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In business, sourcing is a procurement process aimed at finding, appraising and engaging providers of goods and services. It is a critical pillar to running a successful business venture. This is because; it directly impacts on final product quality, as well as cost implications passed on to consumers. For instance, Wal-Mart is ahead of competitors in the retail business due to implementation of very efficient sourcing procedures. However, as businesses increasingly look to outsourcing as the preferred sourcing method, consumers are raising concerns about the ethics behind it. For instance there are issues of unfair compensation of outsourced labor, and low quality production raw materials outsourced from the developing world. These concerns have led to the emergence of a new trend called ethical sourcing. What is ethical sourcing? Ethical sourcing means ensuring that above par labor standards are met, during the making of goods and services. It also means that, the materials used in the production process are of acceptable quality. Some argue that sourcing ethically can increase the cost of production which in turn would hurt consumers. However, research shows that the pros of sourcing ethically outweigh the cons. Advantages of ethical sourcing One of the advantages of ethical sourcing is that, it helps increase consumer trust in a given brand (Brand Equity). When a business has a transparent production process, consumers tend to trust that particular brand more. This gives an edge over competitors, translating into increased sales revenues and a higher stock price. Ethical sourcing can also help a business attract and retain highly skilled labor. Human beings love being treated well, and naturally tend towards organizations that treat them well. By employing fair employment practices, a business gets to reap the fruits of a high quality and motivated workforce. This reflects itself in the quality of the final product as well as in customer relations. Last but not least, sourcing ethically can give a business a head start in case government regulations change, to legally enforce ethical sourcing. With increased consumer awareness and pressure from human rights groups, it is not difficult to foresee a situation where this practice will be enforced by law. In such a scenario, a business that is sourcing ethically now, will not be affected by the massive structurally changes, which will hit the average procurement function in every corporate organization. Disadvantages of ethical sourcing The main stumbling block to adoption of ethics in sourcing is cost. Getting ethical suppliers as well as strictly adhering to fair labor practices can be a very expensive exercise. Such cost implications in an environment where other players in an industry are not ethical, can be detrimental to a firm’s market share. It would make little sense to produce ethically, and then charge consumers a price that is way above what other industry players are offering. Guidelines on how to adopt ethics in sourcing processes For an organization seeking to source ethically, it can look to the United Nations Global Compact for guidelines on how to go about it. An organization can also engage the services of a supplies expert, to develop a framework for adopting ethics in its sourcing processes.
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