If your business is devoting more resources to responsible sourcing lately, it’s not alone. A recent Gartner survey found that 93% of organizations are planning to invest more in responsible sourcing initiatives over the next year and a half.
Responsible sourcing is the practice of incorporating ethical, sustainable and socially conscious standards into procurement and related supply chain management operations. While responsible sourcing has long been a concern, recent trends have turned it into an urgent priority for brands and retailers, among them tightening governmental regulations. This summer the United States enacted its Uyghur Forced Labor Prevention Act, which bans the importation of all goods from China’s Xinjiang Uyghur Autonomous Region, the area responsible for approximately one-fifth of the world’s cotton supply. The act has enormous consequences for the entire supply chain, requiring thorough documentation for all Chinese goods entering America to prove they weren’t produced with forced labor.
The even more powerful force driving businesses toward responsible sourcing, however, is consumers. Gen Z has been the generation most outspoken about their preference for sustainable and ethical goods, and in the wake of the COVID-19 pandemic, their attitudes have been gaining traction across all demographics. 82% of consumers now say they prefer to buy from brands whose values align with their own, according to a new Harris poll released this spring, and 55% of them say they’ll pay more to shop from sustainable brands. Those consumers’ ideals, however, are accompanied by a deep skepticism: 72% of shoppers believe that companies overstate their true commitment to sustainability.
Clearly, brands and retailers have a long way to go toward winning consumers’ trust. To earn the loyalty of shoppers who are more socially conscious than ever, businesses need to go well beyond mere risk avoidance – doing the minimum to stay in legal compliance – to demonstrate that they’re truly serious about ethical practices.
Businesses increasingly understand that investing in the greater good is in their own best interests, too. Contrary to old beliefs that social and environmental initiatives cut into profit margins, studies have overwhelmingly shown that businesses that commit to environmental, social and governance (ESG) priorities see higher equity returns – not only because of reputational rewards but because of cost reductions, greater efficiencies, and higher credit ratings.
As a McKinsey study on the value proposition of ESG initiatives succinctly put it, “the payoffs are real.” Companies with a strong ESG proposition also attract stronger talent, better allocate their capital, and benefit from subsidies and government support, while saving money through reduced energy consumption and water intake, the McKinsey study found.
The Role of Supplier Relationship Management (SRM)
A responsible sourcing strategy requires commitment, and it begins with full visibility into a company’s suppliers, both tier-1 and beyond. Transparency in the extended supply chain gives businesses a better understanding of their global impact and enables them to make decisions that reduce risk as well as their environmental footprint.
To ensure their companies’ ESG standards are upheld, procurement leaders need to enforce their standards at the earliest stages of the supplier life cycle, during the bidding and supplier selection processes as well as during the onboarding of new suppliers.
That’s an enormous undertaking, especially for large retailers that manage hundreds or thousands of vendors, but modern Supplier Relationship Management (SRM) software can save procurement teams from much of that work.
A sophisticated SRM platform provides a window into all an enterprise’s suppliers, from vendors to factories to raw material providers, while automating the collection of supplier information to ensure all certifications are up to date. These tools save retailers and brands time by automating the onboarding process for factories and vendors, requiring that all new suppliers have agreed to the company’s terms and conditions.
Smart SRM software monitors supplier certification statuses and notifies merchandisers and compliance managers instantly if a red flag emerges. It also safeguards against human error, preventing merchandisers from placing orders from non-compliant suppliers and prevents shipping departments from booking shipments from non-compliant factories. In many businesses, it’s too easy for merchandisers to look the other way if a vendor’s certifications are out of date. SRM software eliminates gray areas and one-time exceptions that can be exploited when they’re convenient.
Good intentions alone aren’t enough for businesses that are serious about responsible sourcing. Brands and retailers need sophisticated, automated tools to organize their efforts and to track where their products and downstream materials come from. Especially amid such heightened consumer and regulatory scrutiny, a brand’s reputation is too important to risk due to human error.
