Responses to questions on Ethical Supply Chain challenges

FROM: Anita Nagarajan <anitan_email@yahoo.co.uk> 2005-06-10

To: csr-chicks@yahoogroups.com Subject: Impact on supply chains

Dear All,

I'm currently developing tools to essentially assess (or attempt to assess) the labour impact of the pressures corporations place on their suppliers. Could anyone possibly offer some advice on this? I really need to know how workable these tools would be and what areas I've overlooked. If you think you could assist (or know someone who can), please get in touch. Thanks a lot, Anita

My response:

Question Anita: 1. From the unit cost of a product, can one roughly find out the labour cost? In this way, would one be able to know if the worker received at least the minimum wage? (I realise that working this out would not be an exact science).
Answer Kate: No, as this will be different every single time. Just because a company can make or sell something cheap, doesn't mean they are paying low or below minimum wages etc. Cost is made up of many factors, the most variable factor actually being margins. Yes, things made so-called 'ethically' have often meant proper wages, insurances etc were paid, and on-time etc etc,...but just because something is expensive doesn't mean something was made ethically. Maybe someone in the middle took a big cut as a 'Director Fee' or who knows. A larger firm maybe able to afford better technologies which allow it to be more efficient and therefore produce cheaper, etc,etc. We can't even tell where a product was made, which greatly influences price. Even the 'Made In X' label on an item is not exactly correct, sometimes components are mostly made in other countries for tax or other reasons. It is not easy to buy a 'ethical buyer'. One generally has no idea, unless an NGO tells us so on a front page, and even by the time we read that sort of article a brand may have already dropped, or changed things with a supplier. Ethical purchasing has to be more about trust in the long-term supply chain management of a company, as short term there are too many factors at play.

Question Anita: 2. Can one determine if a lead-time is too short? If so, how might this be done?

Answer Kate: In what circumstances? For what sort of product? Of course the more lead time the more likely a supplier would be able to balance their finances and ensure they paid workers on time, etc,etc,...but again,....shorter lead times does not have to mean disobeying labour and other laws. Many companies are able to produce in very short lead times while still obeying the law and paying people decently, on time, not going over maximum working hours per week, etc. Others have plenty of lead time, and still don't comply with labour or health and safety laws. Labour law compliance is about medium and longer term incentives, systems, structures, learning opportunities, pressure, and personal integrity. Lead-time is a very small factor in all these drivers for compliance.

Question Anita: 3. It seems to me that to really know if a supplier is under too much pressure, one needs information about their capacity. I would like to find a way of possibly working this out. Obviously there are many factors to take into account like employee numbers; technology and machinery; reliability of electricity. Can you offer any advice? I'm not sure whether its possible to get information on all factors (like if there is a high employee turnover rate) and if some kind of formula can be made, again as a guide.

Answer Kate: I disagree on the factors you would take in to account. I would imagine to do some research into whether this type of firm in this type of area has a good reputation or not. I.e. is this type renowned for corruption? would be more useful. If so though, you will always find some good in a group that can improve,....while there are lone companies out there with excellent management systems in industries with poor records of compliance. I think a good piece of desk-based internet and phone research by local people can often give a good idea of whether a certain firm is on the strong side with compliance or weak. On the ground interviews near a factory site with workers can also (must be done very sensitively and appropriately). A site audit and assesesment can also be very helpful here too. Once you have an idea of how the firm is run, i.e. how much they comply in general, you can then understand whether their comments about being under too much under pressure from you as a buyer are realistic. If they are generally complying with labour, health, safety, financial and environmental laws, and say your demands are pressure,...then it probably is too much pressure. If they are already not complying,..then if you are practising ethical sourcing then you shouldn't be sourcing from them anyway, or at least only with a very strong plan to bring them into compliance, and some sort of '3-strikes & your out' type policy with random monitoring of their work to come in to compliance. This is much easier data to come by than all the internal data you mention, which I don't believe would actually answer your question.

Best regards

Kate Larsen.