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Is an Ethical Supply Chain Worth the Cost?

Katharine Paljug

When the owners of home goods company Pehr Designs visited one of their factories in India, they turned the trip into part of their marketing strategy. Using photos and videos on Instagram, they showed their followers scenes of workers making rugs and other products, captioned with information about the company's commitment to providing safe, reliable, profitable jobs to local artisans. The posts garnered thousands of likes in a matter of hours, along with praise for the company's ethics.

"I have loved your designs ... but now there are even more reasons to support your company," one user commented. "Thanks for sharing this behind the scenes view and for supporting women internationally."

Consumers like these are interested not just in the finished goods they will spend their money on, but also in the human and environmental impact of the supply chain that produces those goods. Because of them, companies are feeling the push to invest in sustainable supply practices, especially after high-profile scandals like the Rana Plaza factory collapse.

Though the cost of these sustainability initiatives can be high, harnessing the power of an ethical supply chain to appeal to conscientious consumers can be a smart move both ethically and financially. [What is supply chain management?]

Consumer interest in sustainable business

A 2015 survey from Cone Communications found that 9 out of 10 millennials would switch brands to one associated with a more ethical cause. Erin Boyle, a writer who spotlights sustainable businesses and products on her blog Reading My Tea Leaves, is one of these ethical consumers.

"I subscribe to the general belief that we vote with our wallets," Boyle said. "I like to know that I'm supporting folks who are making thoughtful decisions all along their supply chains, who are treating workers fairly, and who are producing goods with an eye toward environmental stewardship."

For Boyle and like-minded consumers – regardless of their generation – no product is off limits when looking for sustainable companies and ethical supply chains. The companies that Boyle has written about and worked with range from big businesses making environmentally conscious paint to startups producing makeup in worker-friendly conditions.

But sustainability initiatives take time and money to implement. For businesses with limited resources, choosing which parts of their supply chains to focus on can be overwhelming.

The good news, according to a 2014 report by Software Advice, is that consumers are likely to respond no matter which supply chain improvements businesses choose to make. When asked whether environmental impact, working conditions or community involvement would convince them to support a company, respondents were split evenly, with each initiative being chosen about a third of the time.

Some specific behaviors were more popular with consumers than others. Respondents ranked reduced water use as the most important environmental change (28 percent), followed by biodegradable packing materials (26 percent) and using solar panels (22 percent). Among improvements to working conditions, nearly half of consumers considered fair wages and overtime pay for workers as the most important change a business could make in its supply chain, followed by safer worker conditions (20 percent).

"There are so many factors that businesses have to weigh when producing goods, and I'm not going to pretend to grasp all of them," Boyle said when asked how businesses can appeal to ethical consumers. "But I do think that reckoning with supply chains is a really important step.  Even super simple switches in material, or sourcing, or shipping, or worker benefits seems like good place to start."

Will customers pay more for ethically produced goods?

Environmental stewardship and higher wages for workers don't come cheaply, and these investments can significantly raise the cost of producing goods. But conscientious consumers, it seems, are OK with this trade-off.

The Nielsen Global Corporate Sustainability Report, published in 2016, indicates that as many as 66 percent of consumers are willing to pay more for goods that have a positive social and environmental impact, and close to 45 percent of customers are strongly swayed toward buying products from companies that show this impact.

How much more are they willing to pay? The Software Advice report found that, for a $100 product, customers were willing to pay an average of …

  • $27 more if it were made under good working conditions.
  • $19.50 more if the production's carbon emissions were offset.
  • $18.50 more if the raw materials were ethically sourced.

By investing in an ethical supply chain, businesses position themselves to engage with a driven, engaged customer base. Not only are these conscientious consumers willing to pay as much as 25 percent more for goods that reflect their values, but many times, they are actively seeking out sustainable companies.

The Cone Communications survey found that two-thirds of millennials use social media to engage with brands around corporate social responsibility, as Pehr Designs' customers did on Instagram. Boyle, as well, confirms that consumers who want ethically produced goods do the work of looking for them.

"I'd say that I find out about those kinds of companies and offers through a combination of social media, press releases, emails and good old-fashioned research," she said. "Whenever I see something that catches my eye, I make a point to keep track of it."

Image Credit: wk1003mike/Shutterstock
Katharine Paljug
Business News Daily Contributing Writer
Katharine Paljug is a freelance content creator and editor who writes for and about small businesses. In addition to Business News Daily, her articles can be found on Your Care Everywhere, She Knows, and YFS Magazine. Visit her website to access her free library of resources for small business owners.