3 Essentials for Your Ethical Sourcing Program

What is an ethical sourcing program, and how does it differ from sustainable sourcing? Here is a quick guide to what ethical sourcing means, as well as three tips for establishing (or improving) your program.

For some time now, consumers across all industries have been expecting more and better of organisations when it comes to sustainable sourcing. But recently, with reports of numerous organisations ‘greenwashing’ their messaging and attempting to piggy-back on environmental and social issues for their own profit, consumers and shareholders alike want companies to go one step further. 

They want comprehensive ethical sourcing programs. 

What is an ethical sourcing program? 

If your organisation has already invested in sustainable sourcing, that’s a good start. Any investment in the earth’s future is a good one and your customers (and the planet) will thank you. However, sustainability is only one small part of a complete ethical sourcing program.

Lily Asia, Project Executive at IBM, views ethical sourcing from the point of view of aligning procurement practices with the organizational intent. In Procurious’ recent webcast in partnership with Avetta, Lily described ethical sourcing as

“When a company aligns its purchasing activities in a manner to objectively demonstrate the material used in your products are sourced and processed through humane, legitimate, and sustainable means.”

This definition certainly aligns with that of CIPS, which also includes both fair treatment of workers throughout the supply chain and “respecting international standards against criminal conduct and human rights abuses and responding to those issues immediately if identified.”

Ethical sourcing, then, encompasses more than just planet-friendly initiatives and environmental management. It’s about taking a holistic approach to ensuring fair treatment of all people in the supply chain and transparent and corruption-free decision-making, while at the same time putting the responsibility on the individual and organisation to tackle unethical practices as soon as they become apparent.

Ethical Sourcing Programs – The Essential Elements

Given the broad nature of an ethical sourcing program, it can be difficult to know where to start when creating one, or expanding one to ensure broader coverage and greater success. To help, here are three essential inclusions for your ethical sourcing program: 

1. A Robust Strategy 

The best ethical sourcing programs start with a robust strategy that is informed by the right information and policies. To effectively set up an ethical sourcing program, you need to start at the beginning with some key questions, including:

• Do you monitor for breaches in legislation, for example, Modern Slavery?
• Do you have rigorous workplace safety measures in place?
• If you were to ask your workforce about their job satisfaction (i.e. fair pay and work benefits), what do you think they’d say?
• Are you working with social enterprises and supporting local suppliers? Is your supply base diverse?
• Are you adhering to social governance protocols? Would you consider your organisation to be transparent?
• Are you investing in the tools and technology to support your ethical sourcing practices?

Though these programs can be effectively led by Procurement, it’s vital to ensure that other departments are involved in strategy and policy development. Not only this, but, as Justin Dillon, Founder/CEO at FRDM states, organisations also need to extend this assessment outwards to the supply chain, involving key stakeholders and driving ethical sourcing into the sub-tiers. 

This will enable Procurement to obtain better data from throughout the supply chain on performance, compliance with legislation and monitoring plans, rather than having too much of an inward focus.

2. C-suite Endorsement 

The expectations of an ethical sourcing program frequently seem to be contradictory to the fundamental aims of procurement. How do you support small and local suppliers if doing so is more expensive? Are margins reduced by the need to invest in tools and technologies to monitor and support ethical sourcing practices?

There is no simple answer to these questions, though there are strong arguments over the long-term costs for products and materials and how procurement ultimately adds value. However, because of these costs and implications, ethical sourcing programs must have C-Suite endorsement to succeed.

In the experience of Abid Yousuf, SVP for Professional Services at Avetta, truly successful programs have a partnership approach with internal stakeholders. As Abid says, “while the monetary costs initially may seem higher when you’re making decisions around ethical sourcing lines, in the long run organizations are much better off.”

The key, according to Yousuf, is shifting the focus from cost to value and getting input from other members of the C-Suite. For example, a CFO will be able to take data from key metrics to highlight the favourable value impact of ethical sourcing. Once the C-Suite sees this, their support will help champion programs and ensure organisational buy-in.

3. SMART Metrics 

When it comes to any strategic goals within an organisation, what gets measured, gets done. Ethical Sourcing is only going to succeed if it has objectives tied to it that are SMART – Specific, Measurable, Achievable, Realistic, and Timely. 

And, as with other strategic procurement objectives, these need to not only be applied to the process of finding and managing suppliers, but also to all internal procurement and cross-functional activities too.

If you are setting up an Ethical Sourcing program and still need to create some SMART objectives and metrics, then we have some good examples that you can follow below:

• Fraud and cyber corruption: 
  • Objective – Record and analyse using relevant technology, the number of attempted cyber attacks on the organisation over a 12-month period.
  • Metric – Reduce the overall number of cyber attacks and hacking attempts by 15% versus previous period by strengthening key IT security solutions.
• Transparency: 
  • Objective – Full compliance and adherence in the organisation to ESG principles
  • Metric – Complete full reporting on ESG and CSR annually, including all areas for improvement.
• Supplier Diversity: 
  • Objective – Procurement will increase the number of SMEs, Indigenous, and Third Sector suppliers it sources from.
  • Metric – Achieve a 10% increase in the total number of these suppliers; Achieve 10% of total spend with these suppliers.
• Modern Slavery: 
  • Objective – Implement technology to monitor Modern Slavery compliance in the supply chain.
  • Metric – 100% of suppliers signed up to Modern Slavery agreements and tracking; 0 instances of Modern Slavery across all levels of the supply chain

Creating, obtaining endorsement for, and continuously monitoring a comprehensive ethical sourcing program is no easy feat. However, not only will your organisation’s customers thank you, but you’ll know that you’re doing the right thing for everyone involved in your supply chain. 

We’ll leave the final word to Abid Yousuf – “Procurement has immense power to positively influence ethical sourcing. It (procurement) is the only organization who can incorporate social compliance requirements into their purchasing contract and … have the fiduciary responsibility to source from suppliers that share similar value. Now that you know you have the power to make a positive impact in your supply chains, please use that power for a good cause.” 

Want to learn more about the importance of implementing ethical sourcing strategies into your organisation? Our latest webcast, proudly produced with Avetta – Ethical Sourcing: How Can You Be Sure? – provided all the information and advice you could need. Don’t worry if you missed it – you can catch up any time by clicking here.