Contribution by Tony Broughton – Internationally experienced supply chain leader and Managing Director of Supply Chain Squared
Business leaders are uniquely positioned to make a positive difference to working conditions within global supply chains by committing to an Ethical Trade Program. So what are the keys to a successful program?
What is Ethical Trade?
What do we mean by Ethical Trade? A simple definition would be ‘supply chain with a heart’. The Ethical Trading Initiative [1] offers a more thorough definition.
Ethical trade means that retailers, brands and their suppliers take responsibility for improving the working conditions of the people who make the products they sell. Most of these workers are employed by supplier companies around the world, many of them based in poor countries where laws designed to protect workers’ rights are inadequate or not enforced.
[blockquote style=”2″]Companies with a commitment to ethical trade adopt a code of labour practice that they expect all their suppliers to work towards. Such codes address issues like wages, hours of work, health and safety and the right to join free trade unions.[/blockquote]
Ethical Trade has similar aims to Fairtrade, but is different in a number of ways. Fairtrade applies to products rather than companies, and is focussed on pricing and trading conditions for primary producers of commodity items. Ethical Trade on the other hand is concerned with the working conditions throughout the supply chain, and can relate to the manufacture, sourcing and supply of any product. A consumer facing Ethical Trade ‘mark’ does not yet exist.
Why Ethical Trade?
There are serious problems in global trade. It is estimated that there are 29.8 million people caught in modern day slavery [2], many of those in a supply chain setting. Tea workers still earn less than one percent of the price of a pack of tea [3], and almost half the worlds’ population live on less than $2.50 per day [4].
Business can have a significant impact on these statistics by adjusting procurement and sourcing practices. What’s more, business itself can benefit from ethical trade (refer to Key 2). So what should business leaders think about when considering an Ethical Trade Program?
The 3 Keys
Key 1: A Committed Leader.
As you’re reading this, you are already grasping the first key. Leadership commitment is critical to the achievement of many business goals, and this is true also with ethical trade. Senior commitment and support is the most critical enabler of ethical trade. An Ethical Trade Program can be complex to implement. It can also be difficult (though not impossible) to define a financial ‘Return on Investment’. Maintaining organisational momentum will therefore depend on top leaders providing strong policy direction, clear messaging, and sufficient resources.
Key 2: A Clear Objective.
Ethical Trade can bring a variety of benefits to businesses that make a sustained effort. To avoid diversions, it pays to be crystal clear about your objectives before starting out;
• Protecting brand reputation. Successive outsourcing and re-contracting efforts can result in corporate reputations being put in the hands of strangers. An Ethical Trade Program will bring clarity to social conditions along the supply chain, allowing problems to be fixed proactively, protecting a brands’ reputation.
- Enhancing brand loyalty. In certain consumer product segments, sourcing practices are known to influence consumer behaviour and sentiment. For example, Fairtrade has seen an average growth rate in Australia and New Zealand of over 50% every year for the last 5 years [5]. When it comes to fashion, 81% of consumers think that Australian companies should ensure overseas workers are paid enough to cover basic needs [6]. However, companies should proceed with caution if endeavouring to leverage their ethical trade credentials with consumers.
- Reducing supply risks. As a buying organisation develops better processes, and stronger relationships with its suppliers, the risk of supply interruption or supplier failure diminishes.
- Improving employee engagement. Employees are looking for more meaning in their work. In the war on talent, an organisation making concrete commitments to ethical trade will be more attractive to current and future employees.
- The moral imperative. Doing the right thing for the right things’ sake. Employees, shareholders, business partners and customers all have an expectation that companies are doing the right thing in every aspect of their business dealings.
- Legal compliance. Minimum public reporting standards are lifting. From July 1st 2014, the Australian Stock Exchange will require that a listed company must “disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks” [7]. The European Parliament has recently introduced similar provisions [8].
Key 3: Stability and Alignment
An unstable supply chain will distract your organisation. Stock outs, excess inventory, quality problems and cost blowouts quickly become the priority and if they occur frequently, will derail an otherwise sound Ethical Trade Program. You don’t necessarily need a ‘best-in-class’ supply chain, but supply chain stability is an important pre condition.
Organisational alignment is also important. In particular, procurement and sourcing teams will need to be fully engaged with your program. Is your buying activity centralised under a procurement function? Have you established a category management structure to manage suppliers? Without a minimum level of organisational alignment, it will be more difficult to achieve high policy adoption rates across teams, and the program is more likely to falter.
[1] Ethical Trading Initiative (www.ethicaltrade.org)
[2] www.globalslaveryindex.org, 2013
[3] Fairtrade Australia and New Zealand, 4 September 2013
[4] World Bank Development Indicators, 2013.
[5] Fairtrade International 2012-13 Annual Report.
[6] Oxfam Australia, ‘Aussie shoppers want action from clothing retailers (oxfam.org.au).
[7] Clayton Utz Insights, Nick Thomas, 3rd April 2014
[8] European Commission Statement/14/29, 26/02/2014 (www.europa.eu)