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Why Companies Should Set Ethical Sourcing Standards Above What’s Required

Resource management is one of the hallmarks of a well-run business—whether human resources, capital, fixed assets, materials or time.

But as globalization grows and supply chains are more interdependent on multiple links than ever before, expectations for how to manage external resources broaden, too. Consumers and regulators increasingly expect companies to source and produce goods ethically and sustainably—and, more and more, they’re able to see if they don’t.

No matter the industry, everyone is familiar with certain aspects of supply chain sustainability and ethical production programs: maintaining air and water quality, reducing water use, using land and other natural resources responsibly, and producing and releasing less toxic waste. But there are other important factors to consider too, such as human rights abuses and child labor in the supply chain.

A single guiding principle underlies all these factors: it matters how you source and produce your products. It matters to regulators, it matters to consumers, it matters to employees, and it should matter to you.

More and more, companies realize this, and top business schools now include these topics as core components of management programs that will shape leadership in the coming decades. In early 2019, American company Mars Wrigley released information on its Tier 1 cocoa suppliers and promised to follow with details on its Tier 2 and Tier 3 suppliers. It further committed to working exclusively with suppliers that share the company’s commitment to a sustainable, fully traceable, deforestation-free cocoa supply chain by 2025.

Around the same time, Target announced new initiatives to align its suppliers with its sustainability goals in an effort to reduce the company’s greenhouse gas emissions—96 percent of which come from the retailer’s supply chain. Likewise, German automaker BMW recently announced it would buy all cobalt for its electric vehicles directly from mines in Australia rather than from suppliers in the Democratic Republic of Congo, which have been linked to human rights abuses from militant groups in the region.

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For every organization, when it comes to ethical and social compliance, the question is no longer, ‘Should we do this?’ but rather, ‘How deep do we go?’ It’s also critical to remember that even though doing the right thing is important, being able to demonstrate that you did is also important.

Government agencies and consumers alike expect you to put teeth to your ideals. While brand risk remains a significant threat for companies that don’t have full visibility into their supply chains, regulatory risk carries the potential for huge fines. In addition, regulatory risk can quickly morph into reputational risk, compounding an already serious problem as headlines about seizures and violations kill stock prices, scare off consumers and create pressure for a change in company leadership.

Simply saying, ‘I didn’t know,’ isn’t an adequate defense. Consumers won’t buy it, and ignorance certainly won’t get you out of a legal bind. As your brand and share prices suffer, competitors who’ve made sustainable and ethical sourcing a priority will step-in and fill the void you left behind. Government agencies can place holds on your goods and will release them only if you can prove these products were not made by forced labor, which typically requires a certificate of origin and a detailed statement showing evidence that forced labor was not involved, such as a supply chain audit report.

The ability to quickly trace a product to its source via an automated supply chain execution system is necessary in these circumstances.

The complexities of global supply chains can’t be understated, but that doesn’t mean social and ethical compliance is impossible. Companies that implement a consolidated global trade management solution that connects the trading partner community with product data and retailers’ purchase orders can achieve better results. To reach this level of traceability, you have to integrate the technology solutions you already use with a stronger collaborative platform. Having a technology solution working for you will help you navigate this new era of social and ethical compliance.

There are several other steps you can take to be proactive in building the sort of traceability programs you need.

  • Leverage technology systems to manage trading party and service provider data.
  • Build strong and collaborative relationships with your suppliers.
  • Participate in trade associations and other groups to share while learning from others.
  • Consult experts with industry knowledge to help.

A software solution for global sourcing and supply chain collaboration can help you get visibility into key aspects of your sourcing and production operations, including managing relationships with suppliers and audit companies. These capabilities help ensure traceability, transparency, and compliance and establish an essential level of accountability. A solution like this can help you protect brand integrity, avoid regulatory blowback, and reduce unexpected supply disruptions.

You’ll get a single version of the truth with document records that enable you to demonstrate due diligence and compliance with regulations, and showcase your company’s high ethical standards.

Daniel Smith is a product marketing specialist with E2open. His background in various industries provides perspective that connects global business challenges with technology solutions.