Which of the following are three principles and standards of ethical supply chain conduct?

The rise of the socially conscious consumer is changing the way businesses across all industries compete and operate. Today, over three in five consumers feel it is important to buy from socially responsible companies and have done so in the past 12 months.

Following the rise of organic products in the food and beverage market, mindful consumption is taking the personal care industry by storm. The global organic personal care market, comprising cosmetics and skin, hair and oral care, is expected to more than double in a decade, from about $10 billion in 2015 to over $25 billion by 2025. 

As consumers continue to demonstrate a desire to pay a premium for natural products, it creates a need for more responsible sourcing by companies in this space. Indeed, throughout the world, there’s an opportunity to generate positive impact in local communities by putting the right principles and processes in place. Agricultural development is one of the most powerful tools to end extreme poverty, boost shared prosperity and feed a projected 9.6 billion people by 2050. 

As consumers continue to demonstrate a desire to pay a premium for natural products, it creates a need for more responsible sourcing.

As part of our mission to build and support ethical supply chains, we developed and adhere to eight Sourcing Guiding Principles. These principles offer a framework for other companies to implement sustainable, socially and environmentally responsible supply chains on a global scale. 

1. Ensure environmental stewardship

Encourage your partners to be good stewards and do their part to minimize their carbon footprint and greenhouse gas emissions. That could mean shipping products by sea whenever possible or adopting energy-efficient and renewable energy technologies, such as solar panels. It also helps to practice what you preach.

2. Generate jobs

Employment is imperative to transitioning from income insecurity to economic self-sufficiency. Although you might assume a workforce in a developing country may not be as sophisticated as one in a more established economy, the opposite tends to be true. In our case, the expert knowledge of the local farmers we work with, accumulated from nurturing essential oil plants for generations, surpasses any expertise we could ever hope to attain. 

3. Provide fair and on-time payments

Economic self-sufficiency requires a steady source of income that reflects fair compensation. Three key elements define fair pay: it is contractually agreed on by all parties; remuneration is considered fair by the workers themselves and by socially acceptable standards locally; and women and men receive equal pay for equal work. Companies also should be prepared to provide pre-payments or loans to help supply chain partners manage cash flows and stabilize incomes throughout the year.

40 percent of consumers said the biggest factor preventing them from being more socially responsible was an inability to determine which companies to support.

4. Build supplier capacity

As with employees, companies can maximize returns from supply chain partners by investing in them. Increasing their capacity delivers a win-win — It increases their incomes and your profitability. We recommend working with local non-governmental organizations (NGOs) to deploy solutions that increase capacity, such as technology improvements or agricultural training for your partners.

5. Sustain long-term partnerships

In addition to empowering your partners to build capacity, you can build a strong foundation for growth through long-term contracts that do not maximize profit at their expense. You also should find appropriate ways to involve your partners in the decision-making process and ensure communication channels are always open. True partnerships also go beyond just business transactions. Donating to local charities, participating in fundraisers and supporting community projects are all great ways to develop deeper bonds with your partners.

6. Ensure fair labor conditions

Too often companies take advantage of supply chain partners by paying them unfairly or requiring excessive hours on the job. The working environments of your partners should match those in your own workplace — they should promote health and safety, and be free from exploitative practices, harassment and discrimination. A best practice is to require your partners to comply with national and local laws and International Labor Organization conventions on health and safety, working conditions and labor laws.

7. Promote cooperatives

Responsible enterprises support the rights of their supply chain partners to form and join cooperatives and bargain collectively. Becoming a collective organization unlocks numerous benefits for your partners, from obtaining better pricing on agricultural inputs to enhanced access to collectively owned equipment.

8. Facilitate community development

The well-being of your supply chain partners is linked to the strength of their surrounding communities. You can support community development projects, such as the construction of schools, health clinics, training facilities and clean water systems, by dedicating a portion of your sales to these causes or designating contributions from your charitable foundation. It also can be beneficial to provide your employees with opportunities to participate in efforts to improve living standards in these communities.

In a growing and increasingly competitive organic personal care market, a surefire way for companies to gain a competitive advantage is to promote their shared values with socially conscious consumers. But companies can do more to market their efforts to build a better supply chain: 40 percent of consumers said the biggest factor preventing them from being more socially responsible was an inability to determine which companies to support. Building a sustainable, socially and environmentally responsible global supply chain is no small feat, so make sure you share the impact of your differentiated approach.

Today, supply chains are considered strategic to the business, and meeting customer expectations for ethical and sustainable supply chain operations is increasingly becoming a top priority for supply chain managers.

Last year, supply chain research specialists APICS found that 83% of supply chain professionals thought ethics were extremely or very important for their organization. When you consider the brand and reputational damage – not to mention the legal implications – of unethical labor, it’s not difficult to see why. Yet, even today, global brands are still discovered with unethical practices in their supply chains.

Modern supply chains are global, complex and multi-tiered, which makes it easy for unethical practices to happen without the brand’s knowledge. For a major organization, it’s no longer enough to know what your supplier is doing. You need to know what their supplier is doing, and their supplier’s suppliers, and so on.

For example, in the fashion industry, 93% of organizations admitted that they still don’t know where their cotton was manufactured. This can be a very costly error. In 1996, after it came to light that a sportswear manufacturer used child labor, the company had to pay millions of dollars in fines and, far more importantly, had 15% wiped from its corporate value. Yet this company is now an exemplar for what can happen when you build ethics into your supply chain.

Why being ethical is important

Customers are now more informed and more demanding – and that can be a good thing. Research has shown that amongst Millennials, as many as 9 out of 10 will swap brands to one they believe to be more ethical. Some estimates suggest that there’s an opportunity worth $996 billion for organizations that adopt an ethical approach throughout their business.

One of the most surprising findings from research is that customers are willing to pay more for products that are ethical and sustainable. In 2016, The Nielsen Global Corporate Sustainability Report showed that as many as 66% of people are willing to pay more for goods that have a positive social and environmental impact. Another report found that customers were willing to pay a premium of as much as 25% for ethical products.

Defining the ethical supply chain

Modern supply chain operations have become much more customer-facing, and many companies strategically use their supply chain to drive business initiatives and improve customer experience. Delivering for the customer means understanding their needs and expectations, and sustainability and ethical business are now key differentiators. According to EuroMonitor International, 65% of consumers now say that they attempt to make a positive difference through their choice of everyday purchases.

An ethical supply chain operates in a way that delivers the highest levels of ethical and sustainable operations. This spans three key elements – economic, environment and social responsibility – and particularly focuses on:

• Eliminating child and slave labor
• Safe and hygienic working conditions
• Fair pay and working hours
• Anti-bribery and corruption
• Ethical sourcing and procurement
• Environmental awareness and sustainability

In complex global supply chains, ensuring ethical operations is up to everyone – from the company’s employees to its suppliers, customers and trading partners. Each has a vital role to play.

That said, cases like the sportswear manufacturer demonstrate that companies can’t absolve themselves of responsibility for what happens in their supply chains. Interestingly, this is an area where supply chains may have an advantage over other areas of the business. The transparency and visibility that supply chain professionals worldwide have built into their operations are exactly what’s needed to ensure ethical policies and practices are being followed.

Where are we today

The common feature of many high profile cases such as the sportswear manufacturer is the lack of transparency to see exactly what’s going on at each stage in the supply chain. When a company doesn’t have a clear understanding of its suppliers’ operations – even at the start of a contract – how can it monitor and manage supplier performance against a backdrop of continually evolving environmental, market and political conditions?

The APICS research found that 71% of organizations had a supplier code of conduct but just over half enforced it. Similarly, 70% of respondents indicated they have a formal policy to understand where their supply is manufactured but only 43% said they understood how their suppliers operated.

At the heart of delivering an ethical supply chain is information. An organization must be able to access information on their suppliers and their activities. They must also be able to make that information accessible to partners and customers. Key areas such as workers’ contracts and conditions, the provenance of materials, environmental performance and financial process need to be able to be monitored, and organizations need to be able to identify any supplier breaches of their ethical policies and take remedial actions quickly.

New systems are required to capture and manage data across the supply chain. According to APICS, less than half of the global supply chain operations surveyed were using software and technologies to monitor supplier compliance. At OpenText™, we’re working with brands worldwide to improve their ethical performance and are delivering tools and solutions to enable the supply chain transparency and visibility that every modern business needs. We’ll look further into the ethical supply chains and the technologies that underpin it in future blogs.

If you’d like to know more about how OpenText can help improve your supply chain operations, please contact us.