In recent years, sustainability has become front and center for both consumer product brands and their consumers to reduce the impact on the environment and effect of climate change. Sustainability initiatives come in all shapes and sizes, including responsible product packaging, optimizing transportation and logistics routes, and efficient returns management programs. A big part of sustainability initiatives includes the use of ethical sourcing. Ethical sourcing is the process of ensuring that the products made are obtained through responsible and sustainable methods.

While the focus on growing revenue margins and overall customer experience management is so prevalent, we are most interested in the part source consultants play. Namely, what is the extent a flexible approach can impact the ability to meet ethical sourcing initiatives and requirements?

Ethical & Sustainable Sourcing  

Over the last few years, we have seen dozens and dozens of examples of companies changing how they source materials to promote sustainability and ethical standards. This has been especially true in the production of products that use aluminum, as they have moved away from working with suppliers that contribute recycled aluminum.

Interestingly, it has only mattered to them within the last few years, which indicates that the Covid pandemic, and some of the product shortages we have faced, may have made consumers and companies re-evaluate their stance on ethical sourcing.

This is not overly surprising, but most companies will still go with the convenient or profitable option, and there is not enough supplier transparency for companies to know whether materials were ethically sourced to make the products they are selling. Especially not to a degree of certainty needed to prioritize ethical sourcing practices.

Generally speaking, when companies make a statement such as “I prioritize ethical sourcing,” they will often be told to “put their money where their mouth is.” And while some companies are willing to spend more on ethically sourced materials, they also feel the need for suppliers and vendors to be more transparent – and more cost-efficient. And this is something that we have seen happening more and more. Many private equity-held companies are simplifying supply chains by reducing the number of suppliers they source from and awarding longer-term contracts only to suppliers who can commit to their environmental, social, and governance (ESG) expectations.

We are seeing a trend now where consumers want ethical sourcing to go beyond individual companies, indicating that the government needs to introduce regulations that hold businesses more accountable for responsible sourcing. This can get a bit tricky when considering the economic impact of additional governmental oversight on supply chain operations. But, in 2019, the Trump Administration stopped imports of clothing, gold, diamonds, and other items believed to have been produced with forced labor by companies based in Brazil, China, Malaysia, eastern Congo, and a region of Zimbabwe.

Again, it is not surprising there were so many unknown economic implications and product shortages, that had to be swiftly addressed after the import regulations were made.

 

Flexible Sourcing Approach 

One of the most difficult and expensive aspects of the supply chain is the quality of raw materials and the final product. Often the draw of ethically sourced raw materials does not outweigh the pull of quality and its link to revenue growth. However, more and more private equity firms and companies have ethical sourcing requirements built into their policies and supply chains. This means companies no longer need to compromise revenue growth (e.g. decreased quality or higher costs) for sustainable sourcing practices when they can be sure it has been ethically sourced and meets both cost and quality standards. Of course, this comes with a caveat, not all suppliers provide ethically sourced materials that are also cost effective. However, for those partnered with consulting firms specializing in strategic sourcing, it is safe to say that ethical sourcing requirements can be met while achieving cost reductions.

Ethical sourcing also plays a large role in the company’s (and their consumer’s) carbon footprint. And this is something that most consumers are becoming much more aware of when choosing the products they want to purchase. As mentioned above, companies do not have to be willing to give up quality or revenue growth for ethical sourcing. But are they willing to give up convenience for reducing their carbon footprint?

Flexible Structures is one of our Four Operating Principles that defines our ability to approach different sectors with the same rigor, address the client’s unique requirements, and deliver similar results across categories. In this context, we deliver on revenue growth opportunities while meeting the ethical sourcing requirements set by the client. However, too often this is not the case with all consulting firms. From an insider perspective, we are consistently into engagements where we sure up requirements, and we save an additional 20%-25% on cost-saving opportunities after the last consultant has left. This means multiple ‘sourcing’ consultants are making framework-based recommendations without flexibility built into their approach. The big question is how many requirements and growth opportunities are being overlooked?

Of course, this does bring up further questions on cost reductions and the approach to identifying further opportunities, which would deviate from the topic at hand. However, considering most consulting firms leave the strategy implementation to the company after the planning phase is done, there are discrepancies in how well ethical sourcing requirements are when strategy implementation is handed off. Small deviations can add up. This is an area where things may shift, for instance, in the way an internal sourcing department and a specialized sourcing firm will implement a supply chain strategy.

 

Final Thought

To answer the title of this article, following a rigid framework limits a sourcing consulting firm’s ability to meet ethical sourcing requirements. From a pool of global supply chain consultants, those who prioritize meeting the requirements of their clients can achieve strategic growth initiatives with ethically sourced materials. We know this can be achieved from our own experience of utilizing a flexible approach with transparent sourcing processes. And companies are taking a similar stance, as we continue to see manufacturers and retailers prioritize suppliers and partners dedicated to ethical sourcing and sustainability initiatives. This appears to be a trend that is not going to change soon and will continue to become more important.

Want to learn more? Reach out to our expert consultants directly