‘Ethical Sourcing’ The Next Electronic Industry Trend

What is ethical sourcing? Essentially, adoption of ethical sourcing reflects the respect to the people and our plant. Ethical sourcing gets rid of the outdated opinion of making profits by solely focusing on needs of end customers in terms of quality, price, delivery and service.  Instead, it incorporates needs from more comprehensive stakeholders along the supply chain, especially those from frontline workers. Ethical sourcing practices are to ensure that products being sourced are manufactured by legal workers who work in safe working environment, get fair wages, and are treated well.

The development and implementation of ethical sourcing practices vary across industries. For example, last year Starbucks claimed 99% ethically sourced coffee.

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In general, food and pharmaceutical industries have taken the lead in ethical sourcing and the apparel industry has also improved significantly in this area. It makes perfect sense that the marketplace has more concern about whether their medicine, food and clothing are ethically sourced as end customers are consuming or wearing these products on a daily basis.

On the contrary, in the electronics industry, promoting and enforcing ethical sourcing seems to be an impossible mission. From the electronic manufacturer side, the supply chain in this industry is very long and transparency throughout becomes less  traceable as it works backward to the origins of raw materials such as minerals. The supply base for the electronics industry is very large; managing hundreds of first-tier suppliers is not easy. The difficulty of managing the second and third tier suppliers along the whole supply chain is beyond imagination. From the customer side, there is a lack of strong incentive to put pressure on manufacturers; they place more value on visible traits such as function, quality, price and service.

Does this mean that, for electronics manufacturers, ethical sourcing is merely a fancy, nice-to-have branding/selling point? The answer is definitely NO!

Ethical sourcing will bring many benefits to the electronics industry:

  1. Corporate Image: a strong, proactive stance on ethical practices will strengthen the company’s image resulting in favourable customer perception, customer retention and attracting new business from the socially conscious consumer.
  2. Customer Loyalty: customers become more loyal to the company’s products; as global wealth increases, customers’ focus are shifting from price sensitive to ethical consciousness.
  3. Better Supply Chain Management: implementing ethical sourcing will push companies to a level of supply chain transparency that they have never had before resulting in a more visible supply chain and better relationships with selected suppliers.
  4. Cost Avoidance: by cooperating with selected responsible suppliers, companies incur less cost for managing huge supplier bases and are able to allocate and invest more resources to R&D, manufacturing and operations.
  5. Risk Mitigation: companies’ exposure to potential risk associated with unethical practices of suppliers will be sustainably decreased by ethical sourcing.
  6. Business Opportunities: more and more public organizations will only procure ethically sourced electronic equipment. For example:
  1. Improve the Bottom Line: being an ethical manufacturer will not only improve revenue by getting more business opportunities from public and private organizations but will also decrease the operating expense in multiple ways. As mentioned before, supply chain management cost will decrease as companies optimize their supplier base by cooperating with responsible suppliers. Responsible suppliers will be rewarded with more purchase orders and will be able to offer better quotes. As such reciprocal relationships continue, the trust between manufacturers and suppliers grows deeper and the transaction cost between them goes down.

How can ethical sourcing be initiated in an effective way?

The starting point is a thorough stakeholder analysis. Unifying high power stakeholders who have  an interest to drive ethical sourcing practices will entice more stakeholders to jump on board. As the number of invested stakeholders increases, the whole supply chain moves towards a sound ethical state.

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A company policy on ethical sourcing (and enforcement of that policy) is another compulsory step to increase the awareness of and commitment to ethical sourcing.

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Acquiring certification is also recommended.  The EICC (Electronic Industry Citizenship Coalition) established a Code of Conduct consisting of a set of standards on social, environmental and ethical issues in the electronics industry supply chain.  With the assistance from EICC, electronics manufacturing companies can make changes to conform to those standards.

Additionally, educating suppliers and auditing their reported activity to ensure that they are compliant is essential. Align suppliers’ interests with your company’s ethical sourcing strategy. Take the simplest example; allocate more purchase volume towards ethical suppliers.

Last, but not least, periodic monitoring and review are critical in order to take corrective action and promote best practices. Companies should continuously improve the transparency of their supply chain until all parts are ethically sourced. Joint effort and persistent dedication will deliver a better planet for all of us.

Don’t miss the opportunity of changing the electronics manufacturing industry and making your company a leader in ethnical sourcing.

Han Di is a contributor at the operational and strategic levels in supply chain development and is a Supply Chain Specialist at Silecta Inc., a supply chain services company.

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