suppliers – Page 2 – The OM Blog by Heizer, Render, & Munson

OM in the News: Walmart Toughens Supplier Policies

The Wall Street Journal (Jan.22, 2013) reports that Walmart is warning suppliers that it is adopting a “zero tolerance policy” for violations of its global sourcing standards, and plans to immediately sever ties with anyone who subcontracts work to factories without the retailer’s knowledge. The changes come after Walmart clothing was found at a Bangladesh factory where a fire killed 112 people in November—a factory the company said was no longer supposed to be making its clothes. “Obviously our three-strike policy wasn’t working as well as it could have,” says Walmart’s VP of ethical sourcing.

Here is a summary of the changes:

Starting March 1, Walmart will employ a “zero tolerance” policy to sever ties with suppliers that subcontract work to factories without the retailer’s knowledge; Its previous “three-strike” policy gave suppliers three chances to comply with Walmart’s safety requirements
All facilities in Bangladesh must undergo a mandatory electrical and building safety review
Factories found to have fire-safety related violations have 30 days to take corrective action before being terminated, instead of the previous requirement of six months to a year; all floors and buildings must have a secondary exit, preferably an external fire escape route
New factories must undergo a pre-approval audit before suppliers can do business with them
Suppliers must ensure one of its employees, and not a separate agent, is stationed locally to monitor factory facilities
Walmart will publish a list of factories suppliers are no longer authorized to use on the retailer’s corporate website

“Walmart’s factories are dangerous because they don’t pay adequate prices to suppliers, and because there is no transparency in their monitoring programs,” says the director at Worker Rights Consortium, a nonprofit group. “There is nothing here that changes any of that.”

Discussion questions:

1. Is Walmart doing everything feasible to be “ethically sourcing.”

2. Why has Walmart become a global leader in sustainability?

OM in the News: Apple Audits its Suppliers in China

Apple effectively just wrapped its own knuckles publicly, with the publication of an audit of the working conditions at Foxconn, its biggest Chinese supplier. Apple CEO Tim Cook, showing serious leadership, completed the factory tours and committed his company to improvements and further monitoring of its Asian supply chain–particularly regarding

overtime. Does this mean that the days are gone when Foxconnn would rouse 8,000 workers from their sleep in company dorms to put them on the iPhone assembly line at midnight?

The Wall Street Journal (March 30,2012) reports widespread breaches of work rules at Foxconn, including 60 hour work weeks and other health and safety violations. (The Journal piece includes a 4 minute video on Cook’s visit and an analysis of the impact of the audit on Apple’s reputation and sales.) The audit of 35,000 workers building iPads, iPhones, and iPods at 3 Foxconn factories, found the majority of workers exceeding China’s legal maximum of 36 overtime hours a month–with the average working 80 hours. The probe is one of the most detailed investigations of a Chinese manufacturer and the 1st major outside audit of Apple’s supply chain. Foxconn would have to hire tens of thousands of extra workers to comply.

The investigation, conducted by the Fair Labor Association (FLA), also found an array of issues such as inadequate risk analysis and missing protective systems. More than 43% of the workers had experienced or witnessed an accident and “felt generally insecure,” said the FLA.

Foxconnn is already among the best of suppliers in China in terms of working conditions. Conditions at many of the others are incredibly grim. By putting pressure on the top end, Apple is likely doing all Chinese workers a favor.

Discussion questions:

1. Why did Tim Cook visit his Chinese suppliers?

2. How long will it take to implement major changes in working conditions in this supply chain?

OM in the News: Wal-Mart Under Pressure to Monitor its Global Suppliers’ Treatment of Workers

The New York Times (May 31, 2011) reports today that Wal-Mart will be facing pressure, at the company’s annual meeting in 3 days, to monitor and disclose how its global suppliers treat their workers. The New York City pension fund, which owns shares in the company, plans to ask Wal-Mart to require vendors to document working conditions in their factories. “They put tremendous pressure on their suppliers to cut money out of the system”, says a fund exec, instead of improving workplace safety and worker rights.

A Bangladeshi labor organizer complained that many of the factories in her country that make goods for Wal-Mart mistreat their workers. “Very often, first of all, the factory does not enforce the law regarding minimum wages. We haven’t seen any Wal-Mart suppliers give a living wage to workers”, she said. The pension fund proposal asks for yearly reports that include measurements of performance on workplace safety and human rights, using international standards.

Wal-Mart opposes the request, saying it is too hard to get suppliers to issue reports. This might threaten the availability of products from companies that do not comply. Wal-Mart’s spokesman adds, “We expect our suppliers to meet or exceed these (workplace) standards. A supplier’s failure… may jeopardize that supplier’s continued business relationship with Wal-Mart”.

Ironically, in the environmental field, Wal-Mart has successfully become a world leader in creating metrics for reducing packaging and for sustainability across the whole 100,000 member supply chain (see our blog last week on the topic). But the topic of human rights is a separate issue.

Discussion questions:

1. Why does Wal-Mart oppose reporting on human rights issues such as this?

2. How does this compare with the company’s drive towards sustainability?