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Building an Ethical Supply Chain

The growth in outsourcing of manufacturing worldwide has resulted in increasing ethical problems in the supply chain. Consumer concerns about the environment, health, and safety of supply chain practices have pushed organizations to be more accountable, and maintain corporate social responsibility (CSR) initiatives. Inevitably, concerns in these areas influence whether a consumer decides to purchase a product or service, or not. Learning how to take a structural approach to ethics allows organizations to enhance and build global supply chain excellence. 

To be, or not to be, an ethical supply chain

Frequently, companies choose to outsource production to low-wage countries. This saves costs. However, labor laws in many countries may not comply with labor standards of the organization. This kind of outsourcing can have devastating consequences on the corporate brand since consumers are more demanding and knowledgeable of the sustainability behind the products or services they consume. Negative publicity can harm the organization's image and, consequently, lead to a loss of revenue.

On the other hand, achieving an ethical supply chain implies higher costs for raw materials, labor, and manufacturing done under strict labor standards. Support from top management is of paramount importance in building an ethical supply chain. Choosing suppliers must be based on well-balanced criteria, in line with the ethical guidelines of the organization. Often, unethical behavior of one supplier along the supply chain results in serious consequences.

When supply chain managers have vision and strong ethical character qualities demonstrating leadership in sustainability and CSR, those initial higher costs mentioned at the beginning might translate into long-term great benefits in profitability since consumers more frequently support ethical supply chains.

According to Professor Christopher Tang from UCLA Anderson School of Management and Supply Chain Movement, creators of the Mindmap for An Ethical Supply Chain (PDF), the solutions for an ethical and profitable supply chain include:

  • Support from top management
  • Comprehensive vetting process
  • Balanced supplier selection
  • Improved supply chains

The benefits of building an ethical supply chain

According to research conducted by Software Advice on Key Priorities for Ethical Supply Chains (PDF), “consumers say they would pay 27% more for a product normally priced at USD 100 if it were produced under good working conditions.”

The findings also revealed that “consumers were split on whether improved working conditions, community involvement, or environmental efforts would most convince them to buy from a firm.” Moreover, “twenty-eight percent of consumers said reducing water usage was an environmental initiative that would make them more likely to purchase a company's product.”

The benefits of building an ethical supply chain result in increased competitiveness, improved revenue, and better brand reputation while decreasing cost and risk. A balanced supply chain achieves profitability creating a clear business case for corporations while maintaining social and environmental strong commitments. Ethical supply chains contribute positively to the overall development and betterment of an organization and a more sustainable and ethical society which benefits everyone. 

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