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Driving Change: Ethical and Social Practices in Supply Chains

Driving Change: Ethical and Social Practices in Supply Chains

Key Statistics Overview

  • The global SCM market was valued at approximately $16 billion in 2020 and has more than doubled over the last decade.
  • 51%of global businesses have sustainable procurement policies, with 90% of procurement experts expecting suppliers to demonstrate carbon neutrality.
  • 61%of consumers recognize the Fairtrade Mark, with 80% willing to pay more to ensure fair pricing for producers.
  • 79%of companies with high-performing supply chains achieve greater revenue growth.
  • 63%of companies monitor labor standards in their supply chains.
  • 65%of firms do not have a net-zero carbon emissions goal, with only 6% showing increased commitment to climate change mitigation.
  • 54%of organizations lack understanding of cyber vulnerabilities in their supply chain.
  • Diversity, equity, and inclusion (DEI) objectives have risen from 27% in 2022 to 49% in 2023 among supply chain organizations.
  • The global SCM application market is expected to reach nearly $31 billion by 2026.

These statistics underline the growing importance of ethical and social practices in SCM and highlight areas where businesses are making significant strides.

Introduction

Supply Chain Management (SCM) is a complex network involving organizations, resources, information, and people to meet supply and demand. 2020, the global SCM market was valued at roughly 16 billion U.S. dollars, and over the last decade, SCM software and procurement markets have more than doubled in size. This blog explores the ethical and social practices in SCM, emphasizing their importance and impact on global business operations.

Ethical Practices in SCM

Sustainable Sourcing
Sustainable sourcing involves incorporating social, ethical, and environmental factors into supplier selection. This practice ensures that suppliers use sustainable resources and business practices. According to a survey by Stanford Business School in early 2023, 51% of global businesses have adopted sustainable procurement policies, contributing to the resilience of their value chains. This shift is partly due to government regulations requiring businesses to consider their environmental impact. BloombergNEF forecasts that 90% of procurement experts will require suppliers to demonstrate carbon neutrality, highlighting the growing necessity of sustainable practices.

However, sustainable sourcing is not universally adopted. For example, only 2% of companies in China prioritize sustainable growth. On the consumer side, a study by Nielsen found that 55% of consumers are willing to pay more for products and services from companies committed to positive social and environmental impacts. By adopting sustainable sourcing practices, companies can reduce their environmental footprint, enhance their brand value, and build stronger, more resilient supply chains.
Fair Trade
Fair trade aims to create equitable trading conditions, focusing on dialogue, transparency, and respect to secure the rights of marginalized producers and workers. According to the 2023 Fairtrade America Consumer Insights, 61% of consumers now recognize the Fairtrade Mark, a significant increase from 41% in 2021. Despite rising living costs in the U.S., nearly 80% of consumers familiar with Fairtrade are willing to pay more to ensure producers receive fair prices.

Globally, the Fairtrade Mark remains the most recognized ethical label, with 71% of shoppers having seen it. Coffee is the most recognized Fairtrade-certified product, with 48% of shoppers recalling the label, and they are willing to pay up to 35% more for Fairtrade coffee. Similarly, 43% of shoppers recognize Fairtrade chocolate and are willing to pay up to 55% more for it. These statistics underscore the importance of fair trade practices in SCM, ensuring fairer prices for producers and enhancing brand value.
Transparency
Transparency in SCM involves sharing all necessary information with involved parties, building trust crucial for SCM success. The GEODIS Supply Chain Worldwide Survey revealed that supply chain visibility, a key aspect of transparency, is the third most important strategic priority. Additionally, 79% of companies with high-performing supply chains achieve revenue growth exceeding industry averages.

In 2023, 79% of supply chain leaders implemented or began implementing dashboards for enterprise-to-enterprise visibility. This trend is expected to continue, with 71% of leaders prioritizing data-driven approaches in 2024. By adopting transparent practices, companies can build trust with stakeholders, make better decisions, and create stronger, more resilient supply chains.
Ethical Labor Practices
Ethical labor practices ensure fair and humane treatment of workers, including fair wages, safe working conditions, and respect for workers' rights. A survey by The Ethical Trading Initiative found that 63% of companies actively monitor labor standards in their supply chains. Ethical sourcing practices contribute to creating safe working conditions, fair wages, and responsible resource utilization, fostering long-term and transparent supplier relationships.

A recent survey of over 500 executives revealed that 80% of supply chain executives are increasing efforts towards sustainable supply chain operations to reduce risks, increase innovation, and generate stronger returns for stakeholders. Understanding and strengthening Environmental, Social, and Governance (ESG) metrics will be key to a company's long-term viability, promoting ethical supply chains by reducing environmental impacts and addressing labor rights.
Environmental Responsibility
Environmental responsibility in SCM involves reducing waste, lowering carbon emissions, and using renewable energy sources. The "State of Supply Chain Sustainability 2023" report found that 65% of respondent's firms do not have a net-zero carbon emissions goal, and only 6% reported increased organizational commitment to climate change mitigation. However, disruptions like COVID-19 and geopolitical events have boosted commitments to sustainability by 79% and 61%, respectively.

Despite economic pressures, maintaining environmental responsibility is crucial. Globally, net-zero carbon emissions goals are more common in wealthier countries, with 53% of European and 44% of American firms adopting them, compared to 36% in Asia and 22% in Latin America. By adopting environmentally responsible practices, companies can reduce their environmental impact and build stronger, more resilient supply chains.
Responsible Procurement
Responsible procurement involves acquiring goods and services while respecting human rights, social equity, and environmental factors. The 2023 Stanford Business School survey found that 51% of global businesses have sustainable procurement policies. Additionally, BloombergNEF forecasts that 90% of procurement experts will require suppliers to demonstrate carbon neutrality, emphasizing the importance of sustainable practices.

However, sustainable practices are not universally adopted, with only 2% of companies in China prioritizing sustainable growth. The 2023 MHI Annual Industry Report noted that 74% of global supply chain leaders are increasing investments in supply chain technology and innovation. By adopting responsible procurement practices, companies can ensure fair treatment for workers and build stronger, more resilient supply chains.
Data Privacy and Security
With the increasing digitization of SCM, data privacy and security have become paramount. The "Top 10 Supply Chain Trends 2023" report ranked data security and cybersecurity as the sixth most important trend. The 2024 report indicated growing awareness, with supply chain cybersecurity moving to the eighth position.

The "Global Cybersecurity Outlook 2024" report revealed that 54% of organizations lack sufficient understanding of cyber vulnerabilities in their supply chains. Furthermore, supply chain attacks have surged by more than 2,600% since 2018, affecting over 54 million victims in 2023 alone. By adopting robust data privacy and security practices, companies can protect sensitive information and build stronger, more resilient supply chains.

Social Practices in SCM

Community Engagement
Community engagement involves collaborating with community groups to address issues impacting their well-being. The "Top 10 Supply Chain Trends 2023" report emphasized the need for organizational alignment to ensure supply chain resilience, including increased engagement with labor unions and enhanced supplier engagement.

The "State of Logistics and Supply Chain in the Humanitarian Context 2023" report found significant participation from local NGOs (17%), international NGOs (42%), UN agencies (16%), governmental actors (14%), and other service providers. By adopting community engagement practices, companies can support community well-being and build stronger supply chains.
Respect for Human Rights
Respect for human rights in SCM ensures that all workers are treated with dignity and respect. In 2023, US Customs and Border Protection seized nearly $1 billion worth of products over suspected ties to forced labor. This highlights the increasing vigilance towards human rights in SCM.

A survey of over 500 executives found that 80% are increasing efforts towards sustainable supply chain operations. Companies are expected to understand and prevent human rights impacts and modern slavery violations in their global supply chains. This trend is driven by regulatory changes and shifting stakeholder expectations.
Diversity and Inclusion
Diversity and inclusion in SCM promote a diverse and inclusive workforce. According to a Gartner survey, nearly half of supply chain organizations have formal DEI objectives, up from 27% in 2022 to 49% in 2023. However, only 10% of underrepresented groups make it to the supply chain's C-suite.

The survey also revealed an increase in the representation of underrepresented races/ethnicities within supply chain leadership, from 32% to 48%. By promoting diversity and inclusion, companies can create a more equitable and effective supply chain workforce.
Employee Welfare
Employee welfare in SCM ensures the well-being of employees through safe working conditions, competitive wages, and work-life balance. In 2023, workforce shortages were severe, with over three-quarters of respondents facing significant labor shortages.

Medium-sized businesses focused on improving supply chain resilience and agility, with 55% prioritizing this in 2023. For larger companies, visibility remained a top priority. By prioritizing employee welfare, companies can attract and retain talent, ensuring a positive work environment.
Local Economic Development
Local economic development in SCM supports the communities where the supply chain operates by hiring local workers and supporting local businesses. The global SCM market is projected to grow from $25.7 billion in 2022 to $72.1 billion in 2032, significantly impacting local economies.

In 2023, supply chain activity normalized, but risks related to industrial policy, labor action, and environmental policy implementation influenced the industry outlook for 2024. By supporting local economic development, companies can create sustainable supply chains that benefit local communities.
Stakeholder Engagement
Stakeholder engagement in SCM involves working with all stakeholders to make decisions that benefit everyone involved. In 2023, supply chain professionals faced constant disruption, rapid digitization, and growing consumer demands, highlighting the need for effective stakeholder engagement.

A KPMG report found that 74% of stakeholders consider Generative AI the most impactful emerging technology. As the global SCM market is expected to reach nearly $31 billion by 2026, integrating stakeholder engagement will be crucial for navigating changes and implementing new technologies.

Conclusion

The ethical and social practices in SCM are evolving with the changing global scenario, focusing on sustainability, digital transformation, and resilience. As these practices continue to develop, they will play a crucial role in shaping the future of SCM, ensuring fair treatment for workers, reducing environmental impact, and building stronger, more resilient supply chains.
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