One driver that has affected all companies—from
the largest brands to obscure producers of seasonal items—is the
effect of the efforts undertaken by major retailers. In an effort to protect
their brands, many
retailers have taken action to ensure the products offered in their stores
are manufactured under safe, lawful, and humane conditions. These programs,
which typically include on-site inspections to confirm compliance and follow-up
visits to confirm remediation of identified non-compliance, can have a
significant impact on the operations of both the vendor and the factories
utilized by the vendor. In the worst case, negative compliance performance
can result in the vendor being removed from the retailer’s buying
matrix.
As retailers continue to develop compliance programs, one of
the extensions has been into new product categories. It is as a result
of this
extension
that appliance companies need to consider what they should do in anticipation
of these new requirements.
While most companies have established systems
for managing compliance related to working conditions at owned facilities
around the world, subcontractors
and key suppliers—particularly in key developing world countries—present
a particular challenge and should be the focus of a company’s supply
chain social compliance efforts. Whether you are large or small and operate
with a trim or expanded supply chain model, proactive steps to address
supply chain social compliance will provide a basis for meeting the expectations
of key stakeholders—including your retail partners.
Develop standards
for working conditions. The development of a code of conduct, with objective,
measurable standards for key attributes, including
minimum age; compensation and benefits; hours of work; health and safety;
environment; discrimination; harassment and abuse; and the right to organize
and bargain collectively. This is a key initial step in the development
of a social compliance effort. In order to be effective, the standards
embodied in the code of conduct must be aligned with the core values
of the organization and effectively consider the requirements of key
supply
chain partners. There are benchmarks available to support a company’s
efforts to develop a code of conduct, including the standards developed
in conjunction with programs such as the Fair Labor Association and the
Ethical Trading Initiative.
Develop formalized policies
and procedures to integrate social compliance into production and procurement. For the
most effective companies, social
compliance is a component of how they do business. Through the efforts
of a cross-functional team, the company should integrate code of conduct
compliance into the core processes of procurement and production. These
processes should consider the engagement of new suppliers, on-going compliance
monitoring, and evaluation of suppliers. The resultant policies and procedures
should be catalogued to provide a reference for the organization and
present the efforts to key constituents—including retail partners—in
order to demonstrate the scope of the program. The ability to demonstrate
that the company has a comprehensive, formal program is critical to reducing
the perceived risk of noncompliance with respect to the company’s
supply chain.
Communicate standards to supply
chain partners. Just as
product specifications must be communicated to a company’s supply
chain partners, so too must expectations related to working conditions
and the steps to be taken
to demonstrate compliance be communicated. Experience suggests that a
portion of compliance issues are a product of the lack of understanding
of the
requirements on the part of suppliers. As a result, clear communication
of expectations and related training and education are critical steps
in enhancing compliance.
Monitor
suppliers’ performance
for compliance with the standards. A code of conduct is simply a set of empty promises
unless a company
takes active steps to ensure compliance and actively addresses any identified
non-compliance. As a result, monitoring and utilizing specifically trained
resources to assess compliance is a critical element of an effective
compliance
program. Monitoring efforts should be risk-based and include consideration
of underlying processes to ensure compliance.
Develop a communications
strategy. The company should be prepared to respond to inquiries related
to its compliance efforts, which includes
responding
to key stakeholders on the scope of the compliance effort. These communications
will have a significant effect on the perception of a company’s
supply chain social compliance risk on the part of key stakeholders.
In addition,
the company should prepare for potential allegations related to working
conditions in supply chain factories. A prepared response will be critical
to demonstrating commitment to ensuring safe, lawful, and humane working
conditions throughout the supply chain.
Through the development and implementation
of a comprehensive social compliance program, appliance companies will
be well-positioned to proactively
respond
to the challenges resulting from the major retailers’ compliance
efforts.
ABOUT
THE AUTHOR
Randy
Rankin is a principal at
Global Social Compliance LLC, a
provider of code of conduct consulting
and monitoring services. His clients
include a number of retail companies,
including Wal-Mart and Kohl’s.
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