In focus: Mission Impossible

Businesses across the developed world are under pressure to ensure that every part of their supply chain is ethical. But can they do it?  And what happens if they succeed?

 

It’s the dilemma facing almost every business in Australia. On the one hand, globalisation has made supply chains more efficient than ever. For example, car manufacturers accept parts and services from all over the world, including from some extremely niche businesses in remote areas. These chains span multiple countries, but businesses use them because they’re incredibly efficient, reducing costs and waste at every link.

Consumers today are interested in the origin of the products they buy – and they’re voting with their wallets in favour of transparent, ethical and sustainable supply chains. The vision of low-wage workers in exploitative ‘sweatshops’ is enough to inspire a boycott, but consumers are also concerned about the environmental impacts of production, and the flow-on effects on local communities.

So what can Australian small businesses do? Jacquelyn Humphrey, associate professor in finance at the University of Queensland Business School, says supply chain transparency is a vexed issue for businesses of all sizes in Australia. Asked if ethical or sustainable sourcing was something only larger players needed to concern themselves with, she’s quick to set the record straight.

“Not at all,” she says. “There are many small to medium businesses that pride themselves on ethical and sustainable resourcing. Indeed, this can be a point of product differentiation for a small business.”

Unethical businesses are bad businesses

Australia has laws against bribery and exploitation in foreign business dealings, and also requires minimum standards for domestic work environments. This provides a basic framework for building supplier relationships.

Sigrid McCarthy, a spokesperson for textiles sector accreditation body Ethical Clothing Australia (ECA), says there are good reasons for small businesses to understand their supply chains, and to adjust them where necessary. Chief among these is the ability to use the marketing and branding opportunities of a transparent and ethical supply chain.

“Consumers have incredible buying power, and often treat every purchase as an act of voting,” she says. “Differentiating your brand as one that cares for communities can be a powerful marketing tool.”

A more transparent supply chain, with efforts made to ensure reasonable working conditions and environmental health at each point, can also have longer-term benefits.

“People forget that with unregulated outsourcing offshore, there are a whole lot of financial and reputational risks attached,” McCarthy says. She warns that suppliers with poor workplace practices are often poor businesses at their core. They face an increased risk of strikes and other issues affecting their output, which will in turn impact the reliability of the partnership.

The challenge of supply chain mapping

Mapping out your business’s complete supply chain is easier said than done. The task itself can be painstaking and expensive, with on-the-ground audits the most reliable way to get a true understanding of each individual link.

Emmanuel Josserand, professor of management at the University of Technology Sydney and an advocate for the Sustainable Supply Chain Network Initiative, says the same competitive factors that draw businesses towards low-cost (and potentially unsustainable) suppliers also prevent many brands from investing in transparency goals.

“SMEs typically don’t have that type of leverage,” he says. “They don’t have the scale to impact on the supply chain.” Still, there are some industry-specific tools and accreditation schemes to make this task a little easier.

ECA, for example, offers discounted fees for new businesses and sole traders looking to get their textile supply chains certified under the Textile, Clothing, Footwear and Associated Industries Award. Participating businesses also have access to a range of published resources and ECA’s advisory staff.

Logistics partners can also be a strong source of information and advice. The domestic road transport industry has been under the spotlight in recent years, and is now embracing national chain of responsibility (COR) legislation that makes cargo owners responsible for road safety alongside their transport providers.

Josserand suggests that competitive pressures are different in each sector of the economy. Each industry faces a different level of enthusiasm from both end consumers and the larger players involved, and each is at a different point along the road to transparency.

He cites the coffee industry as an example of one that started the journey earlier than others. “A quarter of the market share in Australia is now socially sustainable,” he says, noting that the “ethical dimension” of the market in developed countries has been present since the 1990s. “It’s also a short supply chain and very straightforward, so it’s easier to trace and control.”

The textiles sector is going through the same process. Since the 2013 collapse of an overcrowded factory in Bangladesh, in which more than 1000 people, mostly garment workers, were killed, consumers and non-government organisations like ECA have worked to give a competitive advantage to brands that can prove their supply chains feature safe and fair workplaces.

“That was a definitive moment, with all stakeholders getting together at a global level,” Josserand says. “Some of the companies are now really active in working with their suppliers.”

Get ahead of the game

Other parts of the economy are yet to see significant action in this space. The global consumer electronics industry, for example, is well known for its extremely long and complex supply chains, as well as the dominance of a handful of larger firms who are price and cost-focused.

Professor Josserand says that when major players are resistant to change, it makes it far more difficult for any one small player to lead the way. There simply are not enough marketing or branding returns on offer to justify any serious supply chain investment.

But the fact that change has not been uniform does not take away from the long-term trend. Ethical and environmentally sustainable sourcing is not a fad. Rather, it’s the result of a fundamental shift in consumer behaviour that will eventually filter through to every corner of the world economy.

By regulatory force or consumer demand, every business will eventually face pressure for supply chain transparency. It’s a great opportunity for Australian small businesses to start early and turn their supply chain management into a source of competitive advantage.

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