Ethical sourcing strategy now a must-have

While we grapple with this cost-of-living crisis consumers are not just looking at the price tag when it comes to the goods they are purchasing. Heightened awareness of ethical sourcing means they want proof that products conform to frameworks such as Fair Trade and Free Trade and are from companies who don’t engage in child labour; if this isn’t forthcoming, they are more likely to take their custom elsewhere.

This burgeoning trend in consumer behaviour is undeniably having an impact on Irish companies, many of whom are seeking to overhaul their supply chains in response.

According to Lorcan Sheehan, chairman of Ibec Supply Chain Network and chief executive of PerformanSC Supply Chain Ltd, Irish companies are increasingly aware of growing consumer interest in the social conditions within the supply chains of the products that they consume.

“They understand how this reflects on their brand and in an increasingly connected world, the need to verify commitments made about product sources,” he says. And it works both ways, he adds. “For the most part, they also understand that suppliers need to have a business that can sustain them into the future.”

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AIB’s chief sustainability and corporate affairs officer Mary Whitelaw agrees that consumers are increasingly placing an emphasis on sustainability when making choices about what companies they use and are paying closer attention to how businesses perform in this space. She points out that the European Union is introducing legislation known as the Corporate Sustainability Reporting Directive (CSRD), that will require companies to disclose more information about their supply chains. Although this legislation currently applies only to larger companies, Whitelaw believes there will be knock-on implications for all businesses, as the increased transparency will require companies to raise Environmental Social and Governance (ESG) standards throughout their supply chains and potentially deselect suppliers that do not meet minimum standards. “As such we believe that there is about to be a step change in terms of awareness and response,” she says. “CSRD will level the playing field so that it becomes clearer who is walking the talk.”

But does a commitment to ethical sourcing affect commercial success, with fair prices eating into already slim profit margins? Not necessarily. According to Sheehan, leaders in supply chains will frequently take decisions that are not focused on cost but rather on creating customer value as part of an overall product proposition. “A well-executed and verified ethical sourcing strategy that is part of a brand proposition can increase the value to customers and company profits,” he notes.

“While there are costs associated with ethical sourcing such as mapping supply chains or introducing programmes to improve supplier capacity, the real cost for businesses lies in taking no action on these issues,” agrees Whitelaw.

Ongoing commitment

But like anything, it is often easier said than done. Sheehan agrees, noting that in multi-tier supply chains — ones where there are several layers of supply relationships — ensuring ethical sourcing at every point takes effort and an ongoing commitment.

“It involves taking deliberate decisions on the social standards that companies wish to apply across their supply chains and asking questions of suppliers and seeking verification that these standards are continuously met,” he says. “It is not a box-ticking exercise but a systematic approach to the management of suppliers and inputs.”

Whitelaw agrees, noting that, in some cases, it can be challenging to be certain that products or services are 100 per cent ethically sourced. “It is very important to put the right due diligence in place for the sourcing process to match with the business’s sustainable supply chain ambitions,” she notes. “Human rights and environmental issues in company supply chains are often complex and it’s important to recognise that it will take commitment, time, collaboration and a ‘continuous improvement’ approach.”

In recent years, AIB has introduced a “responsible supplier code” to build awareness of these issues into its own supply chain. “This ensures our suppliers are clear on our expectations of them in this area, but equally helps and supports them to re-orient their business towards ESG criteria.” She adds that as regulation in this area continues to strengthen and grow, many SMEs and larger corporates are beginning to build these considerations into their strategies. “All of this is continuing to build momentum towards greater understanding for businesses of the market needs, and transparency for consumers as to the source of their goods.”