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Focus: Sourcing/Procurement

Feature Article from Our Sourcing and Procurement Subject Area - See All

From SCDigest's On-Target e-Magazine

- Jan. 24, 2013 -

 
Supply Chain News: First Shoe Drops After Bangladesh Fire, as Walmart Tightens Rules for Suppliers

 

From Three Strikes and You are Out to Zero Tolerance; What Will be Impact on Sourcing Effectiveness?

 

SDigest Editorial Staff 

 

As SCDigest predicted at the time, the tragic fire at an apparel factory in Bangladesh in November that killed more than 100 workers is leading to changes in the supply chain, with Walmart announcing this week new policies for its massive supplier base meant to ensure vendors more closely follow its rules and add additional requirements meant to improve safety at suppliers.

SCDigest Says:

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In a letter sent this week to suppliers, Walmart says that "Our Objective is to work with like-minded companies to raise the bar for the entire industry."

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The changes in approach come after Walmart itself was connected to the Bangladesh fire, at a factory that had been recently cited for unsafe conditions by local authorities and where exit doors were either not available or padlocked when the fire broke out. Although Walmart itself had de-certified that specific facility, a large garment order Walmart placed with another supplier, Tazreen Fashions Ltd, was in part sub-contracted to the fatal factory. Sears was among other large US and European retailers in saying they did know the factory was producing goods for their shelves.

Now, Walmart has announced it will enforce a "zero tolerance" policy with regard to following its sourcing rules, most notably saying it will immediately cease doing business with any supplier sub-contracting work to other vendors without its knowledge.

The change in policy goes into effect on March 1, and replaces a "three strikes" approach to supplier issues previously used, in which vendors were given several chances with regard to rules violations before they were dismissed.

Some say that use of sub-contracting is common in segments of Walmart's business, and that this change will have a number of potential sourcing ramifications. The company that received the original order for the garments from Walmart, for example, simply did not have the capacity at its own facilities to meet the demand, a scenario that is apparently common with Walmart and other large retailers and branding companies.

Jahangir Alam, an officer for ethical sourcing at Walmart's office in Dhaka until late last year, recently noted that "with multiple subcontracts going on, it has become almost impossible for buyers to practice ethical sourcing in the true sense."

In addition, Walmart and many others make use of trading companies like Li & Fung, brokers who are often reluctant to reveal their contractors for competitive reasons.

"Obviously our three-strike policy wasn't working as well as it could have," Rajan Kamalanathan, Walmart's vice president of ethical sourcing, told the Wall Street Journal. "Our message of zero tolerance is meant to get people's attention."


(Sourcing and Procurement Article Continues Below)

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In a letter sent this week to suppliers, Walmart says that "Our Objective is to work with like-minded companies to raise the bar for the entire industry."

In addition to the end of the three-strikes approach and ban on hidden sub-contracting, other changes in Walmart's program include:

• All facilities in specifically in Bangladesh must undergo a mandatory electrical and building safety reviews.

• Any factories that are found to have violations related to fire safety will have 30 days to take corrective action before being terminated. Before, the grace period was 6-12 months.

• All floors and buildings at a supplier must have a secondary exit, preferably an external fire escape route.

• New factories even for an approved supplier must undergo a pre-approval audit before suppliers can do business with them.

• Suppliers must ensure one of their direct employees is stationed locally to monitor factory facilities; hired "agents" are not allowed

Start of Walmart's Letter to Suppliers This Week

 

 

Click Here to View Full pdf Document

 

Walmart also said that it will begin a web site listing sometime in 2013 the names of factories that aren't authorized to do business with its suppliers as sub-contractors.

A meeting among global suppliers to review the new rules is being held today at Walmart's headquarters in Bentonville, AR.

Labor rights groups jumped on that last point, saying that Walmart instead needs to identify publicly the list of factories that are authorized, so conditions there can be monitored independently.

Some of the changes, such as improvements in building safety, will not come cheap to suppliers, and Wal-Mart said it is looking into creating a line of credit that factories can access to make enhancements.

What is your reaction to these new Walmart sourcing rules? Will it raise its costs in the end? Let us know your thoughts at the Feedback button (email) or section (web form) below.





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