Perspectives in Responsible Sourcing

Monitoring Misconceptions – The Role of Auditing in Supplier Code of Conduct Programs Part II

In my last blog submission, I shared my concerns about the misunderstanding, and misapplication, of Code of Conduct auditing. Part of this misunderstanding stems from the perception of a Code of Conduct assessment as a fix-everything panacea, versus a means of: a. Assessing the needs of the workforce; b. Assessing an employers’ impact on that workforce and the surrounding community, and c. Measuring continuous improvement and business impact. If it’s done correctly, there can also be room to lend guidance and begin to build capacity.

I promised to return with some suggestions for improving the system, so here are a few:

First, the design and communication related to responsible sourcing programs should reflect an intent that is less centered on passing audits, and more on the positive financial impact of continuously improving systems, and the business case for reducing workplace risk and improved relations with staff and business partners. The tone and message should reflect both the absolute necessity of supplier buy-in, and also the long-term collaborative nature of the brand/supplier relationship (And yes, if the brand is going to speak about building long-term relationships, their actions should obviously reflect that).

Secondly, brands should incorporate deeper assessments that identify gaps in systems, not simply the end results of those systems gaps. This becomes all the more possible (financially and administratively) as brands continue to collaborate and consolidate efforts related to their Code of Conduct programs. Redundant audits that simply identify findings will eventually be replaced by less frequent, deeper assessments that involve a greater percentage of the workforce, that communicate the impact of workplace risk and improved workplace systems, and that integrate the assessment deeply within the remediation process. These assessments will act as a jumping off point into a longer term, collaborative dialogue that recognizes the importance of the participation of the workforce in both the assessment process, as well as the ongoing remediation.

And yes, in many cases, that requires a tremendous shift in mindset. It also requires an improved understanding of Code of Conduct systems. That applies to:

• Factory management – They need to know how to develop and manage these systems, and what separates a corrective action (“Hang the extinguisher”) from a preventative action (“Why wasn’t it hung, and how do we keep it hung, and how do we ensure that everyone knows how to use it, etc?”)
• Agents/Vendors – They should be able to proactively identify effective or ineffective workplace systems during their subcontractor vetting process. They should also be in a position to drive improvement in those systems once issues have been identified during the audit process. If the value that an agent brings to a factory is the ability to take that business’ goods to market, that agent should recognize that effective workplace systems are part of meeting that market demand.
• Brands – Brands need to improve their understanding so that they are able to focus their efforts on managing an ongoing dialogue based around continuous improvement systems, and not passing audits. Brands can also provide support in the form of skills building and access to scalable systems that enable their partners to manage ongoing remediation and improvement of their own networks. And, of course, brands can make a massive impact through a critical self-assessment of their own purchasing practices.
• Service providers – In the spirit of humility, I will include myself and my colleagues in with this lot. We don’t know everything, and there are improvements that we can continue to make regarding building our own capacity in regards to systems assessment and remediation.

----------------

Ryan Lynch is the US East Coast Regional Manager for CSCC. Ryan has worked with various Fortune 1000 retailers, licensors, and manufacturers to develop responsible sourcing programs in order to assess and improve labor conditions throughout the supply chain.

Can Collaborative Auditing Become a Reality?

The big talk in Ethical Sourcing circles right now is collaboration.  Here's how it works.  The customers (or brands) of a factory get together to conduct an audit.  By collaborating, the brands minimize excessive audits in the same facility and better harmonize potentially conflicting demands.  After all, a factory may be audited by half a dozen brands per annum and asked repeatedly by multiple sources to improve the same infraction.  What a waste of time and money for the factory managers who must participate in each audit and for the brands to repeat each others work.

In addition to efficiency, collaboration in theory brings economies of scale.  One customer conducting 5% of a factory's business has limited leverage.  Six brands conducting 95% of the supplier's business has way more arm twisting force. 

The collaboration movement in North America hovers around four initiatives: Fair Factory Clearing House, Fair Labour Association, NIKE & Levi's.  There's a whole bunch of brand to brand (bilateral) projects but not at the attempted scale of the aforementioned.   MEC is participating in the all of these and a handful of bilateral projects.

We've gotten some good traction on sharing and coordinating audits, which hopefully reduced wasted time on everyone's side.  However, the big gain, to collaborate on making the factory better has not been that successful.  Simply because US Anti Trust laws prevent us from working collectively on issues like motivating a factory to control excessive over time.

It's not uncommon for factory workers to be hunched over an assembly line for 60 - 70 hours a week.  During high season (e.g., making Christmas merchandise), individuals may work even longer, up to 100 hours per week.  To break this cycle, a factory and its customers need to plan orders concertedly.  Brands need to realize their individual orders are not sacrosanct, transcending those of their peers or what's deemed reasonable working hours for workers.  Factories need to set limits and plan more efficiently.  Even assuming these somewhat "altruistic" feats are acceptable to the profit conscience parties involved, American anti-trust laws halt all of this from the get-go.  Simply because sharing strategic information to collectively moderate the production of a factory (and hence reduce excessive overtime) can be construed as limiting a factory's access to its customers/markets.  This is a big no-no to the "trust-busters" at DOJ.   

Violating anti-trust laws in the US is the last headache we need.  We can audit together to discover the infractions but we can't collaborate to remedy them.  Or as my good colleague Troy from REI insightfully summed "we can't close the loop".

Closing the loop by reducing unhealthy long hours is really Mountain Equipment Co-op's goal.  Co-auditing is the first step.  Co-remediation is the final.  Unfortunately, US Anti Trust laws have stymied the latter, even for a Canadian retailer like MEC. 

Brands setting aside their competitiveness to work on factory audits are a smart move.  We're reducing waste and achieving economies of scale.  Whether this actually leads to more humane working hours remains to be seen.

---------

Harvey Chan is the Director of Ethical Sourcing for Mountain Equipment Co-op, a Canadian co-operative retailer of outdoor activity gear and apparel.  Harvey's bio can be found here.

CSCC's Inaugural Podcast

Podcasts are audio blog entries that you can download to your computer or portable media player.  Podcasting has become very popular among bloggers and news organizations and now CSCC is getting in the game, filling the void in the blogosphere for comprehensive audio commentary on responsible sourcing issues.

This first podcast features Rachelle Jackson, Director of Research and Development at CSCC, summarizing the highlights and biggest news items in the responsible sourcing world from 2007, and providing some insight into what to expect in 2008.  She discusses the GAP child labor scandal in India, the new labor law in China, as well as the high profile campaign against Uzbekistan cotton (she also briefly discusses a session on Uzbekistan cotton that is on the agenda of our upcoming conference: Download cscc_g3_conference_brochure_2608.pdf ).

We hope to one day be able to offer you a direct podcast download from iTunes, but in the meantime click the link below to download the podcast to your desktop and/or portable media player: Download cscc_podcast_1_2008feb07.wav.  We'd love to hear any feedback you may have about this podcast at comments@intlcompliance.com.