Chapter Eighteen: Pulling It All Together: The SwitcherPrem Case Study

Overview

Creating an ethical supply chain, as we have seen, is a complex task, and as many companies have discovered over the past several years , even the best of intentions may fall short of achieving stated corporate ethical goals. The many activities that we have just explored ” the development of a corporate ethical framework, the adoption of performance and process standards and codes of conduct, an active supplier management program, reporting the results of these efforts via a comprehensive reporting regime such as the GRI, and the adoption of new software tools ” can all help make the task of overseeing the activities of overseas suppliers much easier and more productive.

So what does this type of ethical framework look like in practice? The Switcher Company, a casual clothes retailer based in Switzerland, provides one of the best examples of the type of comprehensive approach to ethical supply chain management that we have been exploring. Combining all of the best elements of the ethical supply chain ” strong leadership, good project and change management, aspirational codes, SA 8000 and ISO 14000 and other horizontal and vertical standards, independent and thorough audits , and a strong collaborative supplier “ buyer relationship ” the case study is an extraordinary example of how a company and its key suppliers can implement a cost-effective and humane sustainability program.

Case Study: The Switcher/Prem Group Case Study

The following case study is reprinted with permission from the ILO, from Building Reputation Through Social Accountability ” The Switcher/Prem Group Experience in India, presented by Professor Ghislaine Cestre at the 6th International Conference on Corporate Reputation, Identity and Competitiveness, the Reputation Institute, Boston, 23 “ 25 May 2002.

Headquartered in Mont-sur-Lausanne (Switzerland), Mabrouc s offices and warehousing facilities are spread over 10,000 square meters . The company counts 100 employees in Switzerland and generates annual revenues of over 60 million CHF. . . . The company s two main brands are Switcher and Whale. Switcher has become the better known brand and now represents a full line of basic clothes: T-shirts, sweat-shirts, tracksuits, shirts, polos, pants, jackets and accessories for adults and children . . . In 1999, over 5 million Switcher and Whale items were sold in Switzerland and the rest of Europe ( mainly Germany).

. . . A CLEAR PHILOSOPHY

The Mabrouc/Switcher (called Switcher below) philosophy is one of sustainable development, preserving the environment, acting in a socially responsible manner and making the work environment as enjoyable as possible, under economic constraints. Owner Robin Cornelius strongly believes that although economic pragmatism is a must ” we are in business to make money ” it should not prevent a company from being an active contributor to social development and environmental protection.

R. Cornelius sees Switcher as a service company specialized in clothes: Switcher is at the service of customers, resellers , manufacturers and their families, he says, but also the public in general and future generations. Concretely, it means granting partners special warehousing arrangements, recycling packagings, developing anti-pollution manufacturing processes, implementing energy conservation measures, improving working conditions, developing social programs for workers and their families, contributing to health and education programs, etc. The company s web site (www.switcher.ch) describes the Switcher philosophy in detail.

Many Swiss consumers are aware of Switcher s involvement in social issues. This is not due to advertising: Switcher does not advertise its socialrelated activities. Awareness undoubtedly comes from the numerous press articles portraying the company as a vivid example of good social/ economic coexistence and revealing Switcher s owner particular charisma. The citizen brand image is well developed, but still essentially limited to Switzerland, due to Switcher s geographical market concentration.

INTERNATIONAL STANDARDS

In the 90 s, Switcher aimed at ensuring product quality at all production/distribution stages and at complying with international environmental and social standards: the company gained ISO 9001 certification in 1997 and Switcher and Whale products are Oeko-Tex 100 certified (absence of harmful chemicals in production process). More recently, the company engaged in ISO 14001 (environmental protection) and SA 8000 (social accountability) certification. Switcher requires from all its business partners that they engage in the same process.

Switcher s Code of conduct is in line with the Clean Clothes Campaign (CCC) principles (www.cleanclothes.ch). Started in the Netherlands in 1990, the CCC was launched in Switzerland in 1999. Its Code of Labour Practices for the Apparel Industry including Sportswear, common to all European CCCs, is inspired from ILO labour standards, the Universal Declaration of Human Rights and the International Children Rights Convention.

In 2000, along with two other Swiss companies (Migros and Charles Veillon), Switcher agreed to be part of a pilot project for the independent monitoring of its own Code of conduct: Switcher has nothing to hide, says Daniel Rufenacht, Head of Environment and Social Relations since 1999. We have set high environment and social standards for ourselves and work hard to implement them; we remain open to any suggestion that could help us improve. Rufenacht adds Social accountability and environmental protection are serious matters. When we realize a potential partner is not committed to our Code s requirements, we stop talking and look elsewhere. Switcher s policy is to apply the same standards everywhere, in Asia as well as in Europe. It recognizes however that cultural differences may require adaptations, for example in the management of wages .

AUDITING PARTNERS

Implementing these rules is done through a systematic audit of Switcher suppliers. Several points of the company s Code of conduct are particularly scrutinized, on a regular basis:

• work is freely chosen (ILO conv. 29 and 105),

• no discriminatory practices (ILO conv. 100 and 111),

• no child labour (ILO conv. 138),

• labour unions and collective bargaining are allowed (ILO conv. 87 and 98),

• salaries are satisfactory,

• working hours are not excessive,

• working conditions are satisfactory (hygiene, health, safety),

• formal labour contracts are established for all workers,

• the company accepts to be audited by an independent body trusted by the workers.

The audit takes place through observation, checking company records and legal documents, talking to labour union representatives, individual workers and their families. The audit procedure leads to the grading of the partner-company on a four-level scale:

1. working conditions are excellent ,

2. working conditions need some adjustments but are fair; the company accepts to improve conditions,

3. working conditions are bad, however the company is ready to launch necessary efforts over medium term to upgrade and finally meet requirements,

4. working conditions are bad and the company is not willing to undertake corrective actions.

In cases 2 and 3, Switcher is ready to provide support to help the supplier-move up the ladder, establishing a step-by-step procedure over an adjustable time horizon. In case 4, Switcher refuses to consider business relationships any longer. A possible deterioration of work conditions follows the same rules: Switcher s Environment and Social Relations Department keeps an open eye on each supplier s social performance, through frequent factory visits , discussions with labour unions and individual workers, checks of performance indicators (absenteeism, overtime hours, defective pieces, customer complaints, . . .), etc.

SWITCHER/PREM PARTNERSHIP IN INDIA

In the early 80 s, Mabrouc SA developed a unique partnership with Indian manufacturer-exporter Prem Durai Exports, today a part of the Prem Group of Companies. The Prem Group started in 1984 as a 100% cotton garment stitching factory located in Tirupur (Tamil Nadu), with a production capacity of 0.5 million units per year and a workforce of 100 employees. Both Robin Cornelius, owner of Mabrouc/Switcher, and S. Duraiswamy, Managing Director of Prem Group, were early believers in a long-term partnership and personally committed to make it a success. They signed an exclusivity contract by which Prem Group s full production was destined to Switcher, Prem Group being in return Switcher s unique supplier in India.

Stimulated by Switcher and eager to respond to growing concerns about quality, environmental protection and social accountability, Prem Group went for ISO 9000, ISO 14000 and SA 8000 certification. In the process, the company realized that the standards required for certification could only be met through greater control of upstream activities, which led to vertical integration. Today, Prem Group is composed of companies specialized in cotton churning and spinning, knitting, dyeing, cutting and stitching, embroidery and printing. It is thus fully integrated at the production level, with the exception of raw material since it does not own the cotton fields. Production was first intended solely for export to the Swiss and German markets. Since 1999, Prem Group also supplies Switcher with products for the Indian market which is growing steadily.

Production has increased 1.5 fold in one year, from 3.6 million units in 1999 to 5.1 million units in 2000, moving from 60% to 84% capacity utilization, with a workforce of 1,250 and an annual turnover of 10 million US $. Higher productivity has been matched with a significant improvement in quality, with an average rework level decreasing from 20.4% in 1998 “ 99 to 8.3% in 2000 “ 01 and average rejection level decreasing from 10.6% to 4.8%. Major improvements can be traced to both equipment/ technology upgrading (new machinery in spinning, dyeing, knitting, and cutting departments), and new management practices (systems based approach, moving from batch to line production, standardizing processes, online monitoring, improving internal and external communication, focusing on customer satisfaction, and human resource development).

SOCIAL MANAGEMENT

In complying with SA-8000 standards, Prem Group put into place in early 2001, a complete set of social accountability procedures. The Group s management structure reflects this new focus, as shown in one of its companies (Vikram Knitwear) organogram, with a Social Accountability Representative, in direct line to the Managing Director, supervising Safety, Health & Environment, Grievance handling, Human Resource Management, and a Unit Manager in charge of the company s different functional activities.

The company s Social Accountability Systems Policy is well known and widely spread: the policy statement is distributed to workers in their native language (Tamil), to active NGOs and to local and regional political authorities. Several recent press articles have contributed to its diffusion to the public. Social management factors are reviewed below, with some of the operational specifications thought to have a direct impact on the company s competitive standing.

WORK ENVIRONMENT

A visit of Prem Group factories shows the importance the Switcher/Prem Group partnership gives to work environment factors: workplaces are well spaced, light is abundant, high ceilings control for heat from neon lighting; good ventilation in all sections is provided by regularly spaced fans (regular maintenance ensures proper ventilation ); different noisegenerating activities (spinning, dyeing) are isolated from the more labour- intensive downstream activities; air quality is optimized by blocking out fibers (churning and spinning) and odors (dyeing) by isolating the related activities or by installing exhaust fans to suck micro dust; outdoor embellishment (plants and flowers around the factory buildings ) is also part of the environment improvement program.

Switcher/Prem also provide complementary services such as a free canteen. As any other aspect of the work environment, it needs to be monitored and workers feedback is solicited for improvement . . . in addition to ensuring that each worker gets sufficient nutrition for the day, the canteen is a socializing space that may contribute to workers sense of belongingness. It can also contribute to decreasing absenteeism by allowing a better control of work hours.

HUMAN DEVELOPMENT

Ongoing training takes place at all levels to help workers develop multiple skills and competences and thus provide career progression opportunities. With the exception of handling fabric lots and controlling machines, upstream operations (spinning, dyeing, cutting) have been progressively automated. These are the more dangerous operations (due to fumes, burns, cuts) for which human intervention represents less added value. Workers are trained for more downstream operations (stitching, embroidery, printing, ironing, packing) and for machine monitoring and quality & task checking.

Identifying a particular need for training usually comes from unit managers who arrange with training officers for specific training sessions to take place. For example, competent people are sought from machinery manufacturers and suppliers to help Prem Group workers acquire the appropriate skills in machinery handling and maintenance. The training process contributes to motivating workers to develop their abilities , helps in identifying higher-potential personnel for future promotion and is considered to be a major factor of general performance improvement.

Training is also provided to all incoming workers on the following issues:

• Background of the company, products and customer (Switcher);

• SA-8000 and its importance;

• Company s procedures on accidents, disciplinary actions, complaints, working hours, overtime, etc.;

• Committees in the factory and their activities.

All workers are thus well informed of the importance of social management issues and the company s philosophy in that respect.

Building workers self-esteem and sense of responsibility is achieved by developing awareness of each task s importance in ensuring customer satisfaction, and setting objectives for decreasing complaint levels.

Feedback from Switcher helps in measuring results. It is often provided live to Prem management and workers, frequent trips (every 2 “ 3 months) taking place between Switzerland and India.

Switcher/Prem Group believe in employee empowerment. For some workers, says D. Rufenacht, it means a revolution. We encourage workers to take initiatives, make suggestions, which many are not used [to] doing. Empowerment comes with skills and education, adds B.K. Prakash. As a worker becomes more mature and skilled through training, the company can transfer authority. Prem Group has developed programs in that direction which focus on conflict resolution, problem solving, quality principles, safety principles, etc.

WORK ORGANISATION AND GENERAL CONDITIONS OF WORK

Working conditions (task definition, workload, rest periods, wages, . . .) are set in collaboration with the labour unions. Inter-departmental communication and inter-personal relationships have been enhanced to strengthen a collective approach to solving problems and improving processes.

Working hours are clearly defined and communicated on a notice board in the canteen. Regular working hours do not exceed 48 hours for a six-day week, including rest periods. Overtime, on a voluntary basis, does not exceed 12 hours in a week, in accordance with Indian law.

With improved productivity, proper planning, and a better work organisation, overtime work has significantly decreased. Average monthly overtime in 2000 was 46 hours, decreasing to 22 hours in the first semester of 2001, representing a 52% decrease. In conjunction with a more sensible management of rest periods during the day, such a change has contributed to reducing work stress and fatigue. It is not easy to find the optimal balance between work and rest periods during the day, says D. Rufenacht. If employees finish work early enough in the afternoon, some are tempted to take up a second job elsewhere and come back the next day too tired to work properly. Extending rest periods helps to prevent this practice but we have to strike the right balance if we want to avoid the negative impact that prolonged rest periods have on the company s performance.

The company is vigilant against possible mental and physical abuse. It condemns any such actions. The Factory Standing Orders specifically define which behaviours may lead to disciplinary action. In that respect, managers and supervisors are trained to deal with workers, who are entitled to an enquiry. Standing orders are displayed in the canteen in native language (Tamil).

A bottom-up approach was initiated to relay employee complaints and suggestions. Thus, the grievance handling procedure provides for the worker to express his grievance to his supervisor, if necessary to move up to the Section in charge, then to the Unit manager, the Personnel manager, the General manager and finally the Managing director. The procedure provides for discretion, efficiency and effectiveness.

In addition, grievance and suggestion boxes are provided in all working areas. Unfortunately, says D. Rufenacht, these boxes are often empty. Indian workers don t express complaints easily, nor do they easily admit having problems. It is often better to talk to a worker individually, spend some time asking questions to get to the root of eventual difficulties.

Better working conditions, human development policy and improved work environment, and a general Switcher/Prem philosophy to re-inject benefits in social programs and work-related improvement measures, are believed to have had a direct impact on absenteeism and workforce turnover rate:

• Absenteeism ”% of work days not worked ” dropped from an average 20% in 2000, all workers combined (tailors, helpers, checkers, cutters, iron masters, finishers) to an average 9% in first six months of 2001;

• Turnover was also reduced by close to half, from 8.5% to 4.7%.

Overall, significant improvements in performance (output, quality, employee turnover, cost of extra hours, . . .) coincide with better working conditions being implemented to comply with SA-8000 standards.

One of Switcher/Prem s most significant initiatives was to establish work contracts for all employees, a guarantee of year-long employment, contributing to the development of a sense of security and belongingness. All workers also have the benefit of health and retirement plans, which remains an exception in the Indian textile industry.

This has yet to be fully appreciated: Getting workers to understand the advantages of putting money aside for the future is not always an easy task, says D. Rufenacht. Many workers still have a one-day-at-a-time mindset. It takes time to get them to appreciate a longer-term perspective of work. However, putting more emphasis on wages (which are above legal minimum wages in all cases) would likely have an adverse effect by contributing to absenteeism: From experience, a number of workers tend to stop working once they reach the minimum revenue they need to live. Extra wages only drive them to miss out on work.

OCCUPATIONAL HEALTH AND SAFETY

In accordance with Indian legislation (among which the Dangerous Machine Act, 1983 and Personal Injuries Act, 1963), monitored by both Switcher and itself, Prem Group has put into place a series of health and safety measures. H&S functions are both decentralised and centralized: Each Department is responsible for its own employees. In addition, a Health and Safety Manager is appointed to coordinate the H&S functions and monitor their implementation. Safety and fire fighting training is conducted regularly by trained personnel/outside agencies. First aid, health and hygiene training are conducted by visiting doctors . All employees are trained both in safety & fire fighting and in first aid, health & hygiene. Specific safety precautions for daily work include, for example, requiring the use of masks and finger guards for some of the tasks that remain dangerous.

LABOUR RELATIONS

All workers are unionized. The company has two trade unions, the Central Indian Trade Union (CITU) and the Marumalarchi Labour Federation (MLF). Management “ labour relationships have developed on a cooperative mode, as reflected in the composition of the company s Corrective Action Committee which brings management and union representatives together to solve problems. Management and Union leaders also meet on other occasions. When Robin (Cornelius) or I meet with Prem management, says D. Rufenacht, Union representatives often come by and we discuss issues together. This is quite an open management system, it helps build confidence.

NON-DISCRIMINATION

Prem Group follows a non-discrimination policy: The company hires, trains, compensates, and promotes employees on the basis of performance and competence irrespective of race, caste, natural origin, religion, disability, gender or political affiliation . With respect to gender, the company employs 43% women and 57% men, with equal pay for equal work, in accordance with the Equal Remuneration Act, 1976.

CHILD LABOUR

ILO standards specify children under 15 (13, under special circumstances) should not be hired for work. Prem Group has set the minimum age for recruitment at 18, for all tasks. To implement such standards, systematic checking of young workers age is necessary. It is done by asking for birth certificates, local school records, passports, and by conducting medical and past events memorization checks. Upon hiring, identity cards are issued and checked afterwards by security personnel. Contractors/suppliers are requested to implement the same principles and to provide a written commitment to that effect.

Prem Group has always implemented these standards. It has no experience of child labour and therefore no story to tell about how to go from child labour to non-child labour. However, it has set rules to be followed in case a young worker was found to be working in the factory, despite the checks mentioned above: it would be reported immediately to the Personnel Manager. For young workers over 15 years old, the company may try to maintain a light work load for a few hours a day (no overtime), combined with school enrollment. For a child under 15, the company will provide free schooling and may pay a stipend to the child to replace lost income to the family.

B.K. Prakash, Prem Group s General Manager and Social Accountability Representative (SAR), insists that child labour is not only illegal, it spoils the working conditions of a company: although it may seem to make good economic sense in the short term by cutting production costs, he adds, it has pernicious effects: it discourages education, which hinders human resource development; by way of consequence, it prevents the development of the company due to a lack of mature and educated workers. From a market point of view, adds D. Rufenacht, child labour is a time bomb. Recent widely publicized reports on children sweatshops in Pakistan and Bengladesh were highly detrimental to the involved firms reputation. Companies must come to realize that beyond morality, it makes good economic sense not to take that risk.

FORCED LABOUR

In compliance with the Indian Bonded Labour System Act of 1976, Prem Group does not engage in practices which lead to forced labour: it does not retain personal identification documents, qualification certificates, money deposits and does not support long-term loans, which could prevent workers from leaving the company. Workers are not forced to do overtime, as specified in the labour union agreement. It is important that workers understand their rights, says B.K. Prakash, and this can be achieved through good communication: disclosing terms and conditions of work prior to recruitment, making sure that all contracts are fully communicated and fully understood , conducting education programs to make workers fully aware of their rights and obligations.

MANAGEMENT REVIEW MEETINGS

Management review meetings take place twice a year to evaluate the effectiveness of the company s Social Accountability Systems. The meetings are chaired by the Managing Director S. Duraiswamy, and bring together the General Manager B.K. Prakash, as Social Accountability Representative (SAR), and all managers. . . . Management reviews include:

• Review of adequacy, suitability, and effectiveness of the company s SA policy;

• Review of the effectiveness of the systems and procedures;

• Review of the training and awareness programmes;

• Review of supplier conformance;

• Review of concerns expressed by workers, customers and other stakeholders;

• Review of internal/external audit reports.

INTERNAL AUDIT

As mentioned earlier, a Corrective Action Committee has been established to suggest corrective and preventive actions. Members include four Prem Group managers and workforce representatives elected by the workers. As SAR, B.K. Prakash has authority to implement the suggested actions.

He is also responsible for conducting comprehensive internal audits, which take place twice a year. The timing of the audit being announced in advance, the units can prepare for it, showing improved performance when it most counts. However, ongoing monitoring allows for management to check out possible fluctuations in performance and link them to specific events.

SUPPLIER AUDIT

As for suppliers, they are required, once a year, to complete a questionnaire about their commitment to SA 8000 standards, leading to eventual corrective actions when needed. Visits to suppliers premises allows for checking the authenticity of the data provided in the questionnaire. The company maintains records of suppliers and sub-contractors degree of compliance with SA [Social Accountability] standards over the years, providing some sense of progress being made and helping to point out most appropriate remedial action. Ability to reach and maintain SA-8000 standards is an important criterion in selecting and retaining a supplier. This practice is well in line with Switcher s own auditing procedure resulting in a 4-level grading scheme of its business partners.

This backward process consists in vertically integrating partners along SA standards. Our business partners understand the growing importance of complying with SA-8000 standards, says B.K. Prakash, not only to remain our partners, but because such requirements are quickly spreading and becoming a widely accepted standard globally. SA-8000 will likely follow a development comparable to ISO-9000, which in many cases is no longer a competitive advantage, but rather a ˜must.

IMAGE BUILDING

The Switcher/Prem partnership has become a benchmark in the Indian garment industry: We have set an example which is being followed, says B.K. Prakash, the fact of complying strictly with statutory and regulatory requirements and of reinvesting a share of profits in social programs contribute to Prem Group s exceptional image. Among recent visitors to Tirupur, Neil Kearney, General Secretary of Belgium-based International Textile, Garment & Leather Workers Federation, praised the company s accomplishments with respect to wages (above the minimum wage for all workers) and working hours, health, and safety.

EXTENDING SOCIAL ACCOUNTABILITY

A charitable trust was initiated by Switcher and Prem Group to provide free health, safety and education services to the workers, their families and to the public in general. The idea, says R. Cornelius, was to use some of our benefits to make a social contribution through better health, safety and education. We pollute water through dyeing, adds D. Rufenacht. Despite efforts to limit pollution (better management of dyeing sequences, more efficient use of water), we cannot eliminate it. We think we have to give something in return. The social contribution philosophy spreads out to a number of activities. Today, the Durai Charitable Trust, named after Prem Group s Managing Director, funds the following activities/services:

• 7 schools are running (12 are planned by end 2002), fully funded by the trust, free of charge, for workers children and those from poorer families of Tirupur and nearby villages. Over 1,200 children are now registered; In addition to employees children, who are automatically accepted, other children are selected among the poorer families of Tirupur and nearby villages. A criterion of selection is the family s motivation to see their children through school. Representatives of Prem Group meet with the families to determine their motivation. Through schooling, the company sees that children who do not work due to their age are not left on the streets .

• 4 dispensaries were opened in the factories and schools for free medical service and hygiene advice. Safety awareness and first-aid training is provided on a regular basis in the factory. An AIDS awareness and prevention campaign was launched in 2001, including the distribution of free preservatives [condoms] on the workplace and information sessions regarding their use; Family planning issues are also regularly addressed;

• 12,000 liters of drinking water are distributed daily to remote places which have no access to clean water;

• Living quarters and recreation areas are provided to workers at no cost, with safe separate quarters for single women;

• A daycare center was opened to help working mothers;

After more than ten years, R. Cornelius remains excited about the partnership: It extends far beyond a typical business deal, he says, we share the same values and we finance the (social and environmental) projects together.

Source: www.cepaa.org/Document%20Center/The%20Switcher%20-Prem%20Group%20Experience%20in%20India%202002.doc and also Corporate Success Through People. Making International Labour Standards Work For You, International Labour Organization, 2002.