Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide our series of predictions for the coming year.  These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the upcoming New Year.

In Part One of this series, we unveiled the methodology and complete listing of our 2014 predictions.

Part Two of this series summarized Prediction One related on what to expect in the global economy and Prediction Two, what to expect in procurement costs.

Part Three of this series summarized Predictions Three, continued momentum associated with the resurgence in U.S. and North America production, and Prediction Four, talent recruitment and retention as a continued challenge.

Part Four of this series addressed some unique industry specific supply chain challenges in 2014.

In this Part Five commentary we cover our sixth prediction which focuses on supply chain social responsibility trends.

 

Prediction Six: Supply Chain Social and Environmental Responsibility Strategies Continue to Become Far More Visible and will have Business and Shareholder Implications

Throughout 2013, business headlines were focused on the occurrence of highly visible incidents of perceived or alleged labor abuses, coupled with environmental safety concerns among production facilities supporting multiple industry supply chains.

Number one rated supply chain Apple continues to be especially targeted for continued reports of labor abuses involving supplier factories in China. While long-standing contract manufacturer Foxconn (Hon Hai Precision) remains under the scrutiny of multi-year audits and action plans, Apple’s newest contract manufacturer Pegatron is additionally under the looking glass.  In November, a Bloomberg Businessweek article, An iPhone Tester Caught in Apple’s Supply Chain penned by Cam Simpson, painted a disturbing web of subagent migrant labor brokers who feed off the high-tech industry’s culture of excessive demands for high-volume production ramp-up cycles by locating large numbers of workers and charging these workers excessive broker fees. Supply chain executives may sometimes come to terms with these practices as a reality of business requirements, however, consumers and customers view these practices in a different light, one associated with the brand and its associated products.

The apparel industry had probably the most visibility culminating with the tragic Rana Plaza apparel factory fire that occurred in Bangladesh that killed more than a 1000 workers.  In 2013, global retailer Wal-Mart received direct inquiries from its shareholders regarding that retailer’s social responsibility practices and later responded with a formal briefing to update shareholders on current and future plans.  One of the largest apparel sourcing firms Li & Fung came under the looking glass in a New York Times expose article in early August. The Times article drew a direct connection for Li & Fung’s garment sourcing involvement tied to several factory calamities, including the Tazreen Fashions factory fire that resulted in 112 deaths and re-raised the global awareness to sub-standard factory conditions across Bangladesh and other low-cost regions.  In late 2013, three industry groups were involved in developing a set of common factory safety and labor standards for apparel and garment related factories across Bangladesh:

  • Accord on Fire and Safety in Bangladesh, led by mostly by a consortium of European based retailers
  • Alliance for Bangladesh Worker Safety, led by Wal-Mart Stores, Gap, and a consortium of other U.S. based retailers
  • National Tripartite Action Plan, an agency of the government of Bangladesh

The Europe based consortium of member retailers will inspect 1600 factories, and to its credit has offered to sign 5 year contracts with factories that offer financial assistance as well as some procurement commitments. The U.S. alliance is overseeing 600 factories and has offered some financial assistance.  The government has reportedly pledged to assess and upgrade 1200 factories not covered by the consortium pacts.

In the food sector, a devastating fire broke out at a poultry processing plant located in Jilin Province in northeastern China in early June and was reported as one of the worst China factory disasters in years, killing 119 workers with scores of others injured.  Reports indicated that an explosion preceded this fire, as workers began to panic and rush toward closed or blocked factory exits.

In the online fulfillment, Amazon came under the looking glass on multiple occasions for its temporary and flex labor hiring and work practices in U.S. and European based facilities, particularly across Germany, where labor unions have been protesting Amazon’s actions.

The visibility among customers, shareholders and global media to the existence or repulsion of these practices will have far more business implications in the months to come.

In 2014, sourcing, procurement and supply chain leaders across many industry sectors can no longer turn a blind eye toward existing supplier direct labor or operational safety conditions.  This includes unauthorized supplier sub-contracting processes that occur among groups of suppliers who take on orders beyond the existing capacity or with condensed delivery requirements. It further includes added incentives for suppliers to adhere to generally acceptable standards of labor and safety practices. The risks are far more apparent, and include damage to the brand and loss of consumer loyalty. For procurement teams themselves, continued intolerance to social responsibility leads to loss of the business benefits and efforts gained from other supplier collaboration or joint sustainability product development programs.

Suppliers, especially those that reside in lower-cost manufacturing regions have to become more proactive in adherence to existing laws and customer contract requirements and need to work more closely with established industry groups, audit teams and other standards agencies to improve labor and safety practices.

No longer is it acceptable to have a social responsibility statement published on the company’s website.  There must be a detailed plan with quantified goals and/or milestones. The year 2014 will bring further visibility to those supply chains proactively addressing social responsibility, and unfortunately, those that are accepting the past status-quo.

 

This concludes Part Five of our 2014 Predictions series.

Keep your browser focused on Supply Chain Matters as in our upcoming posting, we highlight Prediction Seven, which predicts increased dimensions of risk impacting global sourcing strategies.

As always, readers are encouraged to add individual or their own organizational perspectives to these predictions in the Comments section associated to each of the postings in this series

 

© 2013 The Ferrari Consulting and Research Group LLC, and the Supply Chain Matters Blog.  All rights reserved