For an Ethical Supply Chain, Transparency Matters

In the hyperconnected, globalized world in which we live, not a day goes by without corporate social responsibility in the news, or on your newsfeed.

Just this past week, Levi’s announced it will partner with the International Finance Corporation to finance more ethical factories. Last month, in a company-driven social media campaign, Patagonia released a video shedding light—and feathers—on the harmful tactics used in sourcing goose plumage in conventional down jackets. On top of all that, Intel is in the midst of implementing an initiative to source all of their products in “conflict free” zones.

And of course, there are the PR challenges, as companies struggle to abide by ethical standards while meeting the bottom line. 

The Ethical Premium

While the costs of being ethical can be high in the short-term, more companies are realizing the far more rewarding long-term gain: consumers’ favor.

In fact, corporations who pay attention to ethics could earn more than customer trust. According to a recent report by consulting firm Software Advice, average consumers would pay 27% more for a product normally priced at $100 if it was produced under good working conditions.

What constitutes “good” working conditions? Just under half (45%) of respondents cared the most about worker’s compensation. Other factors that swayed consumers were better workplace safety (20%) and educational opportunities for workers (16%).

The answers aren’t surprising. Considering the existing body of scholarly data confirming the “premium” price consumers will pay for goods, they prefer resting on higher moral ground. In fact, a 2011 joint Harvard-MIT study ran an experiment in which scientists arbitrarily increased prices for both a regular and “fair trade” type of coffee. They found that while regular coffee sales drastically slowed down, “fair trade” sales held steady.

 

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A Greener Chain

These days, a more ethical production line is also a greener one. According to one study, consumers are swayed to spend more on a product for environmental reasons (32%) almost as much as by laborer working conditions (34%). Another Harvard-MIT joint study, conducted by the same professors as in the “fair trade” coffee experiment, showed that Banana Republic shoppers bought as much as 8% more when jeans advertised as “environmentally-friendly”.

One quick fix that would save production costs and win over consumers is cutting back on water usage. According to one study, 28% of consumers said reducing water usage was an environmental initiative that would make them more likely to purchase a company’s products.

Implementing the Ethical Chain

To build a more ethical supply chain, companies need to face the difficult task of following an often complicated web of suppliers every step of the way. Transparency here is key; if companies don’t look into the ethical implications of their own sources—consumers will. Thus, companies need to:

a) Stay informed. Companies need an up-to-date and thorough understanding of labor conditions, political conflict, and changing resources in source countries before they can truly gauge ethical standards and catch labor violations.

b) Communicate. If suppliers can communicate and collaborate with workers across their supply chain with ease, they can more easily identify and address ethical dilemmas. When the webs of communication are tangled across different continents and technologies, it’s easy to lose sight of company standards.



“Labor and human rights issues are the most difficult issue at the moment. You can’t look over your suppliers’ shoulders 24/7.”
-Robert Handfield, Professor of Supply Chain Management at North Carolina State University


Bottom Line

Fueled by trends in social media, consumer demand for more ethical sourcing is both a challenge and gain. While sourcing issues are now placed firmly in the spotlight, companies can also use this as an opportunity to better leverage collaborative communication and help align where, why, and how products make it from the factory to consumers’ doorsteps.

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