Is it profitable to prioritise ethics in your supply chain?

(As originally featured in Supply Chain Digital)

Ethical supply chains

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[1].

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[2]. 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.’

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About ediTRACK

Supply 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.

4 responses to “Is it profitable to prioritise ethics in your supply chain?”

  1. John Abraham says :

    Supply chain management is a critical area and appropriate ethical management of the same needs to be taken care of. One can use Global4PL supply chain services which helps businesses manage the risks and maximize the opportunities associated with the CHB/BIS audit of their company’s international trade in goods and services.

  2. Jen says :

    Ethical sourcing will be a point of contention among corporations as long as consumers continue to demand low prices. With the development of global supply chains, companies are able to produce goods at a fraction of the cost to produce them locally. Unfortunately, in many cases, this supports abhorrent work conditions, child labor, and unfair wages in many developing countries producing these goods. For many corporations, this is only a problem when these conditions can be traced to their supply chain by the press. No matter how many layers and third-party vendors come between the final product and initial manufacturing, the customer is ultimately driving the demand. That begs the ultimate question: how much responsibility do corporations have for its suppliers behavior?

    • ediTRACK says :

      Hi Jen, thanks for your comment. We agree that the customer drives demand and can therefore put great pressure on price, especially in a tough economic climate. It is also now more important than ever for corporations to build customer loyalty to have a differentiator other than competing on price alone. Corporations are still going to be the ones responsible for the goods they source – it can be very damaging to businesses’ reputation if they can only profit by having unethical supplier practices such as child labour. Bad news also spreads far more quickly in the age of social networks and global media coverage so consumers are becoming more informed. Recent research has shown that a growing number of consumers seem to be prioritising ethics over cost; with the shift in consumer priorities we’ve seen many large well-known corporations such as M&S and ASOS implement strong CSR strategies into their supply chains, both of whom reported strong resulting balance sheets. So it can be done, and it seems to be the big names leading the way!

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