Building ethical supply chains

As we approach 2023, it’s clear that most American consumers — and businesses wishing to sell to those consumers — want to ensure that goods and services come from ethical and sustainable sources.

A growing segment of consumers have become educated and engaged in environmental, social and governance (ESG) initiatives and are letting their activism guide their buying behavior. According to a recent study, 93% of consumers surveyed believe that social and environmental issues are more critical than ever, and 88% now take into account the impact on the sustainable development of the company and its partners (i.e. i.e. its supply chain) before buying from it.

And yet, despite this growing sentiment, most companies still only have visibility into their tier-one suppliers. Their longer-distance view of their suppliers’ suppliers tends to be hazy at best.

Understanding tier one, tier two, and tier three suppliers (suppliers to their suppliers’ suppliers) can be incredibly complex, but for US businesses, it’s now a legal requirement. Shipments of goods from certain regions to US ports may now be halted due to concerns about how products were made, with what materials and by whom.

Ethical Sourcing Requires Supplier Visibility

As organizations review their supplier base, some instances of strong sustainability and environmental policies and practices will be evident. Many providers will already make public statements about their operations in their quarterly and annual reports. Companies should start by reviewing the maturity of their vendor initiatives to determine which of them should be reviewed.

The technology can improve supplier visibility by screening manufacturers and automatically flagging changes in their profiles based on first-party data, public information, and news. Supplier relationship management software often uses a supplier survey mechanism to collect information such as critical capabilities and certifications from internal staff and external partners. This allows organizations to easily detect potential risks and monitor their suppliers’ compliance.

Engage with problematic suppliers

Most companies have long-term, strategic relationships that require high levels of commitment, which means continuous feedback on processes and standards to ensure they are working as efficiently as possible. When problems arise, communication becomes even more important. Organizations should engage with problematic strategic suppliers and communicate their own brand standards and ethical stance informally, as well as in more formal procurement documents and supplier agreements.

The objective should not be to exclude suppliers who do not respect the highest code of ethics. After all, there are good reasons to choose the supplier in the first place – be it quality, cost, performance, etc. Instead, it’s best for buying organizations to partner with these vendors and align them with their own brand values. This requires understanding where suppliers are, explaining your goals and priorities, and then engaging with suppliers to drive continuous improvement.

Consolidate to reduce risk and better manage expenses

Through the process of strategic supplier engagement, a long list of lesser suppliers accumulated over time can emerge. Supplier consolidation can reduce the potential for ethical violations in the supply chain, while increasing an organization’s influence over supplier business practices. Too much consolidation can limit supply chain flexibility and lead to shortages, but reducing the long tail of the supply base can help companies manage spending and reduce risk. They must navigate between too few and too many supply chain partners.

Adopt transparent technologies

Technology can help with supplier referrals, relationship management and global trade compliance. Much of this technology has been around for years. But there is also a new generation of blockchain-based services designed to increase transparency between an organization and its suppliers.

Managing vendors on a blockchain-based distributed ledger allows purchasing companies to validate a product’s batch, lineage, and provenance, capturing every stage of the product’s lifecycle on a tamper-proof ledger.

For example, the use of Internet of Things (IoT) sensors and a blockchain-based track and trace solution (from raw materials to finished product) would allow an organization to see if incoming components come from of a problem area and trigger a discussion. on the origins of the component. When it comes to compliance with existing and emerging laws, this immutable record of each component’s journey to the final product could validate claims of origin and avoid shipping disruptions.

Additionally, there is a growing demand for supply chain risk management software, which often uses AI and machine learning to monitor an organization’s supply chain partners and detect vulnerabilities. . These can be additional software that needs to be integrated with existing supply chain systems or, as in the case of Oracle, risk assessment capabilities that leverage public data sources for potential risk events. , pre-integrated into core supply chain systems.

Sell ​​your supply chain

Consumer pressure does not subside and the risks of inaction include damage to corporate reputations and legal exposure. You can see several startups prioritizing ESG and promoting ethical sourcing as a key differentiator against larger competitors with more established and complex supply chains. Ultimately, brands now sell their supply chains as much as they sell a product or service.

As companies rush to comply with new regulations and consumers become more aware of sustainable development practices and demand ethical and environmentally responsible sourcing, companies must provide more transparency on working conditions and environmental impacts of their suppliers. This means that companies cannot afford to ignore obscure practices that may exist in their supply chains.

About Robert Wright

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