1) How Much Leverage Do I Have?
Your programs objectives must be compatible with your leverage. A common misperception is that consumer brands all hold great sway over the working conditions across their factory base. While this premise holds true for a select number of companies, the reality is that brand influence over their suppliers is often limited. Typically, the greatest leverage is held by the large apparel and footwear brands; benefiting from entrenched manufacturing bases who receive large orders on a regular basis. It is these companies which are best placed to develop more ambitious programs; encompassing capacity building, long-term remediation and, more recently, tier 2 suppliers.
A home goods retailer, however, faces different challenges. This is due to the nature of their products; typically sourced from a far greater number of factories, often via trading entities, one time buys, with significantly less business placed per supplier. As such, their leverage is reduced. It is advisable then that such organizations temper their objectives by segmenting their supply base and focusing on key factories.
Equally, a smaller, apparel company, whose orders account for say 5% of a factory’s capacity, will not enjoy the same leverage with that supplier as one of the large, global apparel brands. As such, the degree by which they will be able to drive onsite improvements is limited.
2) Should My Program Encompass Every Factory?
In an ideal world every manufacturer would be subject to an initial assessment before an order is placed. Dependent on the results, they would then undergo follow-up visits / capacity building programs. However, this approach isn’t always practical. Home goods brands, for example, often source from more than 1,000 manufacturers each year with their smaller factories cascading to the point where many are receiving less than USD30,000. For many brands, it may not be affordable to subject every site to a full, onsite assessment and, for the smaller factories, given how thin their margins are, passing the costs to them is unrealistic.
Should this be the case then it may be a good idea to segment your supply base and adopt a risk based approach. For example, factories in lower risk markets may not need to be subject to the same level diligence as ones in China or Bangladesh.
3) What is the Commercial Impact of My Program?
While supplier codes of conduct are very similar across the industry, how the principles are actually applied differs vastly from organization to organization. How audit data limits your sourcing teams’ ability to place orders has significant commercial implications. It is important then that your program is practical as well as ambitious. This is particularly true for issues covering working hours in China. Many industry leaders now recognize that China labor laws, governing working hours, are impractical and, instead, follow the recommendations from the FLA.
In fact, the better integrated your program is into sourcing the greater its opportunity for success. Not only should your responsible sourcing program be supportive of sourcing, but buying practices should, as far as possible, be supportive of social compliance. The sourcing department should be educated on the impact of their buying practices, specifically how rush orders, last minute changes and exceeding capacity, can result in, for example, working hour violations.
4) What is My Policy on Falsified Records?
Omega estimates that 95% of the factory wage and working hour records it reviews in China, during an initial audit, are falsified. This issue is not unique to China and occurs across all the markets where we operate. While there remains no clear consensus on the issue, factories preparing falsified documents, and auditors reviewing them, is a waste of everyone’s time. Industry best practice is for brands to require complete transparency from their suppliers and provide true records during an audit.
Depending on the nature of the findings, Omega, again, recommends, segmenting your supplier base and working with key factories on long term remediation programs with, say, 10% improvements in working hours, for example, required every 3-6 months. However, given the financial pressures that many manufacturers operate under it may be necessary to assist them in capacity building also.
5) Which Details Should I Publicly Disclose?
Disclosing factory names and locations, audit results and methodology certainly has benefits. It sets companies apart, placing them at the forefront of the industry. By increasing transparency it potentially reduces audit fatigue as well as generating greater momentum for the responsible sourcing movement overall.
This level of transparency though is best suited to companies completely comfortable with, and confident in, their supply chain data. They should also be adept at answering searching questions from other stakeholders as required. Should you wish to publicly disclose elements of your responsible sourcing program, but not to the levels of an industry leader, then Omega suggests revealing more general details, such as numbers of factories audited, follow-ups performed, special projects as well as your aspirational targets.
Omega has vast experience in developing and managing responsible sourcing programs. Should you require information on our services do please contact us.