The Supply Chain Imperative

The Supply Chain Imperative


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Library of Congress Cataloging-in-Publication Data

Neef, Dale
The supply chain imperative : how to ensure ethical behavior in your global suppliers / Dale Neef. ” 1st ed.
p. cm.
Includes index.
ISBN 0-8144-0783-8
1. Industrial procurement. 2. Business logistics. 3. Fraud ” Prevention.
4. Swindlers and swindling. 5. Business ethics. 6. Consumer protection.
I. Title.

HD39.5.N445 2004
658.7 2 ” dc22 2004004902

2004 Dale Neef.
All rights reserved.
Printed in the United States of America.

This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise , without the prior written permission of AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019.

Printing number

10 9 8 7 6 5 4 3 2 1


Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants.

”LOUIS BRANDEIS, U.S. Supreme Court Justice

On Labor Day I happened to walk by a small tour that was looking up at one of the older buildings on the corner of New York s Washington-and Green streets . This was the Asch building, now part of New York University, where in 1911, on a beautiful spring Saturday, the horrific ˜ ˜ Triangle Shirtwaist fire consumed the top three floors of the building, killing 146 young girls working in the garment industry. Trapped inside with the doors locked, the fire had quickly swept through upper floors, fueled by the fabric, dust, and wooden girders. Mostly immigrants, newly arrived in America, many of the 500 girls trapped in the building were forced to throw themselves from the ninth storey to the pavement below in a desperate attempt to avoid the flames. No fire hoses could reach the upper floors, the flimsy fire escape had quickly collapsed , and the firemen s nets ripped through hopelessly, time and time again, under the weight of the young girls. The bodies continued to fall for over two desperate hours.

The deaths of the 146 young women highlighted not only problems with lack of concern for worker safety, but also revealed the broader concerns of low wages , long hours, and child labor that remained largely unregulated throughout America at that time, forcing politicians , labor leaders , businessmen, and the public to reexamine basic labor and safety policies in the workplace. In fact, the appalling events of the Triangle Shirtwaist factory, and the horror that was felt by New York and the country when the unsafe and brutal working conditions under which the girls were forced to work were revealed, ushered in a new era in labor reforms in the United States. It has been said that the New Deal began with this terrible tragedy, in that within the next three years , a raft of city, state, and federal laws were enacted to regulate working conditions and worker safety. The Triangle Shirtwaist factory became a rallying cry for union activists and humanists, and during the next 20 years, legislation was passed at a federal level that finally included, in 1938, the Fair Labor Standards Act which established the basic rights of workers in America ” a minimum wage, restricted child labor, safe working conditions, and premium pay for overtime.

This type of ˜ ˜sweatshop labor is largely a thing of the past in the United States, of course. But during the last 15 years, as major corporations have relocated manufacturing operations to low-cost labor markets oversees ” or outsourced that manufacturing altogether to factories in those markets ” the same stories and scenarios, a century later but just as disturbing , have returned to haunt us.

There are hundreds of examples. In 2002, for instance, a number of well-known U.S. retailers settled a class-action lawsuit brought on behalf of 30,000 garment workers on the pacific island of Saipan for $20 million. The group of nearly 60 defendants included prominent brand name retailers such as Abercrombie & Fitch, Target, Gap, and J.C. Penney. The lawsuit, involving federal and state courts in San Francisco and Saipan, claimed that thousands of workers, including many from China and the Philippines, were effectively kept in indentured servitude in U.S. territories . The clothing being made bore the label ˜ ˜Proudly Made in America.

It was still the same level of exploitation as a century before, but the difference was that this time it was independent suppliers, and not the companies themselves, that were running the sweatshops. And, of course, there is a fundamental difference between the responsibility that the American Triangle Shirtwaist Company had for its New York workers and the responsibility that a large sporting goods company has for its suppliers overseas.

Or is there?

˜ ˜If a customer calls our 800 number and complains that the sole got separated from the shoe, reasoned a Reebok executive recently, ˜ ˜We can t very well say ˜Oh, that s not Reebok s responsibility, that shoe is made by an independent factory in Korea. We have to take responsibility for the quality of the product even though we don t make it ourselves . The same applies to the working conditions. If a customer calls up about working conditions at one of our suppliers we have to take responsibility for those working conditions. [1 ]

That reasoning, and the fact that an executive from an important sportinggoods company would use it, surely reveals how much things have changed in the past decade . The reality is, fundamental changes are occurring in the world economy that are forcing nearly every manufacturing and distribution company to begin to reassess its relationship with its suppliers in an extended, global supply chain. As a result, these companies are facing many of the same social and environmental issues that plagued domestic company operations in America or Europe only a few decades ago, today hidden behind locked doors in sweltering conditions thousands of miles away from the pastel carpets and air conditioned lobbies of the corporate head office. And as many activists, labor unions, and politicians point out, this is not a problem that is going to go away soon, nor is it going to be resolved by the governments in countries where these factories reside. After all, most of the developing world governments want and need the investment capital, and they have often been only too eager to turn a blind eye to sweatshop conditions, official corruption, or environmental exploitation in order not to scare away corporate buyers . It is for this reason that so many activists, academics , and investors contend that there is essentially no other force for good, apart from the financial muscle of the buying company itself, that can hope to curb these types of practices.

Companies should be concerned with these issues purely from a humanitarian point of view, of course. Even the most hardened businessman would concede that their company has some duty to avoid working with a supplier that purposely exploits the environment or its workers. And even if monitoring and reporting on suppliers results in an overall cost to a company, many critics and humanitarians would argue that such expenses ”like providing office security, safety equipment for workers, or health care protection to employees ”is all a part of doing business in the modern world. Moreover, few would advocate equivalent treatment of workers at home in the United States on the grounds that it was ˜ ˜more efficient to pay meager wages, to be indifferent to workplace dangers, or to pollute the environment. After all, we are no longer living in 1911.

But the reasons corporations should be concerned about such social and environmental exploitation go beyond humanitarian concerns. There are also compelling business reasons for ensuring good behavior among overseas suppliers, as investors, consumers, activists, and the public at large become increasingly sensitive to double standards and indifference when companies speak of their commitment to ˜ ˜corporate social responsibility and yet continue to turn a blind eye to the plight of workers or the environment in foreign economies. More and more, companies are realizing that they can t.

As leading global corporations, many of them American, are beginning to appreciate, the reality is that a company s reputation is no longer insulated from the transgressions of its overseas suppliers, even (as we will see throughout the book) if it has no legal ties to that supplier other than the production contract itself. It is therefore, now more than ever, essential that a company understands the types of risks that they now face ”in terms of reputation damage, consumer boycotts, a drop in share value, or litigation ”because of these suppliers, and develops a comprehensive program to eradicate that risk. At the minimum, that risk management program requires suppliers to accept higher social and environmental standards, and requires companies themselves to adopt new nonfinancial (social and environmental) reporting practices. It is only through a formal, standardized supplier monitoring and social and environmental reporting process that companies can hope to remain aware of the actions of these suppliers, satisfy the needs of investors and the demands of activists, and ultimately protect their own reputation.

So how should the modern corporation begin to monitor what is happening in its supply chain? How does a company know whether suppliers in far off lands are employing children, bribing officials, or dumping toxic wastes that might bring the company into future litigation? Equally important, how does a company know if NGOs, activists, or the press are beginning to target one of its suppliers ”and therefore by association, the company itself ”with charges of employee or environmental exploitation?

These are the many compelling questions that should be worrying U.S. company executives now operating in a global environment, and some of the many issues that we address in this book.

[1 ] Creelman, David, Interview: Alice Tepper Marlin SA8000, at