Sustainability penalties or stock out cost, and reduce overall

Sustainability
Initiatives at FMCG: Responsible Sourcing

In past decade, global market has witnessed several instances when
disruptions in supply chain have impacted the performance of FMCG sector. Most
of the times such disruptions are caused by issues that are deep-rooted in
supply chain. As a result, unceasing operation of business needs identification
of these risks, assessment of their impacts and developing mitigation strategy. 

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What is responsible sourcing?
International
Chamber of Commerce (ICC) defines responsible sourcing as “a voluntary
commitment by companies to take into account social and environmental
considerations when managing their relationships with suppliers1”.
 Responsible sourcing goes beyond traditional approach where cost is the
primary concern and focuses on healthy and safe working environment, fair labor
practices, environmental impact and ethical business practices in day to day
operations.  It provides multitude of benefits to the business such as
risk mitigation, brand reputation, competitive advantage and innovation.

 

Risks in FMCG Supply Chains

ü 
Legal
Risk: Non-compliance to local social and environmental regulatory
framework may result in fine and penalties

ü 
Reputational
Risk: Issues pertaining to human rights, child labor, unethical
practices and environmental degradation by suppliers will severely impact the brand
reputation

ü 
Quality
Risk: Substandard quality raw material will reduce resource
efficiency and produce poor quality final products, resulting in loss of
revenue and customer dissatisfaction

ü 
Supply
Risk: Any disruption in supply of raw material may stall
production and impact the performance

ü 
Technology
Risk: If suppliers do not adopt latest technological
innovations, the company might lose its market share by losing its competitive
edge or because of not keeping up to customer’s expectations

ü  Operational Risk: Break-down
of internal systems, accidents, exposure to hazardous material, and other
health and safety concerns affect production cycle

 

Opportunities created by Responsible Sourcing

ü 
Risk
identification and management: Ethical sourcing entails
identification of wide range of supply side risks, not limited to
manufacturing. It prepares resilient supply chain to address these issues

ü 
Cost
reduction: Strategically planned responsible sourcing policy can
avoid unnecessary costs, such as fine and penalties or stock out cost, and
reduce overall cost of raw material

ü 
Brand
reputation: Transparency in supply chain, commitment to social
and environmental values and strong ethical culture can help organizations in
achieving internal & external sustainability goals and meet expectations of
all stakeholders

ü 
Innovation:
New solutions such as recycling, circular economy, alternative materials, and
eco-labeling are getting popular in business market

ü  First mover advantage:
Gain competitive advantage by following regulations and becoming most
sought-after supplier