Ethical Sourcing

The Importance of Ethical SourcingConsumers are increasingly concerned about how the products they use are manufactured. Procurement officers must take care to avoid a variety of supply chain risks, including human trafficking and the use of child labor. In addition, environmental sustainability has become more important to many customers. Below, you'll find an in-depth look at ethical sourcing concerns and risk mitigation techniques.

Social Responsibility and the Supply Chain

Consumers are increasingly concerned with how goods are produced. Labor or environmental violations at first- and second-tier vendors can embroil brands that knew nothing about the abuses. Despite their best efforts, many companies have found themselves dealing with lingering controversies long after a problem has been addressed. When it comes to ethical sourcing, businesses must be proactive in keeping their supply chains clear of risks like:

  • Human Trafficking and Forced Labor: Modern slavery and child labor are present in every country – even the United States. International agreements have been put into place to stamp out labor abuses, and supply chain managers have a major part to play here. Demanding visibility into a vendor’s sourcing operations can reassure a business that partners are upholding their own standards.
  • Environmental Damage: While concerns about conservation, pollution, and sustainable growth may be most closely associated with the mining and energy sectors, every supply chain leaves an environmental footprint. A business may depend upon non-renewable resources or use hazardous chemicals in the manufacturing process. It’s important for companies to understand their environmental impact and take the proper steps to mitigate risks.
  • Corruption: Bribery, money laundering, and other financial crimes can enrich corrupt politicians, drug traffickers, or terrorists. Understanding who owns a company is critical to avoiding entanglements with high-risk individuals.

How to Evaluate Suppliers

Procurement and compliance officers often work hand-in-hand to evaluate, onboard, and monitor vendors. A raft of rules and regulations has necessitated this approach. Reliable business data is key to identifying unethical suppliers, but where can companies turn to for these insights?

Online compliance tools offer an efficient way to review business data from trustworthy sources such as Dun & Bradstreet or the U.S. government. These applications have become increasingly sophisticated, relying upon analytics to understand the risks posed by a business. Companies in countries or industries where unethical practices flourish can be flagged for review. Procurement and compliance analysts can also research key players to identify politically exposed persons (PEPs), employees with connections to government officials. While most PEPs work within the law, it may still be necessary to put risk mitigation processes into place to avoid the appearance of collusion.

There are other sources of information that can be consulted when evaluating suppliers. Searching for news reports about a company may reveal past controversies. Business information databases, such as Hoovers, often show parent/subsidiary relationships that may not be readily apparent.

Regulating the Supply Chain

When it comes to rules and regulations governing supply chain practices, there are many agencies and organizations that help set or enforce policies, including:

  • U.S. Department of Labor: Administers and enforces the Fair Labor Standards Act in the United States.
  • U.S. Customs and Border Protection: Seeks to prevent the importation of goods produced using forced labor.
  • U.S. Environmental Protection Agency: Oversees regulations on industrial waste.
  • International Labour Organization (U.N. agency): Helps governments around the world develop policies to eliminate labor exploitation.

Many leading companies have committed themselves to working alongside governments and non-governmental organizations to build socially responsible supply chains. The articles above provide an in-depth look at ethical sourcing concerns and risk mitigation techniques.