3rd June 2014

How Much Does an Ethical Supply Chain Cost?


There is no ignoring the fact that establishing a supply base with strong ethical standards can be costly. However, it is certainly worth the investment. As government regulations become more stringent, and as public awareness of the need for sustainability increases, Corporate Social Responsibility (CSR) is fast becoming an essential part of any long-term business plan.

Historically, many of the world’s global supply chain practices have been unsustainable, and companies found suppliers with dubious labour, health and safety, and even environmental standards, often suffers irreparable damages to reputation. Public trust, once lost, may never be regained. It is not so much a question of whether your company can afford to invest in a responsible supply chain. It is increasingly becoming a question of whether you can afford not to.

One of the biggest costs associated with establishing an ethical supply chain is time. It is easy to source the lowest price and bottom line, but it takes much longer to ensure ethical practices at every stage of your supply chain. This process will be particularly difficult for larger companies, who might sometimes have thousands of suppliers around the world, many of which with very limited transparency on their processes and practices.

The problem is, there is no shortcut. It might seem like enough to simply ensure that all of your suppliers have codes of conduct that are adhered to, but are these standards clear and transparent enough to be trusted?

What are the Benefits of a Responsible Supply Chain?

Establishing a trusted partnership with responsible suppliers can provide both reputational and cost savings.

UK handmade cosmetics firm Lush have strong and transparent CSR policies. They take a “creative buying” approach to their supply chain. Lush seem to go out of their way to source the safest and most suitable products in accordance of their ethics. This undoubtedly requires a considerable investment of time and money on their part.

Despite, or rather, because of this, Lush has more than 800 stores worldwide, with factories in over 40 countries. In 2010-2011, they reported sales of £321m. It seems that the trust generated by an ethical supply chain can be quite easily transformed into sales.

Working with responsible suppliers can also help companies to save money over time. For example, a 2010 carbon management and energy assessment programme by PepsiCo discovered a potential $60m in energy-saving opportunities.

Companies that take shortcuts with their supply chain might make initial savings, but they might also ultimately pay a much bigger price in terms of damages to their reputation and integrity.

On the other hand, whilst an ethical supply chain might appear to present prohibitive short-term costs, the long-term benefits more than justify any investment.