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Five Steps Toward Building an Ethical Supply Chain

Consumer buying decisions more increasingly hinge on where goods come from and how they are made By Mark Morley

In addition to the economic, competitive, and regulatory pressures they have already faced for years, procurement and purchasing managers around the world have a new one on their list: the drive for responsible or ethical sourcing. With consumers increasingly conscious and informed about how the goods they buy are sourced, manufactured, and distributed, manufacturing companies more often find that their brand reputation and perhaps even profitability hang in the balance based off of their sustainability practices.

Consumer consciousness about environmental practices has grown since the first Earth Day celebration in 1970. This has brought green working practices to the forefront of how companies operate today and includes such initiatives as deploying paperless operations, reducing CO2 emissions, and improving energy efficiency. They have also developed additional corporate social responsibility initiatives. A recent OpenText survey in partnership with TechValidate found that 92% of companies said that their CSR reputation was important for their overall reputation in their respective markets.

Here is one great example from a well-known electric vehicle manufacturer. When they aspired to build the world’s best electric vehicle, they knew they had to ensure that all parts, especially those visually exposed to the driver and passengers, were ethically sourced. So even though they are positioning their vehicles in the premium sector, they decided to use a synthetic material to cover their seats vs. leather, which is found in every other premium vehicle.

Many businesses and retailers are making consumer-facing changes to how they operate, from charging for plastic bags or replacing them with paper bags, changing from plastic food packaging to recyclable packaging, replacing plastic straws with paper alternatives, and reducing single-use plastic bottles. While these are relatively small steps to developing sustainable working practices, their public visibility could influence consumer buying decisions.

Similar initiatives are being rolled out across the industrial sector with a clear focus on how manufacturers can reduce their carbon footprint, ensure that suppliers are ethically selected, and work with partners such as third-party logistics carriers that embrace similar ways of working when it comes to distributing manufactured products.



The IoT in combination with other technologies like blockchain can capture source information and retain the provenance of goods.

As with many industry sectors, technology can have a major role in developing more ethical or responsible sourcing of parts or raw materials. For example, companies have been digitizing supply chains since the early 1970s, converting paper-based information flows into electronic flows. Electronic Data Interchange or EDI has helped digitize information flows and is now part of the DNA that makes up most supply chain operations around the world. However, many companies still see it as a challenge to digitize 100% of their supply chain operations.

So how does a company establish a more digital and ethical supply chain? The first step in this journey is to identify trustworthy suppliers to work with.

Identify trustworthy suppliers  

Before embarking on an ethical supply chain strategy, it is important to ensure that you can find potential trading partners who have the same ethical working practices as you have within your own business. One such solution is provided by OpenText. Their Global Partner Directory is a centralized repository of over 550,000 trading partner profiles. This allows companies to search for potential trading partners based on specific search criteria, such as whether they use sustainable working practices, if they are using conflict free minerals in their products, if they operate with fair labor practices, etc. Being able to trust who you are working with helps to embrace ethical working practices across the end-to-end supply chain.

Secure trading partner relationships  

Once a supplier has been selected then it is important to secure their interaction with your company. Identity and access management platforms can assign a digital identity to trading partners across your business ecosystem. You can ensure that outside business partners such as 3PL carriers have secure access into your internal logistics and warehouse management systems.

Suppliers may need secure access to inventory systems if they are operating within a vendor managed inventory system and other external contractors may need secure access to enterprise systems and information based on their role within your digital ecosystem. Securing the supply chain helps to increase trust and minimize risks across trading partner relationships.

Digitize your supply chain  

Once you have selected and secured the trading partners that you wish to work with, then they need to be connected electronically to your business operations so that you can establish an end-to-end digital supply chain across your business. Ideally this would be through a cloud-based data integration environment so that your supply chain platform can scale according to consumer demand or market conditions. In the same OpenText/TechValidate survey referenced earlier in this article, 50% of respondents said they were implementing digital supply chains today to help remove manual, paper-based information flows from their business. Embracing a digital supply chain also helps prevent the falsification of manual, paper-based supply chain documents and is hence an indirect way to reduce the amount of counterfeit parts entering the supply chain operation, especially in the aftermarket sector.

Monitor shipment provenance  

Knowing the source of all parts that make up a product is key to building trust and protecting the reputation of a business. A company now can track both the movement and monitor the condition of goods as they move through the supply chain. The Internet of Things (IoT) in combination with other technologies such as blockchain can help capture source information and retain the provenance of goods as they move through the supply chain.

For example, to ensure that it was ethically sourced and adherent to conflict-free sourcing agreements, a GPS sensor was applied to a container of gold that was mined in Africa, shipped by sea to the UK, and then used to manufacture gold connectors. These connectors were then used in automotive wire harnesses and fitted to vehicles.

If later on a fire breaks out in a vehicle and the source of the fire is found to be the wire harness, a potential government recall may ask to identify all suppliers who were involved with the manufacture of the wire harness. Evidence in the blockchain can immediately identify where the gold came from (and other materials) and even the mine from which it was obtained. Blockchain stands to transform ethical sourcing practices and many companies are just beginning to understand blockchain technology and how it can be applied across their business.

Gather ethical insights 

Obtaining insights into trading partner performance and knowing the ethical pulse of supply chain operations is a key challenge today. But leveraging advanced analytics, AI and machine learning tools can help derive the insights required by today’s manufacturing executives. AI stands to transform future supply chain operations and provide a way to ensure supply chains are meeting ethical standards and goals by applying measurable KPIs that can be applied to every trading partner across a supply chain operation. Company executives will be able to use advanced AI dashboards to monitor the ethical performance of trading partners and use this information to renew supply contracts with well performing suppliers and terminate contracts with under-performing suppliers.

Manufacturers today are clearly facing some key market and operational related business challenges. Those that can navigate through these challenges and establish more ethical supply chain operations will be the ones that win market share and increased trust from today’s consumers.   M

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