects diversity in all its forms.
7. Set measurable goals for increasing diversity in the supply chain, and track progress towards achieving those goals.
8. Establish a diverse supplier council to provide input and feedback on supplier diversity initiatives.
9. Assess the impact of procurement decisions on diversity, and ensure that your procurement processes are not inadvertently excluding diverse suppliers.
10. Monitor and report on progress on diversity initiatives to senior management and stakeholders.
11. Encourage supplier participation in diversity initiatives and recognize and reward suppliers who make a significant contribution to diversity and inclusion in the supply chain.

Having an ethical supply chain is not only the right thing to do, but it also brings numerous benefits to all stakeholders involved. From improving efficiency and risk management to enhancing reputation and customer loyalty, embracing ethical practices in the supply chain can lead to long-term growth, stability, and profitability for everyone involved. It is a win-win situation for all.

An organization with an unethical supply chain is an unethical organization.

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