One of the lessons I learned some years ago in becoming an analyst is to challenge your assumptions – to flip what you think you know about a problem upside down and view it from the opposite perspective to expose any holes or flaws in your analysis. Another lesson I learned is to ask yourself, “So what?” to see whether the analysis is relevant to a particular audience. If the answer is not readily apparent, the points may be moot. “Red teaming” or “Devil’s Advocacy” is not only good for analysis – it is also kind of fun.
So, in the spirit of Devil’s Advocacy, I am flipping some assumptions about ethical or sustainable sourcing – that many consumers care whether enterprises ethically and sustainably source goods and services; that enterprises care to do this; that these measures can improve the environment or quality of life at the source – on their heads to test these assumptions and perhaps expose some weaknesses. This exercise may be more relevant for North American markets than it is for European markets, where there is greater regulation and consumer advocacy driving ethical and sustainable sourcing. But the exercise should be nonetheless insightful.
Let us consider these points:
- Most consumers either do not know or care about unethical/unsafe labor practices in the global supply chain (e.g., child labor, conflict minerals, human trafficking, slave labor, or unsafe working conditions). They may have a vague sense that this occasionally occurs, or has occurred, but they are generally unaware of or unaffected by the social or environmental issues wrapped into everyday products. Indeed, a recent Nielson survey revealed that only 32% of North American consumers check product labels to determine whether they were ethically or sustainably sourced before purchasing them, compared to 52% of all respondents.
- More consumers shop on price and value than ethical / sustainable sourcing. A look at National Retail Foundation (NRF) data from December 2014 shows that roughly 58% of consumers purchased electronics at big-box retailers, which are not typically known for ethical or sustainable manufacturing or sourcing methods. Conversely, less than half of North American Nielson study participants (42%) indicated that they are willing to pay more for products that are ethically or sustainably manufactured or sourced, compared to 55% of all respondents.
- Enterprises care more about driving lower costs, greater efficiency, and better service through their supply chains. This is particularly true in the consumer packaged goods, manufacturing, and retail industries. They understand their consumers and their supply chains, and that driving ethical / sustainable sourcing and supply chains is not necessarily cost effective. Moreover, regulation lags in the U.S. for things like ethical or sustainable sourcing – the Conflict Minerals Provision of the Dodd-Frank Act being a rare exception, although it is limited in scope and purpose (only publicly-traded companies are covered under the law, and they only have to investigate/report on the presence of these minerals in their supply chains – they are not legally bound to change suppliers). Unless greater consumer interest or greater, more stringent regulation require enterprises to change their suppliers or sourcing methods, they are not likely to do so.
- Corporate social responsibility (CSR) statements and supplier codes of conduct do not solve problems on the ground. They are “nice to haves”, but unless CSR statements and supplier codes are audited and binding, they merely create the illusion of ethical or sustainable sourcing (or, perhaps more cynically, be mere marketing tools to attract consumers who shop on ethical or sustainable processes and sources). Enterprise CSR statements need to be audited; supplier codes need to be enforced; and all parties – consumers, enterprises, and sources – need to hold each other accountable. CSR statements and supplier codes are a good start, for sure, but they do not ensure accountability.
- Putting words into action can be cost prohibitive for enterprise sourcing and procurement teams, especially when they look beyond their first-tier suppliers to trace the origins of commodities, products, and services. Supply chains can be murky, and gaining visibility can be a costly, lengthy, and inconclusive process. Indeed, we recently spoke to a Chief Procurement Officer at a big-box retailer who told us that it would be cost-prohibitive if he and his staff had to trace every component of every product they sell back to its point of origin.
- Ethical / sustainable sourcing practices do not improve environmental or working conditions. This is simply untrue. Ethical / sustainable sourcing and manufacturing processes are improving conditions on the ground for workers and the environment, alike. As an example, a recent article from Tim Mohin, Director of Corporate Responsibility at AMD, states that since the Conflict Minerals Provision was enacted several years ago, 125 mines from the Democratic Republic of the Congo (DRC) have been certified conflict free, meaning that they are not controlled by militias and their revenues are not funding conflict in or around the DRC. Closer to home, textiles companies, like Project Repat, are recapitalizing old t-shirts and recycled plastic to create customizeable fleece blankets – bringing more textiles jobs back to the U.S. and preventing tons of textiles and plastics from entering the environment.
This last point is an interesting one – ethical, sustainable sourcing practices clearly matter to workers and to the environment. But in order for conditions to improve on the ground, ethical, sustainable sourcing has to matter to more enterprises and ultimately to more consumers – whether it be through greater consumer interest (bottom up) or governmental regulation (top down). If it does not, the issue will remain a largely grassroots one, or one used as a marketing tool to attract ethically- or sustainably-minded consumers.
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