Is it profitable to prioritise ethics in your supply chain?
(As originally featured in Supply Chain Digital)
Increased efficiency, reduced transport costs, positive company image and access to government incentive programmes: these are just a few of the rewards of a corporate social responsibility (CSR) strategy that takes supply chain issues seriously. Despite this, some businesses understandably hold back from fully integrating CSR into their supply chains, fearful that existing supply chains are too complex, too well established, and that it will be difficult and expensive to set up and maintain meaningful ethical practices. They’re concerned that making changes to their supply chain will negatively impact their bottom line, and so they choose profits over ethics – not realising that the two are no longer necessarily mutually exclusive.
The key is to integrate CSR into your supply chain as strategically as you would in other areas of your business, always with your commercial objectives in mind; as Marks and Spencer’s Robert Nuttall said, “Unless sustainability has a strong commercial outcome, it is by definition not sustainable.” Your sustainability strategy must be consumer and profit focused.
What are the cost benefits?
There are short-term and long-term cost benefits of prioritising ethical practices over immediate returns; retailers such as Lush and M&S have proven that it is possible to be ethical and profitable, with M&S making an extra £50m in 2010 through its ‘Plan A’ CSR programme. The key, it appears, is to build your CSR strategy solidly around your commercial goals.
So where do the cost savings and benefits come? In terms of operational costs, organisations can make changes that result in reduced transport costs, less waste, lower energy bills, increased efficiency and lower material costs.
From a reputational standpoint, organisations stand to gain customer preference and loyalty; customers prefer to buy from organisations they trust, and a genuine CSR commitment provides them with credibility and a competitive advantage – it’s a driver of revenue, stability, and shareholder value.
From an environmental standpoint a commitment to reduce or minimise greenhouse gas emissions, coupled with a voluntary disclosure of your emissions, can result in a higher share price as it enables the investment community to price environmental impact. Successful environmental policies can help mitigate risk and subsequently increase the market value of a company, producing positive returns to shareholders.
Another factor to consider is the financial impact that reputational damage could cause to your brand: companies that don’t have visibility of their supply chain risk significant consequences if unethical practices occur within it. Corporate ethical awareness is more than an attractive bonus; for many companies it’s now a fundamental part of their supply chain strategies, the costs of which are justified by the protection and potential enhancement of their brands.
Many consumers are prepared to pay a premium for ethical products, or products from a known ethical retailer. Retailers such as Lush, which prioritises ethical practices over sourcing low cost ingredients and labour, has consistently delivered strong business performance despite the recession.
Businesses can prioritise ethical goals without compromising their financial targets – it’s a case of rebalancing, focussing on long-term cost benefits, and finding an effective method to embed CSR meaningfully into their supply chains.
ediTRACK’s Ethical Trade module
Many retailers are seeking to increase transparency in their supply chains with the dual aim of becoming more sustainable and to protect their reputations, and ediTRACK’s Ethical Trade module is one way in which they can quickly and efficiency manage this. The Ethical Trade module provides a clear, easy to use dashboard from which to monitor the security of your supply chain, and track the provenance of your products, reducing the need for resource-intensive management and heavy admin.
Functionality and benefits include:
- Greater visibility of checks and audits
- Tracks relationships between suppliers and factories
- Coordinates factory audits and visits, and provides visibility of compliance
- Highlights urgent areas for attention
- Dynamic easy to use reporting dashboard
- Stores factory ratings in accordance with the ETI base code
- Supports ETI standards and automates required annual reports
- Automatically raises risk alerts for pipeline orders
- Manages factory risk and flags hot spots within your supply chain
Next month: read our blog post ‘How to profitably implement CSR into your supply chain in four steps.’
About ediTRACKSupply chain software company delivering web-based tracking solutions to help retailers and insurers manage suppliers and processes from; Sourcing, Sample Management, Ethical Trading, Product Development, Order & Shipment Management and Delivery.
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