Ethical Sourcing and Its Benefits

Ethical sourcing refers to, ensuring that the products and services being sourced are developed in safe and hygienic environment by laborers who are paid fair wages and well treated to work during legal hours. It is a critical component of corporate social responsibility. The main goal here is to use a supplier who incorporates principles of morality in production conditions, including proactively trying to minimize harm to and/or exploitation of the environment and labor. When done correctly, ethical sourcing minimizes the risk of failure considerably within the supply chain.

Key points to ethical sourcing:

Here are some key points that organizations should follow when sourcing products and supplies ethically. They include:

a. It is important to visit suppliers frequently to check if they are doing, what they say they are doing. Look for, if their production is hygienic, safe, and sustainable.

b. Check if the supplier will be able to deliver products with the same quantity and quality for several months down the line.

c. In case, if you are not able to visit the supplier personally, then make sure you ask them the above key questions. If possible, visit another company that source from the same supplier to check the quality of products supplied by them.

d. Look around for necessary information about the supplier, and check their websites too.

e. Word of mouth- check what other similar manufacturers are doing and from where do they source from.

Benefits of ethical sourcing:

Early adopters of ethical sourcing gained a lot through this practice. With technological advancement, ethical sourcing is gaining advantage now-a-days in a much larger scale. Such benefits include:

a. Market image:

Perception about a company in the minds of a consumer and their buying habits is largely influenced by how an organization conducts business. The last thing an organization wants is negative or adverse publicity. A small child labor issue or environmental issue can have a far reaching impact on an organization’s public image apart from its market standing.

b. Bottom line impact:

Better supplier relationship, improved cost structures, and reduced risk exposure are the most common benefits that companies gain from ethical sourcing. The reason is that, these companies put more effort in allocating time and resources to make sure these supplies are up to or more than moral standards, thus providing organizations to reap all these benefits.

c. Cost advantage:

When sourcing supplies ethically, companies focus on product safety and improved process controls, thus enabling better monitoring of supplier scorecards and contract handling. This provides companies with the potential to minimize suppliers and above all, product/service failure rates will fall down, thus improving the overall cycle time. This factor is very important during declining sales or recession times as Chief Financial Officers are under the pressure to minimize cost and enhance margins.

Ethical sourcing can definitely provide the much needed margin improvement during tough economic times. Sourcing ethically is not a new-fangled approach, but is a potential channel that organizations can implement it to enhance their public image and minimize waste.