Responsible supplier management (part of the green supply chain series)

Inspired by SOAS CeDEP study programmes.Presentation © 2012 by Darren Willman.

RESPONSIBLE SUPPLIER MANAGEMENT

(PART OF THE GREEN SUPPLY CHAIN SERIES)

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http://www.soas.ac.uk/cedep/


LEARNING OBJECTIVES

› Introduce the basic options for responsible supplier management› Introduce voluntary codes and social labels and list major examples› Summarise the successes and failures of voluntary codes and social

labels in impacting labour relations› Highlight the dysfunctions and flaws of factory auditing for

compliance standards, and the insurmountable challenges faced by factories in obtaining compliance

› Demonstrate strong case to shift from seeking compliance to going beyond compliance: capacity building and long-term partnership

INTRODUCTIONMonday 10 April 2023

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Remember the infamous Nike case?

Late 80s / Early 90s Mid 90s 2000s

Media: Slammed the labour conditions of Nike’s contracted factories

Nike: Argued it was not responsible for its contractors’ actions

Media: Leaks more information, creates more scandal

Nike: Joins Apparel Industry Partnership, audits factories, major financial losses

Nike: CEO announces sweeping reforms (wages not one of them), financial performance returns

Media: Recognises Nike’s efforts, criticism fades away


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This presentation is about managing your company’s suppliers for CSR

…

Business as usual

Supplier managemen

t

Green Purchasing

Life Cycle Assessment

(LCA)

Industrial Ecology

(IE)

Extended Producer

Resp.(EPR)


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Organisations have a lot of trouble monitoring their suppliers

Monitoring suppliers’

compliance

Not monitoring compliance

# supplierse.g. Wal-Mart

have over 30,000 suppliers!

# factoriese.g. It took C&A 4 years to identify all their factories!

Compliance fraude.g. fake time sheets, etc.

THERE’S MORE


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Ensuring compliance can be done by a company individually

Negative listing

Positive listing

Company screening

Information provision

Describing what is not permitted – accepting suppliers who do not do anything especially bad

Describing what is required – accepting suppliers who meet all the criteria and standards

Meeting a positive list puts you into a list of preferred suppliers, which are chosen from

Suppliers submit information about their environmental and social performanceM

onito

ring

and

audi

ting

to

ensu

re c

ompl

ianc

e


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Or as an industry-wide approach called a “Voluntary Code”

› For example: Social Accountability International’s SA8000 Control of Suppliers and Subcontractors› i.e. their requirements for supply chain management

1. Have procedures for evaluation and selection2. Keep records of their commitments to meet standards3. Keep evidence that they are meeting the standards4. Ensure similar protection and work conditions as your direct

employees

VOLUNTARY CODES

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For a voluntary code to be successful, it needs 3 things

1. Firm vulnerability› If the company’s brand and media attention are important to the

company, the firm is vulnerable and voluntary codes are more likely to be successful

2. Structure of production› The more complex the production process and supply chain, the

harder it is to control and manage and therefore less likely a code will be successful

3. Pattern of compliance and monitoring› If the visits are unpredictable and the issues being monitored are

tangible, then voluntary codes are more likely to have success

VOLUNTARY CODES


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There are numerous voluntary codes, multiple codes on each topic

Code Developed Impact Notes:Social Accountability International (SAI)

1996 By 2004, 4,430 facilities in 40 countries over 43 sectors

SA8000 audits conducted every six monthsBased on ILO and UN rights declarations

Fair Labour Association (FLA)

1996 By 2003, 10 corporations and 170 universities

Came from Apparel Industry PartnershipAudit results put onlineIndustry dominated

Workers Rights Consortium

1999 Reaction to FLAStudent-runJust for universities

VOLUNTARY CODES


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Every commodity, issue, region, industry has multiple codes!

Code Notes:Ethical Trading Initiative

Identifies and disseminates information on how to improve labour conditionsMembership based organisation with criteria

Clean Clothes Campaign

Lobbies retailers to use their purchasing power to influence manufacturers, and helps them lobby their manufacturers

Common Code for the Coffee Community

Agreement to stop using child labour, to pay a minimum wage, permit the formation of unions and to meet certain social and environmental safety standards

Cocoa Industry Protocol

Global standards in the cocoa industry aimed at eliminating child labour and slavery

VOLUNTARY CODES


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Success is relative: only aspects of labour relations have improved

What’s not improvingWhat’s not improving

Compensation ratesOvertime

Agricultural industryChild labour in bangles and carpet

industriesFormation of trade unions

What’s improvingWhat’s improving

Factories and manufacturing industries

Age restrictions (child labour)Health and safety (working

conditions)

VOLUNTARY CODES


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“Social labelling” is another industry approach

Label Industry Issue ProcessRugmark Carpets Child labour Companies pay for a

certification mark, money which is used to pay for inspections and children education

Fair Trade Coffee first, then bananas, toys, tea, flowers, cocoa, etc.

Fair pricing of goods, better environmental practices

A purchase must come from a cooperative with a guaranteed price floor

VOLUNTARY CODES


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The same can be said for the success of social labels

Areas of improvementAreas of improvement

Modest sales (recently represented only 0.4% of global coffee purchases)

Struggles to compete on tasteDoes not address the root cause of

the issue: oversupplyStrengthsStrengths

Encourages consumers to pay a premium for CSR

Very popular and well knownExposed how grossly underpaid

the producers were

VOLUNTARY CODES


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Tremendous challenges stand in the way in their ability to make an impact

› Is the information provided by the suppliers reliable and truthful?› How will organisations acquire sufficient accurate information on the

environmental and social conditions of the supplier?› Some industries are under scrutiny whereas others are not (e.g. apparel is,

agriculture is not)› Auditing has many drawbacks› It is hard to control all suppliers › The costs of compliance are rapidly increasing, and are getting excessive› Codes of conduct monitoring are marked by inconsistency, duplication

and inefficiency› The long-term sustainability of such a strategy is highly questionable

VOLUNTARY CODES


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Auditing, the most popular way of monitoring compliance, is flawed

› Audits rely on information from management, not the workers› More prone to missing violations

› Audits are a low-margin business, conducted poorly by untrained staff

Image from made-in-china.com

COMPLIANCE AUDITS


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In fact, auditors expect factories to be cheating their compliance

The role of the auditor is not to find if the factory is compliant… it’s to find how they’ve gotten away with cheating for more than a decade!

They are complicit in deception!

COMPLIANCE AUDITS


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Why? Faking compliance is the best (read: only) way to go for a factory

› There are so many voluntary codes and social labels that have similar purposes, which require their own audits and therefore their own sets of processes – it’s too hard to manage

› Voluntary codes often contradict each other!› Factory CSR manages receive limited funds and zero staff› Many factories are SMEs who do not have the capacity to handle such

demands› Local knowledge on these codes is hard to find

Cheating is systematic, and many of their customers (the multinationals!) know it

COMPLIANCE AUDITS


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Factories have a number of problems in being able to implement CSR

› Organisational structures are not conducive to CSR activities

› Human Resources: if the manager understands and tries to implement CSR activities, its second-line manager who drives action usually does not

› Costs are rising in wages, energy and raw materials – why spend more on CSR?

› Limited awarenessCOMPLIANCE

AUDITSMonday 10 April 2023

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Can a factory realistically comply with these codes/labels?

› For example: overtime› Demand is extraordinary, there are too

many orders to be able to stick to the overtime rules in the voluntary codes

› Workers are happy to stay overtime to get more money, they usually come from rural areas and their income sustains the family

Image from alfin2200.blogspot.com

COMPLIANCE AUDITS


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The situation traps factories in a vicious cycle of fake compliance

Terminate the contract

Give warnings and threats to

terminateor

Customers (big brands) refuse to pay for it. After

all, they chose to outsource to save money

Factory improvements

squeeze profits out of the factory

Factories forced to either lose margins or fake their compliance

Workers lose their

jobs!

HIGH PRESSURE

!!

COMPLIANCE AUDITS


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And this will continue until…

Image from bullishink.com

COMPLIANCE AUDITS


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Those who source the suppliers choose to go beyond monitoring

Going beyond compliance:

• capacity building• long-term relationship

development• building trust• organisational learning• continuous

improvement

Ensuring compliance: • monitoring• auditing

GOING BEYONDMonday 10 April 2023

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This involves developing a close relationship with your supplier

› Increase the security of a long-term business relationship in exchange for improved social and environmental conditions

› Work with the supplier and take part in improving their workplace

› Public-private partnerships

Image from iap.esa.int


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And building on these four foundations or pillars for success

From Business for Social Responsibility’s “Beyond Monitoring”:

1. Buyer internal alignment between environmental and social objectives with purchasing

2. Supplier ownership over working and environmental conditions in the workplace

3. Empowerment of workers to take a stronger role in exercising their rights

4. Public policy frameworks to ensure wider and deeper application of laws


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REFERENCES

Unit 7 Course Material, Managing Social and Environmental Responsibility, 2011, SOAS CEDEPVogel, 2005, The Market for VirtueChertow, 2007, Uncovering Industrial SymbiosisWelford & Frost, 2006, Corporate social responsibility in Asian supply chains

REFERENCESMonday 10 April 2023

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http://www.soas.ac.uk/courseunits/C167.html


http://www.amazon.com/Market-Virtue-Potential-Corporate-Responsibility/dp/0815790775

http://is4ie.org/resources/Documents/uncovering%20IE.pdf

http://is4ie.org/resources/Documents/uncovering%20IE.pdf

http://onlinelibrary.wiley.com/doi/10.1002/csr.121/abstract

http://onlinelibrary.wiley.com/doi/10.1002/csr.121/abstract


REFERENCES

Unit 7 Course Material, Environmental Auditing and Environmental Management Systems, 2011, SOAS CEDEPFinkbeiner, Inaba, Tan, Christiansen & Kluppel, 2006, The new international standards for life cycle assessment: ISO 14040 and ISO 14044

REFERENCESMonday 10 April 2023

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http://www.mendeley.com/research/the-new-international-standards-for-life-cycle-assessment-iso-14040-and-iso-14044/





