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issue: November 2004 APPLIANCE Magazine

Guest Editorial
Social Compliance: A New Dimension of Product Quality

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by Randy Rankin, principal, Global Social Compliance, LLC

Over the past 7 years, manufacturers have been challenged to respond to a new dimension of product quality—working conditions in the factories of their supply chain partners. There have been a number of drivers of this phenomenon, including negative media pressure, activist demonstrations, shareholder resolutions, and consumer inquiries.

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.


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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