What is Ethical Sourcing, and How Do You Know You’re Doing it Right?

On the first day of Christmas, my true love gave to me… the definition of ethical sourcing!

If you haven’t heard the term ‘ethical sourcing’, it’s high time you did!

The movement to ethical and sustainable sourcing has grown exponentially in recent years, with more people prepared to pay more for products and services that can truly be classed as ethical and sustainable. 

The number of products that are classed as ethical is also on the rise – everything from shampoo and clothing, to your morning coffee and favourite chocolate.

Professionally too, when it comes to ethical sourcing and procurement, more organisations are building sustainable and ethical considerations into their processes. 

Take tenders, for example – more and more of them now include an ethical sourcing policy which includes mandatory requirements or weighting,  for responses showing ethical behaviours. Supply chains are also scrutinised at every level to ensure these behaviours are followed through.

But as the number of companies claiming ethical practices increases, how do you know if you are sourcing ethically? Are there any sure signs you’re getting it right? 

Understanding ethical sourcing in the supply chain is no easy task! So we’ve put together an ‘ethical sourcing audit’, outlining some key things to look for, so you know for certain.

Let’s get basic… what exactly is Ethical Sourcing?

First things first, to know if you are sourcing ethically, you need to know what ethical sourcing means. There are several definitions, but they all have the same foundation – sourcing products in a responsible and sustainable way, from organisations who treat workers fairly and equally, while minimising their impact on the wider environment and society.

The Ethical Trading Initiative’s internationally recognised ‘Base Code’ is based on existing conventions of the International Labour Organisation, and has nine clauses that define ethical practices:

1.   Employment is freely chosen

2.   Freedom of association and the right of collective bargaining are respected

3.   Working conditions are safe and hygienic

4.   Child labour shall not be used

5.   Local living wages are paid at national legal standards

6.   Working hours are not excessive, complying with national law

7.   No discrimination is practiced

8.   Work performed must be on the basis of a recognised employment relationship established through national law and practice

9.   No harsh or inhumane treatment is allowed

Why is ethical sourcing important? And who is responsible?

Ethical sourcing is critical to ensuring that workers globally are protected from unhygienic, unacceptable, unsafe, or exploitative working conditions. That is to say, workers should be paid a fair wage for their services and not be subject to a culture of fear or violence in the workplace. It’s a basic right for all workers around the world and it’s something that we all need to play our part in helping with.

While everyone has an individual responsibility to source ethically, it’s more complicated when it comes to procurement. 

Procurement is responsible for ensuring that supply chains are free of unethical and unsustainable practices at every level. While that always hasn’t been top of mind, ignorance of supplier practices is no longer a viable excuse for unethical behaviours going unchecked! 

What’s more, contraventions are likely to have far-reaching consequences for the organisations involved. Yikes!

Fortunately, procurement has numerous methods and processes available to it that help to embed and monitor good ethical sourcing practices. These can range from questions in tender processes and mandatory requirements for supplier qualification to clauses in contracts and regularly monitored KPIs. 

It takes commitment to get them into a contract and then manage them, but needless to say, the effort is definitely worth it.

So… am I getting ethical sourcing right?

Even with all these tools and information, how do you know you are getting ethical sourcing practices right? Ethical sourcing done properly has several benefits for organisations, and if your organisation is one with an effective ethical sourcing agenda, there will be clear signs that you’re getting it right. Here are some of the key outcomes you should be looking for:

1.       Your employees are more satisfied

Studies have shown that organisations with strong Corporate Social Responsibility programs have higher employee morale, a strong public image and better employee loyalty. Employees will buy into organisational strategy and actively help build up these activities.

Not only that, but a reputation for sustainability and ethics will make an organisation a more attractive proposition as a prospective employer than those who don’t. It’s a win-win for organisations looking to stand out in a crowded recruitment market.

2.       Your customers are more satisfied

Customers now expect that organisations will be more ethical and sustainable in their business practices and actively value brands that are doing so. By committing to ethical sourcing practices, organisations may be able to increase their market share and develop a loyal customer base.

This is not only true for retail organisations, but for organisations in all sectors and industries, where brands can become closely associated with best practice, becoming the first choice for conscientious customers.

3.       Your costs are lower

Although products that are sustainable and ethically sourced generally have a higher cost, if you have ethical sourcing processes in place it can reduce costs in the long term. 

The World Economic Forum has estimated that sustainable and ethical sourcing processes can reduce costs in the supply chain by up to 16%! Lower costs come because of reducing overheads, creating value through competitive advantage and reducing supply chain risk through compliance with regulations and maintaining your organisational brand value. 

This leads us to…

4.       You’re not in the papers (or in court)

We said it before, and we’ll say it again – ignorance is no longer a viable excuse for poor practices in your supply chain. Ensuring that all Tiers of the supply chain are compliant with ethical sourcing practices is a must for organisations, or they face a potential backlash from customers, stakeholders and the wider public.

At the very least, organisations risk damage to their brand, while contravening regulations surrounding Modern Slavery knowingly or not, may see your organisation end up in court.

5.       You are investing in the latest technology

Finally, one of the clear signs that you’re getting your ethical sourcing right is that your organisation is investing in the latest technology to facilitate tracking and monitoring of your supply chain, supplier performance and risk management.

Our recent research report on sustainable procurement, shows that technology is a key component in creating a successful ethical sourcing process. This can be linked to using blockchain to track all supply chain transactions, through to digitisation of key data linked to performance management. Ensuring your organisation is investing in the right areas is a sure sign you are on the right track. 

So there you have it. Ethical sourcing done right means you are well on your way to leading the procurement field to a brighter, sustainable future!

We know ethical procurement has big pay-offs and that’s why this year’s Big Ideas Summit Chicago had a primary focus on sustainability. Procurious wants to empower businesses to lead the charge to establish greener supply chains and procurement processes.

If you missed this event, you can catch up on all the top content by heading over to our Resources section.