Ethical Sourcing – The New Fad or Consumer Demand?

With the ongoing changes and developments in international trading and more eco-friendly consumer demands, the concept of ethical sourcing has surged to the forefront of business strategy discussions.

Kathleen Harmeston, a Senior UK Procurement Expert (FCIPS) and Non-Exec Director – CEO, CXO, CPO, and Advisory Board Member explains what exactly do we mean by ethical sourcing and how has it become a cornerstone of contemporary business practices in 2024?

Defining Ethical Sourcing

At its core, ethical sourcing embodies the commitment to procure goods and services in a manner that is respectful to the environment and beneficial to the people involved in the production process. It’s about ensuring that the supply chain, from raw materials to finished products, adheres to principles of fairness, sustainability and respect for human rights.

Companies are waking up to the fact that sustainable procurement strategies can drive positive change and enhance brand reputation along with fostering customer loyalty. From implementing fair wage policies to ensuring safe working conditions and minimising environmental impact, businesses are taking comprehensive steps to ensure their supply chains reflect their ethical standards.

Ethical Sourcing in Practice

How widespread is this practice and what does it look like in real terms?

Actively managing ethical sourcing involves dedicated teams within procurement functions whose main task is to screen the ethical practices and processes of primary suppliers, and their supply chains, pre and post tendering.

Here are some recent examples that highlight the breadth and depth of ethical sourcing initiatives across various industries:

• MIA Chocolate Brand’s “Fairmade” Ethical Sourcing Movement: MIA, a pioneering chocolate brand, has taken a significant step by creating the “Fairmade” label, emphasising not just fair trade but the broader aspects of ethical sourcing, including environmental sustainability and economic empowerment for local communities.
• Unilever’s Sustainable and Regenerative Sourcing: Unilever, a global conglomerate, has been at the forefront of integrating sustainable sourcing practices across its vast portfolio of products. Their commitment to regenerative agriculture and sustainable sourcing methods showcases the potential for large corporations to lead by example.
• Taylors of Harrogate’s Focus on Supplier Resilience: The British coffee and tea maker has prioritised building resilience within its supply chain, emphasising the importance of ethical sourcing in ensuring long-term sustainability and quality for its products.

These examples underscore a crucial point: ethical sourcing is not a passing trend but a fundamental shift in how businesses approach their supply chain management. It reflects a growing recognition of the interconnectedness of our global economy and the responsibility of businesses to contribute positively to sustainability.

Consumer Attitudes Towards Ethical Sourcing

Evidence suggests that consumers genuinely care about the ethical credentials of the products they purchase. Consumers are increasingly voting with their wallets, favouring brands that demonstrate a commitment to ethical practices. The joint McKinsey and Nielsen IQ study found that products making ESG-related claims averaged 28% cumulative growth over the past five-year period, versus 20% for products that made no such claims. This shift in consumer behaviour is driving companies to adopt more transparent and responsible sourcing strategies.

Ethical sourcing is far from being a mere fad. It’s a reflection of a deeper consumer demand for transparency, fairness and sustainability. As we move forward, it’s clear that ethical sourcing will continue to shape the landscape of global commerce, challenging businesses to innovate and adapt in their pursuit of a more equitable and sustainable future.

Diverse Approaches to Ethical Sourcing

Ethical sourcing is not a one-size-fits-all concept; it encompasses a range of practices tailored to address specific challenges within different sectors and supply chains. Among these, two noteworthy approaches stand out:

• Employment Focus Procurement: This innovative approach goes beyond traditional ethical considerations, focusing on creating employment opportunities for people in underserved communities. By prioritising suppliers that employ individuals from such backgrounds, businesses can make a profound social impact, contributing to community development and poverty reduction.
• Full Tier Procurement: Recognising that procurement processes can either perpetuate or alleviate social and environmental issues, ethical procurement emphasises the integration of ethical considerations into every stage of the procurement process. It’s about making conscious choices that align with broader sustainability and social responsibility goals.

These approaches highlight the multifaceted nature of ethical sourcing, demonstrating that it can serve as a powerful tool for social change when implemented thoughtfully and strategically.

The Business Case for Ethical Sourcing

But what about the bottom line? It’s a common misconception that ethical sourcing is merely a cost with no tangible benefits. On the contrary, the economic advantages of ethical sourcing practices are well-documented and significant. For instance, sustainable and ethical sourcing processes have been shown to reduce supply chain costs by up to 16%, according to the World Economic Forum. These savings stem from various factors, including improved efficiency, reduced waste, and enhanced brand reputation, which can lead to increased customer loyalty and sales.

Moreover, ethical sourcing practices can mitigate risks associated with regulatory compliance, supply chain disruptions, and reputational damage. In a time where consumers and stakeholders are increasingly holding companies accountable for their social and environmental impact, the ability to demonstrate ethical sourcing credentials can be a critical competitive advantage.

Implementing Ethical Sourcing – Insights and Best Practices

So, how can businesses begin to integrate ethical sourcing into their operations? The journey starts with a commitment to transparency and accountability throughout the supply chain. This involves conducting thorough due diligence on suppliers, establishing clear codes of conduct, and implementing regular audits to ensure compliance with ethical standards.

Collaboration is also key. By working closely with suppliers, businesses can help build their capacity for ethical practices, fostering long-term partnerships that benefit both parties. Additionally, leveraging technology, such as blockchain and AI, can enhance supply chain visibility and monitoring, making it easier to track and verify ethical sourcing claims.

Is it Just Big Companies Committing To Ethical Sourcing?

It’s a myth that only the corporate giants can afford to engage in ethical sourcing. In reality companies of all sizes, from local boutiques to international brands, are actively embedding sustainability and ethical practices into their core strategies. This widespread commitment across the spectrum showcases a universal recognition of the importance of responsible sourcing. Small enterprises, with their agility and close-knit supply chains, often lead the charge, proving that impactful change doesn’t depend on the size of the company but on the depth of its commitment to doing business ethically. This collective effort underscores a crucial message: in the journey towards sustainability, every business, regardless of its scale, holds the power to make a significant difference.

Reflections from My Journey

In my own experience, embracing ethical sourcing has been both a challenge and a profoundly rewarding journey. It has required a willingness to question the status quo, to look beyond short-term costs and benefits, and to see the bigger picture of our impact on the world. The lessons learned have been invaluable, not just in terms of business success, but in the deeper sense of purpose and fulfilment that comes from knowing you are making a positive, measurable difference that connects with the bottom line performance of a business.

As we look to the future, it’s clear that ethical sourcing isn’t just a trend but a fundamental shift in how we think about business and its role in society. It is a journey that demands courage, innovation, and persistence. The rewards for businesses, communities, and the planet are well worth the effort.

About Kathleen Harmeston

Kathleen Harmeston is a seasoned procurement expert (Former Chief Procurement Officer and Group Procurement Director) and a freelance C-Suite Coach, among other management consulting disciplines. She is a Fellow of the Chartered Institute of Purchasing and Supply (FCIPS) whose expertise lies in business transformation, procurement programme management, procurement advisory services, cost management, P2P systems, profit enhancing strategies, bid management, stakeholder management, resilience, work life balance, board governance, risk management and personal transformation.

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Ethical Sourcing – The New Fad or Consumer Demand?