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Ensuring ethical practices through all of the tiers of a global supply chain is a never-ending challenge. How do we get it right?
In this age of complex, global supply chains, few tasks are more vital than making sure that factory workers are treated fairly and humanely. Yet stories about violations of ethical labor practices — some involving injuries and even the deaths of workers — continue to make headlines. In this conversation, excerpted from an episode of The SupplyChainBrain Podcast, Michael Bland, global sales director with AsiaInspection, offers advice to companies looking to gain visibility over the factories that are producing their goods. He describes the elements of an effective supplier code of conduct, and tells how to extend its terms through multiple tiers of the supply chain — as well as how to ensure continuous compliance through the life of a contract.
Q: What progress has been made to date in ensuring safe and ethical working practices in factories around the world?
Bland: Actually, we’ve had a lot of progress. It depends on where you want to start the discussion. If we’re thinking back to the ‘90s, when there was a lot of press about children in Malaysia making shoes or garments, there’s been a lot of progress — initially by textile brands and manufacturers, and now by just about everyone. At this point, I would say that well over 80 percent of companies’ brands worldwide are looking into corporate social responsibility programs for manufacturing and supply chains, and seeking to have a process of ethical sourcing. There’s still a lot of room for improvement. But in the last 30 years, there’s been a huge amount of progress. There was nothing in place before that.
Q: It’s been a few years since the 2013 Rana Plaza factory collapse in Bangladesh. We haven’t seen a disaster of that scale since then, have we?
Bland: No, but to be fair, that’s the largest disaster in the supply-chain industry. There were 1,515 workers killed, and 2,500-plus injured. The reason it was so tragic, in addition to the loss of life, was that it could have been prevented. People knew what was going on, and nothing was done to stop it.
Nothing has happened since then like that, but there have been building collapses in China, India and Vietnam that have killed between 40 and 60 people and injured hundreds more. It’s certainly still taking place. The issue of building safety is not just limited to Bangladesh. Five years ago, major brands around the world decided that they needed to go into Bangladesh and fix this problem. They created the Bangladesh Accord [on Fire and Building Safety], and formed an alliance of U.S. and European retailers. But there are still problems of building safety all over the world. It’s a major issue that hasn’t been addressed as much as, say, child labor or forced labor.
Q: Less dramatic, but of equal importance, are day-to-day working conditions within factories, covering wages, hours and safety measures. To the extent that we still have a problem with unethical working conditions, where and how widespread is it? Where are the most serious issues today?
Bland: It depends on where you’re looking. In China, the biggest problem is working hours — factories not paying workers for the hours they work, not paying correctly for overtime, and working them more than the law permits. In Turkey, with the recent influx of Syrian refugees, you’re seeing things like forced labor and child labor, which hadn’t been the case before. By forced labor I mean things like taking away the worker’s right to leave — locking dormitories, taking away travel documents. In the case of Syrian refugees, they might not even have any documents, so those workers are at the mercy of employers who are exploiting them as cheap, illegal labor.
Q: To companies with products made in these locations, the discovering of such violations often seems to come as a surprise. Where are the big gaps in communication and information that keep them from having visibility over what’s going on in factories overseas?
Bland: I don’t think there’s that huge of a gap for any major brand or retailer. They know the threats that are out there, and most of them have programs to look at their Tier 1 suppliers. It’s the suppliers of raw materials — the Tier 2s, 3s and 4s — that might not be visible to them. That’s partially because they haven’t begun monitoring additional tiers yet — it’s a recent movement over the last seven or eight years. Only the most influential and ethical companies are doing that so far. It’s definitely something that other companies, especially small to medium-sized businesses, need to look into.
Q: Aren’t there still challenges involved in simply identifying all of the different producers and locations within the multiple tiers of a supply chain? Just finding out where these factories are?
Bland: Most suppliers will tell you where their main factory is. But this is where we come to the topic of unauthorized subcontracting — not necessarily knowing when they decide to farm out work to someone else. Is that visible to a retailer or a brand? That’s where the real problem comes in.
Q: Let’s talk about potential solutions. How can brands get a better line on what’s going on, and how they can achieve better visibility? From the very start of a relationship with a supplier or contract manufacturer, what should a brand or OEM do to make sure that production is going to proceed in an ethical manner?
Bland: Communication and transparency is key. It’s about adopting more of a cooperation mindset than this “comply-or-die” attitude, which was so prevalent in the ‘90s and early 2000s. It’s something that the CSR industry has moved away from. The idea is not that I want to go in and police my factories and get rid of the ones that don’t comply. That’s just not a sustainable model. You might have factories that are key to your production — they make a product that no one else can. So you need to work with them. And why not? Why not make everything better for the suppliers and workers? You want to let suppliers know that you’re not trying to get rid of them. Instead, you’d like to help them grow their business in an ethical way. As a result, they’re able to sell to more retailers and brands worldwide. It’s a win-win situation.
When you take that approach, there’s a greater chance of cooperation and commitment by the supplier. It’s why we always recommend launching a CSR program with a supplier seminar, where a third party helps organize it together with the brand, its suppliers and all of their factories.
Q: What about on-site training of workers, so that they themselves understand the employer’s expectations of them, as well as the rights they have on the job?
Bland: There are companies that do that, and we work with them as partners. It’s called a worker voice solution, where we try to empower the workers by giving them things like smartphones for SMS texting or voice calls. We also give them feedback cards, where they can contact us through various apps — whatever works best for them — so that they can provide feedback at any time, beyond just going through a social audit. You can get their voice at their convenience.
Q: On many occasions in the past, we’ve seen major brands adopt strong supplier codes of conduct. They are at least giving lip service to the notion that they want ethical working conditions at the production site. But then those same OEMs or brands will make unreasonable demands on the factory, relating to turnaround time or volume, essentially incentivizing the factory to cut corners. What does the supplier or manufacturer do, when the brand that professes to care about workers is imposing demands that make it impossible to maintain ethical standards?
Bland: What we often say in manufacturing is, there are three main desires: speed, quality and price — pick two. When a brand or manufacturer demands all three, this is exactly what happens. One of those things has to suffer. In response, the factory might outsource, leading to the use of cheaper raw materials, which affects product quality. Or another supplier without the same ethical practices in place will do it more cheaply. Or maybe the original manufacturer just needs more capacity, because the brand is asking for too much volume in too short a time.
This is a common practice for any business. These kinds of subcontracting practices aren’t necessarily a bad thing — it’s not having visibility that’s bad. The brand might not have a problem with subcontracting; it just wants to know about it. So that it can help to build those factories up as well, and make sure they’re in compliance.
Q: Let’s assume you’ve got a supplier code of conduct in place. You’ve on-boarded a supplier. Your expectations of ethical working conditions are well understood. Now the challenge becomes how to monitor the relationship. What does AsiaInspection do on behalf of brands and manufacturers in order to ensure continued compliance?
Bland: We start out with a supplier seminar, to make sure that everyone’s on board correctly. Continual monitoring is the next stage, initially through an audit program. We ask, what is it you want to make sure your factories are maintaining ethical labor practices? We help to create that program. We can use international standards such as BSCI [Business Social Compliance Initiative] or SMETA [Sedex Members Ethical Trade Audit]. Or we can use a customized checklist that we create together with the supplier, covering basic things such as health and labor practices.
We go in on a regular basis — we usually recommend a minimum of once per year. In China, all factory workers leave during Chinese New Year for at least two weeks, sometimes as many as four, and only about 50 percent come back. Workers try to find jobs that are better paying or closer to their hometowns. So every year it’s a new factory.
Q: Are factories informed in advance of these audits and factory visits?
Bland: Sometimes yes, sometimes no. We perform three different levels of audits. One is announced — we’ll be coming at a specific date and time; please have everything ready. Then we do semi-announced audits, where we give them a window, and don’t tell you the exact day. And then there are unannounced audits, where we don’t tell you anything at all. That’s for when you suspect that a factory isn’t being upfront. They’re all tools that can be used, but we generally don’t recommend using only unannounced audits. Then the factory feels very highly policed.
In addition to that, we do neighborhood audits, where we don’t just talk to the factory itself, we also talk to neighboring businesses. For example, if we suspect there might be some subcontracting going on, we ask whether trucks have been seen arriving at the factory with finished goods. Or maybe we have a suspicion that they’re working unreasonable hours, and not paying their workers overtime. So we’ll do a night audit to see if the lights are on, whether people are walking around in the production rooms. Just to get extra information.
Q: Do you interview workers out of earshot of the supervisors?
Bland: That’s always what we try to do — at least out of earshot, and hopefully out of eyeshot as well. We try to separate them. Part of the audit process is walking around and identifying workers — partially randomly and partially targeting certain individuals.
For example, we might focus on those in a more dangerous production line, with toxic chemicals or laceration hazards. We identify those workers and pull them out one by one into a separate room. We always ask that the factory manager not attend. Sometimes that isn’t possible because the manager insists. The auditors will be firm but professional. If the manager insists on being there, we make a note of it as something the brand or manufacturer needs to know, because it usually indicates a high level of pressure being put on that worker.
Q: Maintaining ethical labor practices is morally the right thing to do. But there’s also the issue of profits. One of the biggest incentives to correct unethical behavior is that you’ll lose sales and brand reputation if you engage in it. Do you believe that the consuming public cares about these issues, to the extent that if they learn of unethical practices occurring at factories, they will refuse to buy the products?
Bland: It’s not a question of my belief — it’s reality. Younger generations, especially millennials, are more connected online, and this is exactly how they shop. They look at product reviews; there are many websites giving you ethical information and alternatives. But when you talk about the question of cost and sales, I don’t think that an ethical sourcing program is really a cost at all. I consider it more of an investment.
We talked earlier about what happens every Chinese New Year at these factories. When only 50 percent of workers come back, you have a less-trained workforce, lower-quality products, difficulty in making sales, and higher cost of returns. But what if you were ethically sourcing? What if you helped those factories become ethical? More of the workers return, and you end up with a better-trained workforce and higher-quality products. We’ve found in our internal studies that there’s a high correlation between factories that score high on an ethical audit and the quality of their products. It really is an investment on behalf of brands and retailers to help those factories become more ethical. Again, it’s a win-win situation to have strong ethical programs.
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