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Apple, Hewlett-Packard, Nike, Walmart. Aside from their shared space on the Fortune 500, another common denominator bonds these multinational corporations together: each has come under recent, high-profile fire for labor violations in their supply chains.

For decades, organizations across industries have diversified their supplier base in order to minimize costs and speed up production. But in this push for savings and efficiency, business leaders have blinded themselves to labor practices, and the risks posed by partnering with suppliers who violate them.

From lawsuits and production delays to reputational damage, the consequences of overlooking suppliers’ labor conditions are increasingly severe. And as consumers begin to consider supply chain transparency when exercising their purchasing power, companies have even more incentive to improve their supplier diligence.

Identifying Common Red Flags and New Labor Threats
Over the past few years, companies of all sizes have been scrutinized for supplier labor noncompliance in the U.S. and abroad. The rate of economic globalization is being quickly matched by the proliferation of both historic and emerging labor issues.

Here are some examples of labor malpractice that plague supply chains today:
1. Child and student labor
One of the most prevalent forms of labor rights violations today is the use
of child and student labor. Apple has battled child labor claims in its supply
chain since 2010, when nearly 100 underage workers were found in its
suppliers’ Asian factories. This September, one of HP’s Chinese suppliers
was called out for its mistreatment of student interns. Due to the country’s
rising labor shortages, vocational school students have been tapped to fill
local companies’ demand. In electronics factories such as those operated
by HP’s supplier, there are reports of interns working 12-hour shifts, six
days a week, as well as wages that are ultimately paid back to the trade
schools, not the students.

The tech industry isn’t the only sector faced with this problem. Apparel
retailers from Nike to L Brands Inc. have been investigated for suppliers’
child labor violations. Food companies including Nestlé and Hershey have
also been in the hot seat for cocoa industry child labor in West Africa.

2. Health and safety violations
Hazardous working conditions are a consistent issue in factories and plants
worldwide. Apple suppliers have been the subjects of many recent
investigations for dangerous working conditions. One of the Chinese
factories that produced metal iPad covers was found guilty of insufficient
employee safety training, poor ventilation and locked exits. In 2011,
explosions occurred at two separate Apple supplier facilities in China.

Similar violations have been cited in the U.S. In 2012, Walmart suspended
one of its Louisiana-based seafood suppliers after it was discovered that
the company was locking employees into its plants, forcing them to work
16-24 hours shifts. This finding led to increased scrutiny around 18
additional Walmart suppliers.

3. Geopolitical issues
Despite the reality that companies often overlook their suppliers’ underage
workforce or subpar labor conditions, these are two issues that (with
proper due diligence) are easily identifiable. Beyond these historic
challenges, there are new geographic and politically charged labor issues
developing each day. The fluctuating nature of these problems makes
them that much more difficult to detect.

Over the past few months alone, the Fair Labor Association published two
issue briefs on international worker concerns that could easily impact U.S.-
based corporations. For example, the recent civil war and humanitarian
crisis in Syria has forced many Syrians to relocate to refugee camps in
neighboring countries. In Turkey in particular, the FLA warns that Syrian
refugees (many without valid work permits) are reportedly forced to work
long hours, in unsafe conditions, for below-minimum pay.

Protecting Your Supply Chain
Ideally, organizations should be equipped to vet potential suppliers’ labor standards long before a contract is signed. If they haven’t already, sourcing and procurement executives should outline internal supplier standards that govern all partnerships. These standards should include labor compliance, in addition to other factors such as historical delivery performance and financial stability.

Measuring the reputation and performance of individual suppliers isn’t always enough. Businesses should also evaluate any third-party firms that suppliers work with regularly. In one of Apple’s underage labor incidents, the Chinese supplier in question had partnered with a labor agency that forged the children’s paperwork.

It’s unrealistic to expect businesses to stop diversifying their supply chains. Instead, they need to bolster their processes and systems for tracking supplier information. With all the variables in question, going through manual assessments or scouring fragmented databases isn’t enough. Sourcing and procurement officers should pursue more comprehensive solutions that integrate their supplier standards, update supplier data in real-time and notify organizations when certain standards are breached.

Today’s competitive business landscape makes it too easy to overlook suppliers’ bad reputations in favor of less costly parts, but these are only near-term “advantages.” By honestly assessing suppliers’ labor practices up front, organizations can enjoy the compliance, reduced risk and limited production delays that guarantee business success for years to come.

About the Author Dan Amzallag
A graduate of one of the top European MBA schools, Dan spent nine years as a director with Capgemini Group. Specializing in supply chain management, he led numerous global projects involving in-depth changes to processes, systems and organization. In 2000, Daniel founded a company operating the first global marketplace dedicated to the environmental industries, and then joined international spend management and procurement solutions provider Ivalua in 2002 as a key executive in charge of marketing and business development. Daniel relocated to the US in 2011 to support Ivalua’s expansions in North and South America, and is currently acting as CEO of Ivalua Inc.

Volume:
11
Issue:
12
Year:
2014


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