While supply chain auditing is imperfect, the need for measurement and verification remains crucial in any effective responsible sourcing program. Much more should be done, by brands and retailers, before, during and after the audit, to maximize return on their investment.
1) Carefully Define Your Objectives
Consumer brands and retailers, in most cases, do not hold great sway over the working conditions within their supply chains. The organizations best placed to develop more ambitious programs, encompassing capacity building, long-term remediation and Tier II suppliers, are usually the large apparel and footwear brands. These companies tend to benefit from entrenched manufacturing bases which receive large orders on a regular basis fostering greater fidelity from their supply base.
A home goods retailer, for example, typically has less leverage. Their products are generally sourced from a far greater number of factories, often via trading entities, one time buys, with a greater spread of business. Under this scenario, Omega recommends tempering objectives. Suppliers should be segmented with follow-up and remediation focused 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.
It may be commercially impractical to audit every factory. Home goods brands, for example, often source from more than 1,000 manufacturers cascading to the point where many are receiving less than USD30,000 annually. It may be unaffordable to subject every site to a full, onsite assessment. Given how thin operating margins can be, passing the costs to all suppliers is unrealistic. It may be prudent to segment your supply base and adopt a risk based approach. For example, factories in lower risk markets may not require the same level of on-site due diligence.
2) Demand Transparency
The ongoing challenge of falsified records is prevalent across all the markets where Omega operates. Without access to the factory’s real wage and working hour records the value of an onsite social compliance audit is severely limited. In line with industry best practice, Omega recommends that brands demand transparency from their suppliers on the understanding that opening up their authentic records, will not be an obstacle to receiving new business.
This approach is not without challenges. It takes time to develop the requisite level of trust from suppliers. Also, there may be pushback from internal divisions. Sourcing may be nervous since, without commercial consequences for the suppliers, transparency is nearly always impossible. Legal departments may also have concerns about maintaining business relationships with suppliers who are not in full compliance with local labor laws. Despite this, the industry is becoming more nuanced. It is generally accepted that reviewing, and, indeed, proving, falsified records are a waste of everyone’s resources.
3) Engage Sourcing Divisions
The better integrated your company’s responsible program is into global sourcing, the better the return on investment. The two cannot operate as silos. Sourcing should have responsible sourcing requirements and be educated on the impact of their buying practices, specifically how rush orders, last minute changes and exceeding factory capacity, can result in, for example, working hour violations.
Further, lean supply chains enable a more cost-effective responsible sourcing program. Does your organization, for example, really need 15 handbag suppliers? By consolidating suppliers and driving business into fewer factories resources can be focused and suppliers better leveraged.
Omega has vast experience in developing and managing responsible sourcing programs across complex supply chains. Should you require information on our services please contact us.