Ethical procurement

Sam Achampong, Regional Director MENA, CIPS, reflects on the rise of ethical procurement and its benefits for procurement professionals.

Last year saw a huge rise in interest in ethical supply chains and how companies are acknowledging ethical behaviours and adopting best practices to roll out new policies and procedures. But what is ethical procurement and why is it so important for businesses to embrace it?

Ethics refers to the common principles associated with moral duty and behaviours. We all have a moral duty to behave in a responsible and sustainable manner, as well as minimise our social and environmental impact. As more emphasis has been placed on this in recent years, the expectations around businesses to demonstrate ethical operations has increased.

Recent consumer surveys show that 76% of shoppers say they will refuse to buy from businesses that do not share their ethical standards. More companies are coming to realise that providing a high-quality product or service is not enough to gain market advantage. While maintaining a solid reputation is vital for business success, implementing ethical procurement is now essential, and delivers many advantages.

Consumers have developed high expectations of corporate social responsibility and ethical manufacturing practices. Recent scandals have impacted global brands and reputations. Organisations are responsible for the conditions their goods are produced in, so they must take responsibility to understand how they operate and uphold high standards.

Ethical procurement is about treating suppliers fairly and avoiding preferential treatment. It considers not only the benefits of a purchase, but also the impact on the wider world of that business and its supply chain. Not only do ethical procurement practices build trust and credibility with suppliers, stakeholders, and the public; but they also prevent corruption, fraud, and unethical practices, and avoid overpayment of goods and services.

As we move into 2024, a vital part of a CPOs role is sourcing ethically, ensuring that products are procured in a responsible and sustainable manner, emphasising fair treatment of workers, safe working conditions, minimal environmental and social impacts, and adherence to specified standards throughout the supply chain. Far from being just a strategy to mitigate business risks, protect brand integrity, or sidestep superficial environmental claims, ethical sourcing offers businesses a distinct edge over their market peers.

Ethical sourcing emphasises the fair treatment of people in the production process, ensuring fair wages, safe conditions, and upholding human rights. It addresses broader social issues, like community well-being. Ultimately, by embracing ethical sourcing, companies can reduce emissions, bolster sustainability, and increase profits.

So what should companies be doing this year to ensure they are at the forefront of ethical supply chain management? Most importantly, if they haven’t already, businesses should be developing, and adhering to, an ethical strategy or code of conduct. Being able to demonstrate that you have policies in place to keep your business and your supply chain free from fraud, corruption and modern day slavery, is vital for CEOs and CPOs today.

An ethical code of conduct should cover a range of issues. For procurement professionals, all suppliers should be treated fairly at all stages of the procurement process. Buyers should discourage the unfair use of buying power or influence and must not tolerate corruption in any form. Social responsibility is key and should address forced labour, freedom of association, health and safety, child and forced labour, excessive working hours, and discrimination.

Organisations face critical decisions about how to integrate their current strategy to become more ethical. Implementing a strategy, particularly one with a change of process and policy, can cause resistance within an organisation. Companies have a huge role to play in minimising risk of social exploitation within the supply chain, so ensuring the strategy is applied properly is key. Businesses should integrate ethical practices into training and development, and should consider how to generate internal commitment.

Aside from the obvious benefits that ethical procurement has on the environment and society, it also brings other advantages. Ethical supply chains minimise business disruption from environmental, social and economic impacts, and act as a solid basis from which to protect, and enhance, a company’s reputation and brand value. Most beneficial though are the cost savings that are evident, by focusing on whole life costing methods for sourcing goods and services. In fact, research shows that companies with strong ESG credentials save from 5% to 10% in costs, and top ESG performers grow exponentially by 10-20% more in value against other competitors.

As companies develop and roll out ethical procurement practices, it will most certainly be the procurement professional at the forefront of the transition. Astute CPOs will not only embrace this shift, but lead companies into a new business model that will, evidently, only strengthen a businesses moral and financial fibres.