What is the ethical supply chain?

Today, supply chains are considered strategic to the business, and meeting customer expectations for ethical and sustainable supply chain operations is increasingly becoming a top…

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October 7, 20195 minute read

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Today, supply chains are considered strategic to the business, and meeting customer expectations for ethical and sustainable supply chain operations is increasingly becoming a top priority for supply chain managers.

Last year, supply chain research specialists APICS found that 83% of supply chain professionals thought ethics were extremely or very important for their organization. When you consider the brand and reputational damage – not to mention the legal implications – of unethical labor, it’s not difficult to see why. Yet, even today, global brands are still discovered with unethical practices in their supply chains.

Modern supply chains are global, complex and multi-tiered, which makes it easy for unethical practices to happen without the brand’s knowledge. For a major organization, it’s no longer enough to know what your supplier is doing. You need to know what their supplier is doing, and their supplier’s suppliers, and so on.

For example, in the fashion industry, 93% of organizations admitted that they still don’t know where their cotton was manufactured. This can be a very costly error. In 1996, after it came to light that a sportswear manufacturer used child labor, the company had to pay millions of dollars in fines and, far more importantly, had 15% wiped from its corporate value. Yet this company is now an exemplar for what can happen when you build ethics into your supply chain.

Why being ethical is important

Customers are now more informed and more demanding – and that can be a good thing. Research has shown that amongst Millennials, as many as 9 out of 10 will swap brands to one they believe to be more ethical. Some estimates suggest that there’s an opportunity worth $996 billion for organizations that adopt an ethical approach throughout their business.

One of the most surprising findings from research is that customers are willing to pay more for products that are ethical and sustainable. In 2016, The Nielsen Global Corporate Sustainability Report showed that as many as 66% of people are willing to pay more for goods that have a positive social and environmental impact. Another report found that customers were willing to pay a premium of as much as 25% for ethical products.

Defining the ethical supply chain

Modern supply chain operations have become much more customer-facing, and many companies strategically use their supply chain to drive business initiatives and improve customer experience. Delivering for the customer means understanding their needs and expectations, and sustainability and ethical business are now key differentiators. According to EuroMonitor International, 65% of consumers now say that they attempt to make a positive difference through their choice of everyday purchases.

An ethical supply chain operates in a way that delivers the highest levels of ethical and sustainable operations. This spans three key elements – economic, environment and social responsibility – and particularly focuses on:

  • Eliminating child and slave labor
  • Safe and hygienic working conditions
  • Fair pay and working hours
  • Anti-bribery and corruption
  • Ethical sourcing and procurement
  • Environmental awareness and sustainability

In complex global supply chains, ensuring ethical operations is up to everyone – from the company’s employees to its suppliers, customers and trading partners. Each has a vital role to play.

That said, cases like the sportswear manufacturer demonstrate that companies can’t absolve themselves of responsibility for what happens in their supply chains. Interestingly, this is an area where supply chains may have an advantage over other areas of the business. The transparency and visibility that supply chain professionals worldwide have built into their operations are exactly what’s needed to ensure ethical policies and practices are being followed.

Where are we today

The common feature of many high profile cases such as the sportswear manufacturer is the lack of transparency to see exactly what’s going on at each stage in the supply chain. When a company doesn’t have a clear understanding of its suppliers’ operations – even at the start of a contract – how can it monitor and manage supplier performance against a backdrop of continually evolving environmental, market and political conditions?

The APICS research found that 71% of organizations had a supplier code of conduct but just over half enforced it. Similarly, 70% of respondents indicated they have a formal policy to understand where their supply is manufactured but only 43% said they understood how their suppliers operated.

At the heart of delivering an ethical supply chain is information. An organization must be able to access information on their suppliers and their activities. They must also be able to make that information accessible to partners and customers. Key areas such as workers’ contracts and conditions, the provenance of materials, environmental performance and financial process need to be able to be monitored, and organizations need to be able to identify any supplier breaches of their ethical policies and take remedial actions quickly.

New systems are required to capture and manage data across the supply chain. According to APICS, less than half of the global supply chain operations surveyed were using software and technologies to monitor supplier compliance. At OpenText™, we’re working with brands worldwide to improve their ethical performance and are delivering tools and solutions to enable the supply chain transparency and visibility that every modern business needs. We’ll look further into the ethical supply chains and the technologies that underpin it in future blogs.

If you’d like to know more about how OpenText can help improve your supply chain operations, please contact us.

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OpenText, The Information Company, enables organizations to gain insight through market-leading information management solutions, powered by OpenText Cloud Editions.

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