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From SCDigest's On-Target e-Magazine

- Jan. 29, 2012 -

Supply Chain News: 2013 Apple Supplier Progress Report Does Indeed Show Improved Compliance to Its Standards

Headlines over Child Labor Overblown; Suppliers Putting Systems in Place to Gain Control; What is the Cost?

SCDigest Editorial Staff

In early 2012, Apple made what SCDigest predicted might be a seminal move of sorts when it released its annual Supplier Responsibility progress report that included detailed data from audits of its own supplier factories, indicating progress but also calling out a number of problems with working conditions in many of those facilities. (See Apple's Groundbreaking Moves to Audit its Extended Supply Chain for Compliance to its Supplier Code of Conduct.)

SCDigest Says:

What is perhaps most noticeable and important are the significant jumps in the management systems category, as it implies suppliers are really putting management programs and IT systems in place to monitor their performance.

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While Apple had released previous reports, it upped the quantity of its audits substantially in 2011, and this level of transparency and self-criticism by a company was a new phenomenon. It seemed likely to become the model for other companies managing large global supply chains. News about working conditions at Apple suppliers, especially contract manufacturing giant Foxconn, stayed in the news off and on for most of last year.

Apple is back with its report for 2013, and the headline news has been that the company found some child labor in its supply chain, but as with some of the Apple stories last year, the reporting has been largely overblown.

The company said its audits found 106 children working in its suppliers' factories in Asia. Those child workers were spread across 11 separate plants, and the kids often gained access to the jobs using false identification.

But the vast majority of the incidents were at a single factory, owned by circuit board component maker Guangdong Real Faith Pingzhou Electronics, where 74 children under the age of 16 were recruited to work on production lines. Apple said the company has been eliminated as a supplier. It also called out one of the region's largest labor agencies, Shenzhen Quanshun Human Resources Co., as knowingly supplying underage workers to that company.

Apple said that its response to finding occasions of child labor is harsh. Under its Underage Labor Remediation Program, "suppliers must return underage workers to school and finance their education at a school chosen by the family. In addition, the children must continue to receive income matching what they received when they were employed. We also follow up regularly to ensure that the children remain in school and that the suppliers continue to uphold their financial commitment."

Sounds like it is a good deal to have your child caught working at an Apple factory.

Apple Audit Program Continues to Ramp Up

Last year, Apple conducted 393 audits at all levels of its supply chain, representing a 72% increase over 2011, which in turn saw an 80% increase in audits over 2010.

In total, the 2012 audits covered facilities where more than 1.5 million workers make Apple products. The total includes 55 focused environmental audits and 40 specialized process safety assessments to evaluate suppliers' operations and business practices, plus 27 targeted bonded labor audits to protect workers from excessive recruitment fees common in parts of Asia.

The audits in general compare a supplier's practices against Apple's Supplier Code of Conduct, which has more than 100 requirements across categories such as environmental, labor practices, health, etc. The company says the Code is in part based on standards created by the International Labor Organization, the United Nations, and the Electronic Industry Citizenship Coalition (EICC), but in many cases go beyond those requirements.

(Global Supply Chain Article Continued Below)

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An Apple auditor leads every on-site audit, usually with support from by local third-party auditors who are experts in their fields. Each expert is trained to use Apple's detailed auditing protocol. At each audited facility, the teams conduct physical inspections, interview workers and managers, and observe and grade suppliers based on more than 100 data points corresponding to each category of Apple's supplier code. The audits can be at tier 1 suppliers such as Foxconn, or component suppliers further down the chain.

Most audits are scheduled, and some labor organizations have charged this provides factories time to hide some "dirty laundry" and coach workers on what to say. Apple says it sometimes does surprise visits, and/or will ask a factory manager to take them to areas of the facility that were not schedule for review. In 2012, Apple performed 28 surprise audits, or about 7% of the total.

Tracking Worker Pay and Hours

Excessively long work weeks, defined as more than 60 hours of labor, have been a common area of concern for Apple and its critics (even though in practice surveys are finding workers at places like Foxconn actually want more overtime.)

Amazingly, Apple says it has developed a database that tracks work hours weekly for over 1 million employees at its suppliers, publishing the data every month. This must be the result of some direct integration between supplier payroll systems and Apple's database. Apple says from this new tool and other efforts, its suppliers have achieved an average of 92% compliance across all work weeks, and the average hours worked per week was under 50 in 2012. That is a substantial improvement over 2011.

Apple reports audit results across four main categories: labor and human rights, health and safety, environment, and ethics, and then for each whether appropriate "management systems" are in place to maintain control.

Below we publish the results in the labor and human rights area that has received so much attention in the last year, comparing 2012 results with those in 2011.

Supplier Compliance with Apple's Labor and Human Rights Standards

	Practices in Compliance		Management Systems Compliance
	2012	2011	2012	2011
Antidiscrimination	79%	78%	69%	61%
Fair treatment of workers	96%	93%	91%	76%
Prevention of involuntary labor and human trafficking	85%	78%	81%	72%
Prevention of underage labor	95%	97%	83%	83%
Working hours	92%	38%	NA	38%
Juvenile worker protection	62%	87%	52%	74%
Wages and benefits	72%	69%	68%	64%
Freedom of association	98%	95%	95%	91%
Overall compliance	77%	74%	73%	67%

Source: Apple

It is clear that, at least according to Apple's own statistics, progress is being made. What is perhaps most noticeable and important are the significant jumps in the management systems category, as it implies suppliers are not just using "window dressing" of some kind to mask problems, but are really putting management programs and IT systems in place to monitor their performance.

How much does all this cost Apple, but in terms if administration of the program and frankly cost of product from suppliers as their costs inevitably rise? That's something we have yet to hear, but it sure would be interesting to know.

The full report can be found here: 2013 Apple Supplier Progress Report

What is your reaction to Apple's 2013 Supplier Progress Report? How much do you think this is really costing Apple in the end? Let us know your thoughts either via email or in the Feedback section below. We will keep your comments anonymous by request.

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