Ethical Sourcing 101: Define Your Scope

There is a strong business case for ethical sourcing which goes beyond the obvious moral arguments. No longer just a nice-to-have, it’s increasingly a necessity given the reputational and even legal risks involved in ESG risk exposure, as well as meeting your customers’ expectations. An ethically sourced supply chain is also a powerful opportunity to differentiate your brand in the market, potentially attracting customers and investors alike. Good corporate citizenship is good for your bottom line, and ethical sourcing plays a key role.

The complexities of modern global supply chains can pose a challenge for procurement leaders. You know who you’re doing business with, but who are your suppliers doing business with? In day-to-day life, Australian organisations and consumers benefit from business practices that range from unsavoury to downright illegal – for example, modern slavery is very rarely present in Tier 1 of Australian food companies’ supply chains, but you’d struggle to fill a shopping basket without modern slavery exposure. We’ve written extensively in our blog about combating modern slavery – but there can be so much more scope to build an ethical business that goes above and beyond, and in doing so, many businesses are “doing well by doing good”, while harnessing a powerful competitive edge.

The Responsible Sourcing Pyramid

Leading global research firm Gartner highlights here that the diverse range of approaches to responsible sourcing can “make things confusing”, and given that businesses don’t operate with unlimited resources, the key to responsible sourcing is asking yourself “what should we focus on”? Prioritisation is key – prioritising suppliers by risk or impact, to act where it matters the most.

Gartner proposes a Responsible Sourcing Scope Definition in the form of the following easy-to-understand pyramid. As you move up the pyramid, your organisation can move from a risk avoidance mindset to harnessing a powerful competitive edge. 

Basic Compliance sits at the absolute bottom of the pyramid, and tends to be Tier 1 focused. For example, here in Australia, the Modern Slavery Act mandates reporting entities (particularly, large companies) to take reasonable steps to prevent modern slavery in their supply chains. The Act is currently up for review, and in its present form has been criticised insofar as enabling a box-ticking approach; research published in the AFR finding only 8% of Modern Slavery Statements went beyond a rudimentary Tier 1 analysis. (Of course, this doesn’t mean that organisations have necessarily covered their basis in terms of risk exposure, as we’re seen argued in high-profile cases like the Nestle child labour lawsuit).

Compliance Plus goes beyond meeting legal obligations and involves listening to the voices of diverse stakeholders including your shareholders and customers, and NGOs. This is particularly important given global supply chains. We’re fortunate to live in a country with a proud history at the forefront of workers’ rights, but what about the rights of the employees of your suppliers, who may be exposed to unsafe or abusive conditions? For example, over in Bangladesh, the 2013 Rana Plaza garment factory collapse shone a spotlight on the working conditions at suppliers to instantly recognisable household-name fashion brands, leading to the establishment of the Alliance for Bangladesh Worker Safety, which collectively represented the majority of North American imports of ready-made garments from Bangladesh.

Supplier Sustainability is an opportunity to differentiate your brand and put your organisation’s values into action. A key lever here is social procurement, which Social Traders defines as “a way for businesses to meet sustainability and ESG goals simply by switching suppliers”.

For example, Supply Nation estimates the social return on investment of spending with an Indigenous Certified Supplier as $4.41 for every dollar. There are now Indigenous Procurement Policies at both state and federal levels of Government, highlighting the widespread recognition of the social impact potential of supplier diversity. Similarly, social enterprise procurement, which involves purchasing goods and services of the same quality and buying social impact in the process.

Environmental Ecosystems takes a long-term view across the value chain, recognising that business growth and prosperity relies on stable ecosystems. According to Gartner, this may involve investing or running initiatives enabling the long-term sustainability of supply chains, such as programs for reduced water consumption or regenerative agriculture; the Department of Agriculture offers some case studies of what this looks like in practice, and The Guardian highlights here the business opportunities posed by the Sustainable Development Goals.

The Role of Data in Ethical Sourcing

Informed 365 offers powerful data-driven tools towards ethical sourcing across this pyramid. We recognise that no two organisations are alike, and that compliance risk factors vary across industries; we’re also delighted that many organisations are using our platform not only to track compliance, make better decisions and report accordingly, but also ensure ESG that goes above and beyond.

Our supplier management platforms are highly customisable, and our onboarding process involves understanding what you want to measure and developing dashboards that work for your business. However, you don’t have to do everything from scratch – your platform includes default supplier questionnaires and risk analysis templates with weighted risk exposure calculations for many industries. These questionnaires and templates are based on a substantial and exponentially growing dataset and ongoing consultation with industry stakeholders and ESG experts, and set the stage for knowledge-sharing and collaborative efforts across organisations and industries – while meticulously maintaining data privacy.

Even at the base of the responsible sourcing pyramid, being proactive about compliance is challenging without effective data management systems in place. Modern supply chains often involve managing data about thousands if not tens of thousands of suppliers across multiple tiers and multiple countries. Informed 365’s applications simplify and efficiently manage data collection, management, analysis, calculations and reporting. You’ll be able to automate processes that would conventionally be complex and time-consuming. In turn, this enables you to reallocate scarce and valuable resources more effectively.

Let’s talk about how Informed 365 can support your organisation’s ethical sourcing journey.