Supply and demand: Do you have an ethical supply chain?

Evan Rudowski
Oct 5, 2018 · 9 min read
Photo by frank mckenna on Unsplash

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Ethics are a key driver in consumer decision-making. Though that’s a statement we hear a lot, it’s no subjective assumption: there are enough studies and statistics backing it up.

And while it’s not necessarily the case that Millennials and younger generations are, by virtue of their birth, more ‘ethical’ (evidence shows that generations Y and Z in particular are more likely to purchase from a purpose-first place), they do have a greater understanding of their power as consumers. According to a 2017 Unilever study, more than a third of all consumers are now buying from brands depending on their social and environmental impact.

That’s the summary, anyway — drill down, and the story varies by industry.

Perhaps unsurprisingly, fast-moving consumer goods are leading the way in terms of sheer variety and exposure — in the UK, the Ethical Consumer’s Market Report showed a 9.7% growth in ethical food and drink at a time when conventional brands were struggling. Globally, the picture is improving; Euromonitor International found that 65% of worldwide consumers now ‘try’ to make a positive difference with their everyday purchases.

Elsewhere, there is still a disconnect between consumers’ theoretical and actionable desire for sustainability. Take the fashion industry: despite high-profile social media campaigns — from #whomademyclothes to #insideout — and a majority interest in ethical fashion, 20.2% refuse to pay a premium for it, citing lack of choice and lack of visibility. On the road towards mainstream sustainable consumerism, both are stumbling blocks.

Nevertheless, the takeaway for businesses large and small remains this: given a viable (affordable, desirable, and otherwise like-for-like) option, most consumers would prefer to buy from companies that act responsibly towards both people and planet.

While this undoubtedly presents challenges across all business functions, nowhere is the pressure more pronounced than in procurement and supply chain management. What might have once been a ‘back of house’ business function has been thrust into the limelight with consumers’ desire for sustainability extending all the way from source (raw product) to story (how a product’s journey is communicated).

Supply chain sustainability: success stories

Businesses cannot effectively — and certainly not ethically — ‘sell’ stories of sustainability unless they first know themselves the exact route their products take to market. There have been enough scandals — from horsemeat to steel — for businesses to understand the importance of total supply chain visibility.

But with every threat comes great opportunity — opportunity, according to Unilever, to the tune of $966 billion — for brands who can truly embed integrity into every aspect of their businesses and, crucially, communicate that message outwards. The business case is clear: there are both moral and long-term monetary gains to be had from having an ethical supply chain.

While Patagonia is probably the most commonly cited example of a brand built ethically from the ground up, you don’t have to be ‘born-green’ to ensure that neither people nor planet are harmed in the making of your product.

Since the implementation of its Responsible Sourcing Policy in 2017, the world’s largest brewery, Anheuser-Busch InBev, has reported a revenue growth of 4.7% in the first quarter of 2018, citing strong brand uplift which it attributes — at least in part — to its formalised commitment to sustainability. Similarly, when Levi Strauss & Co. made an investment to help suppliers reduce their carbon footprint by 20%, they saved more than $1m in operating costs. And back to Unilever once more whose sustainable living brands grew 46% faster than the rest of its business in 2017, delivering 70% of its annual turnover growth.

It’s important to recognise that while big name multinationals can ‘talk the talk’ very convincingly, there are often other stories lurking beneath the ‘green-washing’ — and Unilever in particular is no stranger to supply chain scandal.

That said, achieving and maintaining an ethical supply chain is no easy task. Slip-ups happen because supply chains are by definition complex — and moving — feasts. The Baptist World Aid Ethical Fashion Report cites a huge increase in the proportion of companies — from 49% in 2013 to 81% in 2017 — taking active steps to trace their supply chains. Despite this, only 7% knew where all their cotton was manufactured.

As historically horrifying as the abstract concept is, modern day slavery is a real and present danger for over 40 million vulnerable workers and children worldwide. Whether we’re talking about children in a far-flung factory or foreign workers exploited in plain sight, modern day slavery exists in every country and every industry worldwide.

Most shockingly, when the practice is exposed — as with the 2013 Rana Plaza Disaster and the trafficking within the billion-dollar seafood industry — it often emerges that the brands implicated are entirely unaware of the reality hidden within their supply chains. Ignorance can no longer be an excuse — but, amid reports that the FTSE 100 are not doing enough to combat modern day slavery in their supply chains, what exactly does ‘enough’ look like?

In slavery terms, each country has its own various acts, protections and regulations: the UK’s Modern Slavery Act 2015 is often seen as a trailblazer upon which Australia’s Modern Slavery Act 2018 and France’s Due Diligence Law have followed suit. In the US, Fair Labor Standards can prohibit goods being transported if they have been produced using child labour. But often — as is the case under the UK act — these rules only apply to larger businesses, with multi-million turnovers, to take publicly visible steps to eliminate both slavery and other human-cost consequences within their supply chains.

Specific issues: from pollution to provenance

Naturally, having an ethical supply chain isn’t just about eliminating slavery — though it’s safe to say that’s a given. Provenance is of increasing importance — and something I’ve talked about before. Consumers want to know where something has come from, and trust that brands have both the integrity and knowledge to understand and communicate that outwards.

Health and safety is also a key concern: consumers have the right to expect that not only are they protected in their purchases, but that the workers making their product have been, too. A decade ago, toy manufacturer Mattel fell foul on both fronts as it emerged that suppliers in China had used lead paint on over nine million Barbie dolls. More recent examples abound: from the use of chemicals in viscose manufacturing to drug ingredient alerts. Worker safety, training standards and protective measures are the responsibility of businesses to identify and address.

From a human and labour rights perspective, there are further issues still. The use of recruitment fees charged to migrants — which put low-wage workers indirectly (if not directly) at risk of slavery — is something that the British Retail Consortium have collectively battled to eliminate from their supply chains. Meanwhile in the electronics industry, HP implements strict supplier guidelines to protect the rights of student and temporary workers in China.

And finally, an examination of all the many problems that can (and do) occur within supply chains would not be complete without talking of the environment. Perhaps we can thank David Attenborough for the change in tide since — by and large — consumers are no longer content to ignore the environmentally destructive by-product of simply living and consuming; in June, millions participated in a global 24-hour boycott on plastic packaging. Businesses can no longer be complicit in the destruction of nature for the price of profit.

The common thread in all these potential pitfalls is the need for a far more radical kind of transparency. When even the simplest of single-product commodity supply chains can contain within them several tiers from ‘picking to plate’, how can businesses know who its subcontractors are? Moreover, tasked with constantly moving environmental, political and market conditions, how and where can businesses start?

Solutions: from certification to ethical audits

One of the main safeguards to supply chain sustainability are certification standards — of which there are many (463 in 199 countries, to be precise). But they, too, are flawed: because they address only one part of the supply chain, there are often missing links — and too often, the pursuit of one can lead to the loss of another. Multiple ethical failings have been publicly reported in schemes ranging from the Marine Stewardship Council to the Forest Stewardship Council and the Responsible Jewellery Council.

So if labelling and certification isn’t quite the ‘cover-all’ safeguard that many consumers expect it to be, how else can companies interrogate and protect their supply chains?

The answer lies in ethical audits. Taking a holistic approach to your business audits brings the responsibility for what’s happening within your supply chain out of the hands of governments, individual countries and certification schemes, and back firmly at your door.

It is no longer enough to simply include a ‘nod’ towards sustainability as part of your annual business report. Recent research from KPMG shows that while 84% of companies discuss the UN’s Sustainable Development Goals in their reporting, fewer (34%) are tying them to business-related actions. Conducting an ethical audit can help protect against this disconnect between intention and action.

But if you haven’t done an ethical audit before, where do you start and how can you translate this knowledge into action that will protect our planet, its people, and your own profit, while future-proofing your business for generations to come?

First, businesses need to establish — and formalise — a code of conduct/ethical manifesto/sustainability statement that is inextricably tied to business goals. This will require an understanding of the current status, regulations and implications of not only your base-country, but in every country along your supply chain. Some hire an external ethical auditor, and that’s fine as long as you retain and practise the same internally at all levels.

Next, you’ll need to establish and map out your entire supply chain. It’s a big ask, even for small to medium-sized businesses. And though it’s easy to buy into the ‘smaller is simpler’ myth, the reality is that a tiny regional airport (Cornwall Airport Newquay, for example) could perfectly feasibly procure its security scanners from the same suppliers — and via the same tiers of contact — as Dubai International, the world’s busiest.

On a practical level, that might mean conducting site visits — not only to your contractors, but also to their subcontractors — and be armed with clear standards for supplier engagement.

It will also mean capturing data linked to your ethical strategy across key areas of your supply chain; from provenance and transparency, to worker safety and occupational health, to environmental and trafficking concerns.

It’s a laborious task and one which tech has risen to the challenge of with a multitude of programs — including AI, blockchain technology and SaaS tracking solutions — to help businesses track their production processes. Setting aside for one minute the fact that the online industry has — on some level — enabled human rights abuses to happen in the first place, the power of tech for good is coming up trumps when it comes to supply chain management. After all, data is, by very definition, transparency. ChainPoint is just one of these tools — Anneleen Velduizen, business development manager, says: “If you want to have an ethical supply chain, you first need all the information to build trust.”

Most importantly, businesses need a clear plan for corrective action if issues are uncovered — do you intend to work with the supplier to persuade them to change — empowering them to work around issues with you — or will you simply take your business elsewhere? Sony defines clear standards for suppliers of chemical substances through its Green Partner Programme, and walks the walk by ditching those who cannot or will not comply. On the other hand, General Manager of SAP Ariba, Tony Harris, says “the aim should be to help improve practices in these areas, as opposed to catching them out.”

But, however you display your commitment to ethical supply, you need to apply it consistently.

While one SME on their own might not have the sway to influence supplier behaviour — particularly two or three tiers down the line — many mid-sized businesses are collaborating with competitors in order to enact change on a grander scale. Louise Nichols, head of Responsible Sourcing and Plan A at Marks and Spencer, advocates this approach, citing “effective communication with suppliers, participation in working groups, and collaboration to discuss common challenges” as the way forward.

Effective ethical auditing, particularly when enacted on a collective scale — as with the British Retail Consortium, Responsible Business Alliance, Drive Sustainability Network and more — sends a strong message to suppliers that times are changing.

But while an ethical audit should certainly be the starting place, is compliance only half the battle? A 2016 report from the Sheffield Political Economy Research Institute found that “ultimately, the audit regime is ‘working’ for corporations but failing workers and the planet, and are an ineffective tool for detecting, reporting and correcting environmental and labour problems in supply chains.”

Nevertheless, occasional accidental blind-spots are infinitely preferable to the deliberate turning of a blind eye by anyone’s estimation. And, while it’s true that auditing alone won’t change the world, it is the first step towards a business world in which everyone is held to account, and knowledge is shared for the common good of people and planet.

The second step is to tell the world about it. And that — if Unilever is to be believed — will bring dividends.

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