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New Study Finds Supply Audits not Getting Job Done in Improving Conditions at Retail Suppliers


Despite Growing Popularity, Variety of Factors Make Audits "Ineffective Tools" in Reaching Claimed Goals

Feb. 27, 2017

Dan Gilmore

Editor

Supply Chain Digest


Supplier audits have become a cornerstone of Corporate Social Responsibility (CSR) programs across the globe, used by dozens of retailers.

The audits are generally conducted based on a given company's formal written standards for supplier conduct, and generally show a high and often improving level of supplier compliance to those standards.

Supply Chain Digest Says...

Nike stated in its 2012 sustainability report that "We have learned that monitoring does not bring about sustainable change. Often, it only reinforces a pattern of hiding problems."

But are such audit programs largely a charade in terms of actual effectiveness in affecting supplier behavior?

The surprising answer is Yes, according to a new report on the topic from the University of Sheffield in the UK, which says that "Ultimately, the audit regime is working for corporations, but failing workers and the planet."

The report is based on 25 interviews authors Genevieve LeBaron and Jane Lister conducted with ethical auditors, business executives, NGOs [non-governmental organizations] and supplier firms in North America, the United Kingdom and China, as well as visits to factories in China.



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The report notes that various NGOs have developed standards in their areas of expertise for supply chain behavior that are then often adopted as part of a given corporation's supplier standards. Examples include the Rainforest Alliance certification, Marine Stewardship Councils, and Fair Labor programs.

In fact, the rise of these NGO standards and audit programs by corporations has had the effect of causing local governments at all levels in many countries to step back from creating and enforcing their own legal standards in such areas as rules relative to employee pay, conditions and more.

One of the persons interviewed for the report said that “Walmart, on behalf of the entire retail industry, said, 'this is our problem. This isn't a government regulatory problem. This isn't China's problem, this isn't Vietnam's problem. This is our problem. We have the power, resources, and ability to deal with it and we will.'"

The report notes that Nike stated in its 2012 sustainability report that "We have learned that monitoring does not bring about sustainable change. Often, it only reinforces a pattern of hiding problems."

Most audits, the report notes, are pre-announced, enabling producers to falsify records and rid facilities of unauthorized agency contractors or exploited workers during audits, and to drill their people on what they need to say.

Another big issue, the report says, is that supplier audits tend to concentrate on tier 1 suppliers, whereas most of the issues with the environment and treatment of labor are in tier 2 or 3 suppliers.
The reports says its interviews also highlighted the existence of a "checklist" mentality for audit compliance, with a director of a UK audit firm telling the authors that the majority of audits are "not trying to find things out, they're trying to prove that something is not there."

In support of their arguments, the authors cite several example of where there were major accidents at supplier sites that had recently passed the audit process. For example, in Bangladesh in 2012 the Tazreen Fashion factory was audited on behalf of Walmart. Safety concerns were noted, but it was not recommended that the plant be closed. Two months later, the factory burned down, killing over 100 people.

The report also finds that audits typically treat social concerns separately from environmental concerns, often putting greater emphasis on the latter.

Alas, the report really offers no real recommendations for improving the audit process, though it does imply changes such as more local governmental enforcement of labor laws and use of third party auditors instead of corporate employees would deliver better results.


Any comment on this article? Enter below.

Your Comments/Feedback

Srihari

Senior Consultant, Infosys
Posted on: May, 22 2016
Great article. I am a little suprised not to see BNSF in the mix while I understand their financial mode/operation is a little different. 

That would only give a complete perspective with all the players in the pool.

Mike O'Brien

Senior editor, Access Intelligence
Posted on: May, 26 2016
Surprised to see Home Depot fall off the list; thought they were winning with Sync?

Julie Leonard

Marketing Director, Inovity
Posted on: Jun, 27 2016
Using the right tool for the right job has always been a best practice and one of the reasons, we feel, that RFID has never taken off in the DC as exponentially as pundits have been forecasting since 2006. While these results may seem surprising to those solely focused on barcode scanning, the adoption of multi-modal technologies in the DC makes perfect sense for greater worker efficiency and productivity.

Carsten Baumann

Strategic Alliance Manager, Schneider Electric
Posted on: Aug, 19 2016

The IoT Platform in this year's (2016) Hype Cycle is on the ascending side, entering the "Peak of Inflated Expectation" area. How does this compare to the IoT positions of the previous years, which have already peaked in 2015? Isn't this contradicting in itself?

Editor's Note: 

You are right, Internet of Things (IoT) was at the top of the Garter new technology hype curve not long ago. As you noted, however, this time the placement was for “IoT Platforms,” a category of software tools from a good number of vendors to manage connectivity, data communications and more with IoT-enabled devices in the field.

So, this is different fro IoT generally, though a company deploying connected things obviously needs some kind of platform – hoe grown or acquired – to manage those functions.

Why IoT generically is not on the curve this year I wondered myself.

 

 

Jo Ann Tudtud-Navalta

Materials Management Manager, Chong Hua Hospital, Cebu City, Philippines
Posted on: Aug, 21 2016

I agree totally with Mr. Schneider.

I have always lived by "put it in writing" all my work life.  I am a firm believer of the many benefits of putting everything in writing and I try to teach it to as many people as I can.

This "putting in writing" can also be used for almost anything else.  Here are some general benefits (only some) of "putting in writing":

1. Everything is better understood between parties involved.  There are lots of people types who need something visual to improve their understanding.
2. Everyone can read to review and correct anything misunderstood.  This will ensure that all parties concerned confirm the details of the agreements as correct.  This is further enhanced by having all parties involved sign off on a hard copy or confirm via reply email.
3. Everything has a proof.  Not to belittle the element of trust among parties involved, it is always safest to have tangible proof of what was agreed on.
4. There will be a document to refer to at any time by any one who needs clarification.
5. The documentation can be useful historical data for any future endeavor.  It provides inputs for better decisions on related situations in the future.
6. This can also be compiled and used to teach future new team members.  "Learn from the past" it is said.

There are many more benefits.  Mr. Schneider is very correct about his call to "put it in writing".





Sandy Montalbano

Consultant, Reshoring Initiative
Posted on: Aug, 24 2016
U.S. companies are reshoring and foreign companies are investing in U.S. locations to be in close proximity to the U.S. market for customer responsiveness, flexibility, quality control, and for the positive branding of "Made in USA".

Reshoring including FDI balanced offshoring in 2015 as it did in 2014. In comparison, in 2000-2007 the U.S. lost net about 200,000 manufacturing jobs per year to offshoring. That is huge progress to celebrate!

The Reshoring Initiative Can Help. In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the nonprofit Reshoring Initiative's free Total Cost of Ownership Estimator can help corporations calculate the real P&L impact of reshoring or offshoring. http://www.reshorenow.org/TCO_Estimator.cfm

Robert

Transportation Manager, N/A
Posted on: Aug, 30 2016
 Good article!  I am sending this to my colleagues who work with me.  We have to keep this in mind.  Thanks!

Ian Jansen

Mr, NHLS
Posted on: Sep, 14 2016
SCM is all about getting the order delivered to the Customer on date/ time requested because happy Customers = Revenue. Using the right tools to do the right job is important and SCM is heavily dependent on sophisticated ERP systems to get right real data info ASP.

I've worked in a DC with more than 400,000 line items and measured the Productivity of Pickers by how many "picks" per day.

I've learned that one doesn't have to remind Germany about your EDI orders.

Don Benson

Partner, Warehouse Coach
Posted on: Sep, 15 2016
Challenge - to build and sustain effective relationships at the level of the organizations that are responsible for effectively coordinating and colaborating in an otherwise highly competitive environment 

Jade

Admin, Fulfillment Logistics UK Ltd
Posted on: Oct, 02 2016
Of course we all need to up our game. We need to move with the times, and always be one step ahead of what the future will bring.

Mike Dargis

President of asset-based carrier based in the Midwest, Zip Xpress Inc. (at ZipXpress.net)
Posted on: Oct, 03 2016
Thanks for the article, but I know there's a lot more to this issue than just the pay rates. Please check out my blogs on the subject at www.zipxpress.net.

Blaine

Inventory Specialist, Syncron
Posted on: Nov, 16 2016
Lora, great article! I agree that companies choose the 'safe' solution more often than not. My solution is a bolt-on for legacy ERP's and we even face challeneges of customer adoption. Most like to play it safe and choose an ERP upgrade, which is more costly, time consuming, and has lower ROI across the board. Would love to learn more about your company, we are always looking for partnerships.

Blaine
blaine.schultz@syncron.com

Bob McIntyre

National Account Executive, DBK Concepts LLC
Posted on: Nov, 21 2016
This is a game changer in GE's production and prototyping.  It also has huge implications across the GE global supply chain with regard to the management of their support and spare parts network. 
 
 
 
 
 

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