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Its a case study for : Detecting Unethical PracticesDetecting Unethical Practices at Supplier Factories: The Monitoring and compliance challenge.
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Detecting Unethical PracticesDetecting Unethical Practices at Supplier Factories: The Monitoring and
compliance challenge
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Presented by Group 6
Mahmud
The China story
Nike
Wal-Mart
Alternative strategy
Challenge
Recommendation
Low cost –low wage
Compliance initiatives
FLA & FFC
Compliance initiatives
True facts
Case contents Group 6
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The China story ….
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Food, CLOTHING, shelter– Basic needs!!
Clothing business is a tricky one– WHY ???
Personal Experience in Garments Order Placement
Life is not FAIR !!! Why ??
Factories- Monitoring Compliance Challenges
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Growing Order
Made in Bangladesh Tagline
Women empowerment
Reduction in unemployment
Economic development
Wage issue
Safety
Child Labor
Income Discrimination
Long hours/weekend
Accidents
ChinaBangladesh
Scenario Comparison : China/Bangladesh
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Maintaining two sets of Books.
Hiding the use of underage workers and unsafe work practices.
Meeting requirements by secretly shifting production to subcontractors.
Coaching managers and employees on answering questions posed by auditors.
“Jamai Ador” !!
Factories deceive Buyers Audit :
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The reality is .. …
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China supplier mapCase study :
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World's leading supplier of athletic shoes and apparel and a major manufacturer of sports equipment
Nike
Unannounced audits in 99 factories in 18 countries in 2005, revealed 1587 violations, an average of 15.9 per audits. In South East Asia,
Unannounced audits in 99 factories in 18 countries in 2005, revealed 1587 violations, an average of 15.9 per audits. In South East Asia,
Nike
Founded on January 25, 1964 as Blue Ribbon Sports
Officially became Nike, Inc. on May 30, 1978
Founder- Bill Bower man and Phil Knight
Employed more than 44,000 people
Brand alone is valued at $10.7 Billion
Nike
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Nike : Value
Matter of respect:
Environment, Safety and Health
Agents, Consultants & Professional Services
Social Responsibility
Code of Ethics Violations
Alert line
Nike’s Code Leadership Standards
While Nike’s Code of Conduct lays out the expectations of Nike over their contracted factories, the Code Leadership Standards articulate the steps factories can take to put the Code into practice and how Nike measure their efforts and compliance.
Nike’s Code Leadership Standards
While Nike’s Code of Conduct lays out the expectations of Nike over their contracted factories, the Code Leadership Standards articulate the steps factories can take to put the Code into practice and how Nike measure their efforts and compliance.
visits factories in the supply chain 1.77 times per.
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Nike : Management/Labor Assessment
All Nike-contracted focus factories receive comprehensive management audits every one to three years depending on their compliance record.
A
B
C
DE
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Overall Rating
Nike’s rating status :Most factories contracted to Nike received B ratings in FY07-09.Factories receiving an E rating had insufficient information to rate the factory.
Nike’s rating status :Most factories contracted to Nike received B ratings in FY07-09.Factories receiving an E rating had insufficient information to rate the factory.
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MAV covers the full worker experience, delving deep into four core areas:
1. Hours of work
2. Wages and benefits
3. Labor relations And
4. grievance systems
MAV covers the full worker experience, delving deep into four core areas:
1. Hours of work
2. Wages and benefits
3. Labor relations And
4. grievance systems
Management Audit Verification Tool MAV
In FY08, Nike conducted 82 MAV audits in 80 factories. In FY09 the number of MAV audits was 33. The majority of audits were conducted in North Asia and in apparel factories, reflecting the substantial number of apparel factories in the supply chain
In FY08, Nike conducted 82 MAV audits in 80 factories. In FY09 the number of MAV audits was 33. The majority of audits were conducted in North Asia and in apparel factories, reflecting the substantial number of apparel factories in the supply chain
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Management Audit Verification Tool MAV
Overall, the top issues identified in management audits of Nike-contracted factories were
1. Lack of systems,
2. Lack of knowledge
3. lack of commitment, with lack of systems around empowerment of compliance and HR staff.
Overall, the top issues identified in management audits of Nike-contracted factories were
1. Lack of systems,
2. Lack of knowledge
3. lack of commitment, with lack of systems around empowerment of compliance and HR staff.
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Management Audit Verification Tool MAV
Overall, the top issues identified in management audits of Nike-contracted factories were
1. Lack of systems,
2. Lack of knowledge
3. lack of commitment, with lack of systems around empowerment of compliance and HR staff.
Overall, the top issues identified in management audits of Nike-contracted factories were
1. Lack of systems,
2. Lack of knowledge
3. lack of commitment, with lack of systems around empowerment of compliance and HR staff.
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Environment, Safety and Health Assessment SHAPE
Nike implemented a new Environment, Safety and Health auditing methodology in FY07, conducting 48 audits in FY07, 302 in FY08, and 267 in FY09
The lowest-scoring environmental, safety and health issues across all contract factories in FY07 included hazardous materials, control of hazardous energy and fall protection.
In FY08 the top three were confined spaces, control of hazardous energy and hazardous materials. FY09 top issues were hazardous materials, hazardous waste and machine guarding. Some changes in the top areas identified
From FY07 to FY09 reflect concentrated efforts by Nike with contract factories to address recurring issues, including hazardous materials and occupational exposure limits.
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WAL MART
Established In 1992 Reflex Wal-Mart’s fundamental expectations of its suppliers
related to social and environmental conditions Utilized to evaluate employment practices and environmental
compliance
WAL MART
Wal-Mart’s Supplier Code of Conduct and Compliance Monitoring Program:
Compliance with Laws
Voluntary Labor
Labor Hours
Hiring and Employment Practices
Compensation
Freedom of Association and Collective Bargaining
Health and Safety
Dormitories and Canteen
Environment
Gifts and Entertainment
Conflicts of Interest
Anti-Corruption
Financial Integrity
The Standards are utilized to evaluate employment practices and environmental compliance in facilities producing merchandise for sale by Wal-Mart. Suppliers must also comply with Wal-Mart's Gift and Gratuity and Conflicts of Interest policies and conduct their business in an ethical manner that is consistent with accepted auditing principles.
for Suppliers
WAL MART
Prior to going for a contract with any supplier: Review and sign a supplier agreement incorporated an
expectation that the suppliers would comply Wal-Mart’s standards
Suppliers display Wal-Mart’s “Standards for Suppliers” posters in all the suppliers’ factories
factory management was required to sign that it had read and fully understood
A copy of this poster in the relevant language had to be posted in a public place within the factory
WAL MART
Compliance formalities prior to contract:
Identifying new suppliers
Sourcing new products
Building partnerships with existing suppliers
Managing Wal-Mart’s global supply chain of direct importers
Providing workplace standards training to suppliers
Enforcing compliance with Wal-Mart’s supplier standard
Established in February 2002 by Wal-Mart for:
WAL MART
Global Procurement Services Group (GPSG)
Audit Rating
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Audit Rating
Green: 1. No violations or low-risk violations
2. Example of a Green violation is one or two missing pulley guards on sewing machines
3. Factories rated Green are re-audited after two years as an incentive for compliance
Green: 1. No violations or low-risk violations
2. Example of a Green violation is one or two missing pulley guards on sewing machines
3. Factories rated Green are re-audited after two years as an incentive for compliance
Yellow:
1. Medium-risk violations, such as no pay slips for workers.
2. Re-audited after 120 days.
Yellow:
1. Medium-risk violations, such as no pay slips for workers.
2. Re-audited after 120 days.
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Audit Rating
Orange:1. High-risk violations
2. Re-audited after 120 days
3. An example of an Orange violation is failure to pay legally required overtime premium
Orange:1. High-risk violations
2. Re-audited after 120 days
3. An example of an Orange violation is failure to pay legally required overtime premium
Red:Serious violationuse of
1. prison or forced labor2. extremely unsafe working condition3. employing more than two underage worker4. serious worker abuse exceptionally long work
hours
Red:Serious violationuse of
1. prison or forced labor2. extremely unsafe working condition3. employing more than two underage worker4. serious worker abuse exceptionally long work
hours
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Audit Rating
Orange-Age:One or two underage workers are found
A factory that receives an Orange-Age assessment is given 30 days to address the violation by discontinuing the use of underage workers and by properly compensating and repatriating the underage workers
Orange-Age:One or two underage workers are found
A factory that receives an Orange-Age assessment is given 30 days to address the violation by discontinuing the use of underage workers and by properly compensating and repatriating the underage workers
Disapproved:Four Orange ratings in a two-year time period
After a year elapses, the factory can then only produce merchandise for sale by Wal-Mart if a Yellow or
Green rating is achieved.
Disapproved:Four Orange ratings in a two-year time period
After a year elapses, the factory can then only produce merchandise for sale by Wal-Mart if a Yellow or
Green rating is achieved.
Alternative strategy
To monitor the compliance issue, organizations have the following options
Form coalition
Do it by its own
LOVED AND LOST
Fair labor Association
FLA, a non-profit collaborative effort of universities, civil society organizations, and socially responsible companies.
FLA, a non-profit collaborative effort of universities, civil society organizations, and socially responsible companies.
FLA creates lasting solutions to abusive labor practices by offering tools and resources to companies.
FLA creates lasting solutions to abusive labor practices by offering tools and resources to companies.
FLA conducts independent and unannounced audits of factories FLA conducts independent and unannounced audits of factories
LOVED AND LOST
Three key constituencies for FLA
Universities
Civil society organizations (CSOs)
Companies
UniversitiesCivil society organizations
(CSOs) Companies
LOVED AND LOST
Benefit s of FLA :
Holding affiliated companies accountable for implementing FLA’s Code of Conduct across their supply chains.
Holding affiliated companies accountable for implementing FLA’s Code of Conduct across their supply chains.
Conducting external assessments so that consumers can be assured of the integrity of the products they buy.
Conducting external assessments so that consumers can be assured of the integrity of the products they buy.
Creating a space for CSOs to engage with companies and other stakeholders to find viable solutions to labor concerns.
Creating a space for CSOs to engage with companies and other stakeholders to find viable solutions to labor concerns.
Violation reports of FLA
Unannounced audits in 99 factories in 18 countries in 2005, revealed 1587 violations, an average of 15.9 per audits. In South East Asia, average about was 22 violations per factory audits
Unannounced audits in 99 factories in 18 countries in 2005, revealed 1587 violations, an average of 15.9 per audits. In South East Asia, average about was 22 violations per factory audits
Unannounced audits in 147 factories in 30 countries in 2006, revealed 2511 violations, an average of 17.1 per audits. Asian countries average 37.4 violations per factories visited in South Asia
Unannounced audits in 147 factories in 30 countries in 2006, revealed 2511 violations, an average of 17.1 per audits. Asian countries average 37.4 violations per factories visited in South Asia
Fair Factories clearing house :
Its a non-profit organization that uses technology to enable cost-effective, well-informed ethical business transactions and continuous improvements in global workplaces.
Its a non-profit organization that uses technology to enable cost-effective, well-informed ethical business transactions and continuous improvements in global workplaces.
It’s a collaborative effort to create system for managing and sharing information that would facilitate detecting and eliminating sweatshops and abusive workplace condition in foreign factories.
It’s a collaborative effort to create system for managing and sharing information that would facilitate detecting and eliminating sweatshops and abusive workplace condition in foreign factories.
Fair Factories clearing house :
Members would pool their audits information on off shore factories, creating a data base. Once a plant is certifies by a member company, other member would accept their result without having a audit at their own. Members will apply added pressure to the supplier to improve the working conditions and comply with buyer’s code of conduct. Besides, it would minimize ‘Audits Fatigue’.
Members would pool their audits information on off shore factories, creating a data base. Once a plant is certifies by a member company, other member would accept their result without having a audit at their own. Members will apply added pressure to the supplier to improve the working conditions and comply with buyer’s code of conduct. Besides, it would minimize ‘Audits Fatigue’.
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Challenges
LOVED AND LOST
Challenges
Pressure from their customers to keep the price low.
Since, 1996, the prices paid for Men’s shirt and sweaters sourced in China were said to have dropped by 14 %, while the prices for clocks and lamps has dropped by 40%, toys and games had fallen 30 %.
low cost seeker customer group will immediately run towards other low cost and less compliant suppliers.
LOVED AND LOST
Obstacles to achieve supplier’s compliance
The brands book and confirm orders lately and do change in their specifications frequently after booking.
Factory manager sometimes confirm his raw materials in late resulting extra load imposed to workers to meet up the dead line.
Auret van Heerden, CEO of FLA.
Factory production layout is not organized
Suppliers lack in required training to catch up the constant changes in buyer’s preference .
Audit fatigue
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Fair Pay- some customers has this fair pay policy where they don’t negotiate much with the suppliers provided that supplier keeps their factory tidy and do their shipment on time along with quality. This “Fair Pay” policy should be widespread across all the big buyers.
UN-FWF—recently United Nation and Fair Way Foundation started launching this program between the workers and a third party audit team without any sort of intervention from the factory representative.
Recommendation Continue
1 for All compliance policy- in Indonesia, Government law are so strict that the buyers don’t have to audit the factories. Government has established a set of compliance issue which is applicable for all suppliers and if they don't follow all those then that supplier cannot start its operation. This also reduced suppliers fatigue.
Increasing number of unannounced audits- this would significantly alert the factories since most of the social audits are done in an announced manner. For example- Bureau VERITAS/ SGS ( audit firms) will tell suppliers that they will audit their factories from 4th January to 25th January anytime, this is called announced audit. In order to for better monitoring, such audit firms which is hired by the buyers should do random and unannounced audits. This would always keep suppliers on alert.
Recommendation Continue
Initiating inclusive business idea to train and develop skill efficient labor force by buyers in a jointly manner with local suppliers. For example-mark & Spenser has initiated to train their local suppliers worker so that by 2015 1200 labor become skill worker and this will give M&S a better sustainable business.
Recommendation Continue
Winners never quit …