Responsible sourcing, also referred to as supply chain responsibility, is a voluntary commitment made by businesses to manage their relationships with suppliers taking social and environmental factors into account.
Even though we tend to think of supply chains as tangible, this concept can be applied to both product and service-based businesses. Supply chains can be more or less complex depending on the industry in which they operate, or how complex the end product of the chain is supposed to be.
A basic supply chain is made up of:
- A number of suppliers that provide other suppliers or manufacturers with anything ranging from raw materials to finished products
- Manufacturers that produce or assemble the final product
- Distributors
- Wholesalers or retailers
Supply chain management is one of the most complex areas of any business, and it gets more complicated in the case of sustainable businesses. This is because transparency and traceability, the key elements of any sustainable business, are difficult to prove.
Pricing is usually the most important aspect in deciding which provider to choose. Choosing the lowest bidder guarantees you higher profit margins.
However, sustainability is starting to impact supply chains and responsible sourcing is just a small part of it.
What is responsible or sustainable sourcing?
Conscious businesses are aware of how their activities may hurt others or the environment, but sometimes they overlook the impact of their suppliers. This, at the end of the day, is an impact they contribute to, even if it’s indirectly.
When we investigate a supply chain, we may find important areas where there is potential for change in terms of ethics or the environment. Some examples are regarding labour standards, workplace safety, plastic pollution or high carbon emissions.
Knowing the impact of your suppliers allows you to make educated decisions about your current sourcing solutions and may lead you to consider new ones that align with your values and sustainability goals.
Making this conscious choice to reevaluate the high-impact areas of your supply chain is at the base of sustainable sourcing.
There is no one definition of responsible sourcing at the moment, but you can look into international standards for guidance, such as the International Labour Organization or the UN Guiding Principles for Business and Human Rights.
Why is responsible sourcing important?
Working conditions and environmental standards can be wildly different for different parts of the supply chain that are in different countries or regions. It is incredibly challenging for organizations to understand everything that takes place throughout their supply chain because of their complexity, but it’s also up to conscious entrepreneurs to manage them accordingly.
It’s important to make sure that you are complying with the regulations that apply to your business in order to secure your license to operate and avoid sanctions, but there are other benefits and opportunities in responsible sourcing:
- Brand equity and business reputation. Caring and being transparent about where your products come from is always great to look good for potential investors, consumers and partners. Poor business practices and employee abuse are not good press and are definitely a risk for companies.
- Optimized performance and reduced operational costs. Keeping your workers safe and happy leads to less absenteeism, employee turnover, injuries and error rates, which are great for your bottom line.
- Creating positive impact. Your business can be an agent of global change, and there’s no better way to start than within your own operations, partnerships and suppliers.
How can I create a responsible sourcing strategy?
Most companies will hire external analysts or consultants to advise them on best practices regarding sourcing and supply chain management.
Regardless of whether you manage it internally or you hire someone to do it for you, here are some basics to keep in mind:
- Define your brand values and priorities
It is important that you have a solid understanding of what your business stands for so that you can build a sourcing strategy around it.
Once you do it, you will be able to build a company policy or code of conduct around it that will be followed by staff, partners and suppliers.
- Inform your stakeholders
Your policy will start having a positive impact on your operations only if you are able to communicate it internally and externally.
For it to be as efficient as possible, you want to make sure it’s vertically integrated. If only leadership roles are convinced of its importance and the operational level ignores it, it won’t have the desired effect.
It is crucial that you accept feedback, as what you might see as the ideal policy might not be practical or feasible for your team.
Likewise, talk with your suppliers and partners and answer any concerns they may have.
- If you haven’t already, map your supply chain
You want to identify risks and opportunities throughout your entire value chain and either solve them or create strategies to take advantage of them.
Assessing the social and environmental impact of your suppliers will be much easier once you have the entire chain before your eyes. This will allow you to make sound strategic decisions and choose new suppliers if necessary.
- Monitor and report regularly
Assessing your value chain and making changes to it isn’t the end of your task.
You need to constantly monitor that your code of conduct is followed and that your suppliers and partners keep their good practices. It’s important to have goals and KPIs to follow, especially if you’re creating new offerings or business lines.
While supply chain management is a crucial step to ensuring sustainable operations, it’s a very complex business area to navigate. No matter if you manage it internally or you hire external consultants and managers, it’s important you pay attention to how, from where and from whom you are sourcing your materials, products or services.
This is just a piece of the puzzle of a sustainable business. If you want to dive deeper and learn more about CSR, ESG and corporate sustainability, download our free ebook below.