6 Strategies to Improve Your Ethical Sourcing

Get to grips with the top ethical sourcing strategies to improve and advance your sustainable procurement programs, right here.

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The message has never been clearer to organisations – ethical sourcing is a must-have. 

From the pressure from investors and stakeholders, to the ever-increasing number of ethically minded consumers, it’s no longer an optional ‘nice-to-have’, or something to be considered half-heartedly. 

There remains significant progress to be made on the ethical sourcing front. For example, according to the International Labour Organisation (ILO), there are 16 million people being exploited in the private sector through forced labour. 

Ethical sourcing can have a galvanising effect on an organisation’s brand, be it a key differentiator and provide a competitive advantage, helping to increase market share, and even improve supply chain efficiency and reduce costs. What doesn’t it do, really?

As with so many of today’s top corporate issues, procurement is again at the forefront of these activities, driving a rising commitment to sustainable procurement and ethical sourcing since the early 2010s. Professionals know they need to ensure that supply chains are free from modern slavery and poor working practices, that suppliers pay fair wages, and that raw materials are purchased from sustainable sources.

The historical fear of required trade-offs from cost to risk no longer holds. Organisations with ethical sourcing programs already in place report reduced supply chain risks, improved compliance, higher employee satisfaction, and increased sales. 

So, with all these benefits, not to mention the fact that it’s the right thing to do, why do so many organisations have programs still in their infancy, or are even still stuck at the starting line?

They’re daunted by the prospect of change

A simple explanation: change on this scale is anything but simple. 

Currently, nearly two-thirds of organisations are yet to invest in supply chain sustainability and ethical procurement, or are only just getting their programs started. However, as motivations towards ethics and sustainability change, and organisations understand that ethical sourcing programs need no longer involve some form of cost trade-off, this looks set to evolve.

If you’re one of the organisations just starting out on this journey, I recommend you read Procurious’ recent ‘Sustainable Procurement Research Report’, sponsored by Ivalua. Not only will it assure you that you are not the only organisation in this position, but it has key learning points from organisations already managing successful programs, so you can avoid pitfalls and accelerate progress. 

Here are the best strategies of how to improve your ethical sourcing, based on report findings and my own experience working with many innovative procurement leaders.

1.   Look inside – ethical sourcing starts from within

Any drive to improve ethical sourcing practices needs to start internally. After all, organisations cannot expect their supply chains to embed processes and change behaviours if they aren’t already doing it themselves! 

Although procurement and supply chain leaders want to improve ethical sourcing because it is the right thing to do, there are increasing expectations from stakeholders, shareholders, customers, and even employees. The pressure is on, and it’s time to start seeing results.

Incorporating ethical behaviours and ethical sourcing into employee objectives and KPIs helps to bring initiatives and programs into sharp focus within organisations. These objectives and KPIs can even be linked to annual appraisals, and made part of the review process when considering internal promotions, giving employees some real incentive to make programs a success. Implementing this strategy demonstrates that leadership does not view ethical sourcing as a box checking exercise, but truly cares about results. It also incentivises the right behaviour, so employees need not decide between doing what’s right and what’s best for their bonus.

2.   Pull back the curtain and improve supply chain visibility

Once ethical sourcing behaviours are embedded internally, organisations need to turn their attention to the next key link in the chain – their suppliers. 

It’s no longer enough for procurement to only have visibility of their Tier 1 suppliers – it’s critical to be able to understand the impact all the way down through the sub-tiers too.

Supply chain visibility is the most important factor in establishing ethical and sustainable sourcing in organisations. However, it’s an area that needs significant improvement. 

• Only 15% of surveyed organisations are monitoring 75% or more of their Tier 1 suppliers, with just over half monitoring 25% or more. 
• Going beyond Tier 1 and the numbers fall drastically, with just 3% monitoring any of their sub-tier suppliers.

Supply chain visibility is extremely important, because it helps to identify gaps and areas for improvement within the supply base, as well as helping supplier engagement in ethical sourcing programs. 

By making suppliers in all tiers fully visible, there is no place for unethical suppliers to hide – what’s more, any unethical behaviour, on both buyer and supplier sides, will become immediately apparent.

Success here requires defining the right processes and communicating expectations with Tier 1 suppliers.

3.   Let’s get ethical – put ethics at the centre of sourcing decisions

Now we’ve established that greater visibility of the supply chain is critical, selecting the correct suppliers – those who buy into the ethical sourcing programs – is the natural next step organisations need to take. In order to bring the right suppliers on board, your teams should be placing ethics at the centre of its responsible sourcing decisions and increasing the weight of sustainability and ethics in tenders.

What’s more, organisations may choose to put this as a mandatory requirement for suppliers to meet, either in process, practices, or certification. This is an excellent strategy, as it will help in promoting behavioural change in the supply base – suppliers will be making changes in order to be considered for key contracts, being kept as an approved supplier, and even being a more attractive supplier for new markets. It will get them actively thinking about ethical sourcing and assessing the sub-tier suppliers in turn. The ethical cogs will start turning, and it all starts with setting the right expectations!

4.   Don’t go it alone – collaborate with your suppliers

The reality is that we all have room to improve when it comes to ethical sourcing. That applies to suppliers as well, so to support ongoing improvement, collaboration is key.

Collaboration with suppliers to change – and improve – ethical behaviours and practices is seen as one of the top strategies for measurably improving performance in this area. Half of all organisations surveyed in the Procurious and Ivalua research report believed that significant investment in a collaboration program, or in expanding Supplier Relationship Management (SRM) capability, will improve performance on ethical sourcing.

It is important to take note that mandatory requirements, KPIs, and enforcing responsible sourcing initiatives will only take an organisation so far. It may help to weed out the bad apples and suppliers who aren’t willing to make these changes, but it won’t necessarily help to embed these practices and make a lasting change. 

So, this is where supplier collaboration comes in – a strong engagement strategy involves bringing a key stakeholder into the program at the start of the process, providing alternative points of view and new ideas throughout, and empowering the stakeholder with a sense of ownership concurrently.

Ethical sourcing is much more likely to succeed if suppliers have this ownership and involvement, making them more likely to stick to it in the long run.

5.   Keep your eyes on the road, measure supplier performance

This brings us to the notion of ‘what gets measured, gets done’. 

One previous strategy has already highlighted the benefit of internally measuring employee performances, so the same benefits will be realised by having ethical sourcing and sustainability as key KPIs on contracts. In the Procurious/Ivalua survey, 50% of organisations with advanced programs believed that this would have a major impact on ethical sourcing, yet only 33% were actually doing it.

So, what can you be doing to measure up? 

• Ensure that all parties are getting measured on performance against agreed objectives. 
• Then, when these objectives are achieved or become obsolete, set new ones as part of a continuous improvement process. This helps to keep everyone on track, and keep the process up to date.

6.   Don’t forget the tech – technology underpins everything

Finally, make sure that some of the investment in ethical sourcing programs is put towards a viable technology platform that will help to manage the process. Technology is a critical enabler to most of the strategies listed above and integral to successful programs at ESG leaders. For example, some of the ways a gold standard platform supports ethical sourcing include:

• Optimising supplier selection: embedded sourcing optimisation technology helps minimise or eliminate any trade-offs, and save time evaluating supplier scenarios.
• Assessing and monitoring performance: unifying supplier records across the organisation and marrying internal, supplier-provided, and third party data. This will  provide a 360 degree view when evaluating new suppliers or measuring performance of existing ones.
• Assessing sub-tier performance: suppliers can upload their supplier details into the system, enabling teams to map out and visualise their sub-tier supplier networks.
• Collaborating to set targets and improve performance: integrated collaboration tools allow teams to communicate and securely share information with internal stakeholders and suppliers. Automated action and improvement plans notify stakeholders of updates or deadlines.

To learn more about the growing movement towards sustainable procurement and ethical sourcing, check out some of Alex’s other articles with Procurious:

• Generating Significant ROI: Strategies to Bring Your Sustainability Program From Beginning to Advanced
• How to Supercharge Supplier Diversity Initiatives with Technology

We know sustainable procurement has big pay-offs.

That’s why this year’s Big Ideas Summit Chicago will focus on sustainability. We’re ready to empower businesses to lead the charge to establish greener supply chains and procurement processes.
Our Big Ideas will be delivered by internationally renowned speakers to our fully digital event. So what are you waiting for? Register today to secure your place!