As modern supply chains continue to become more complex and extended, affecting more and more people and environments, companies should not shirk from their responsibility to source responsibly. But what exactly is responsible sourcing and what does it entail?
The International Chamber of Commerce defined the concept as ‘a voluntary commitment by companies to take into account social and environmental considerations when managing their relationships with suppliers’.
Zorzini et Al. in a 2015 journal article in the International Journal of Operation & Production Management expands on this concept by stating that the concept of responsible sourcing is based on the older concept of the Triple Bottom Line which argues that businesses must consider the wellbeing of employees, the wider community, and the environment in order to flourish.
Therefore, responsible sourcing essentially comprises three key aspects - a respect for people, a respect for the environment, and an adherence to ethical practices.
Respect for People
When fostering a sense of respect for people, companies must work towards eliminating any and all violations of human rights by suppliers while also promoting a sense of diversity.
Among the most pressing human rights violations that must be identified and eliminated from any supply chain is the use of child labourers and forced labourers. Furthermore, reasonable working hours and the right to unionise are rights that must be protected by prospective suppliers.
Additionally, Zorzini et Al. also discuss the importance of safety in the work environment, with required safety standards being met and health and safety training being regularly conducted. The 2014 Rana Plaza factory collapse in Bangladesh - wherein over 1,100 people died, and 200 people injured - is proof enough of the devastating effects a lapse in safety standards can have.
On the other hand, the benefits that promoting diversity has on a company, let alone an entire supply chain, cannot be underestimated. According to U Penn’s Wharton School of Business in an article in the Wharton Magazine and as previously covered in a past blog article, promoting diversity, in addition to protecting women’s, ethnic minorities’, and LGBT rights by choosing suppliers that share these beliefs, can help further innovation within the company and supply chain.
Respect for the Environment
Unlike some definitions of responsible sourcing that focus solely on either social responsibility or environmental responsibility, Kusu believes that both social and environmental sustainability should comprise responsible sourcing.
This is especially considering how large of an impact consumer goods supply chains have on the environment, for example, with 80% of water loss, 60% of greenhouse gas emissions, and 67% of deforestation associated with these supply chains according to an SSRN article written by Ramchadani, Bastani, and Moon in 2020.
Understanding the environmental impact a supplier can have has only become increasingly more important. A Nielsen survey from 2017 stated that 81% of respondents feel strongly that companies ‘should help improve the environment’.
Furthermore, in a different Nielsen survey from 2018, 73% of consumers stated they would change their consumption habits to reduce their environmental impact. The latter statistic only goes to reaffirm how irresponsible sourcing can lead to a loss of revenue.
Adherence to Ethical Practices
Adherence to ethical practices - such as transparency, authenticity, and trust, to be more specific - is the last but perhaps the most important aspect of responsible sourcing as there is essentially no other means of ensuring a respect for people and a respect for the environment are undertaken by suppliers.
Transparency is necessary in managing relationships with suppliers as supply chains continue to become increasingly complex. To avoid the risk of irresponsible sourcing, the Harvard Business Review in an article from 2020 recommends that companies be aware of who their lower-tier suppliers are or have first-tier suppliers disclose who their suppliers are.
The Harvard Business Review goes on to say that ‘...most lower-tier suppliers are not well known, so they receive little attention and pressure from the media, NGOs, and other stakeholders… They tend to act [responsibly] only when MNCs [or buyers] intervene’.
Authenticity is necessary not just in ensuring effective communication between a company and its suppliers, as explored in a previous article, but being clear on what values a company expects of its suppliers also helps ensure a greater level of social and environmental responsibility.
Furthermore, a sense of trust is paramount in order to ensure transparency and authenticity. Without trust, it would be impossible to foster transparent and authentic business practices. However, to further a sense of trust, transparency and authenticity between a company and its suppliers are necessary.
Benefits of Responsible Sourcing
Despite the common misconception that companies only incur costs when sourcing responsibly, companies that participate in responsible sourcing can expect to gain numerous benefits. For one, companies can expect their brand image to improve and their commitment to CSR reaffirmed.
Furthermore, according to a 2016 journal article by Guo, Lee, and Swinney, in the journal Management Science, companies can attract a new customer base, one mindful of social and environmental sustainability. More and more customers have become increasingly committed to products with high-quality/safety standards. In fact, a 2018 Nielsen survey stated that 49% of customers say they are willing to pay more for products with high-quality/safety standards.
In addition, responsible sourcing can help in reducing unnecessary costs associated with irresponsible sourcing such as additional monitoring or auditing, repairing environmental damage, product recalls, etc. Guo, Lee, and Swinney go so far as to state that major responsibility violations can even ‘lead to direct costs equal to, on average, 0.7% of firm revenue’ to be more specific.
Ultimately, failure to implement the principles of responsible sourcing within a company can have significant societal, environmental, and ethical ramifications, in addition to financial ramifications.