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Good OM Reading: Rethinking Corporate Social Compliance in the Supply Chain

July 22, 2014

 third worldFollowing widely publicized human rights scandals in the early 1990s, corporations, dominated by those in the footwear and apparel industries, invested heavily in social compliance programs to enforce a minimum standard of human rights and employee safety throughout their supply chains. These standards, framed loosely on a U.N. declaration, typically sought to separate the worst human rights abuses from production processes where finished goods were manufactured. In the contract manufacturing sector, such abuses include child labor, forced labor, excessive overtime and unsafe conditions.

One might expect that given the pervasiveness of corporate social compliance programs and the volume of audits being performed that the evidence of abuses in corporate supply chains would be diminishing. If anything, the opposite may be true. The collapse of the Rana Plaza Garment Factory in Bangladesh in 2013 put a spotlight back on the issue of human rights in contract manufacturing. Social compliance programs have presented a dangerous illusion of progress while conditions, egregious even by 19th-century standards, have persisted unaddressed.

In the garment sector, countries such as Bangladesh, Haiti, Lesotho and Cambodia represent large and growing sources of production. The reason these countries have become major players has had little to do with a proximity to raw materials or a uniqueness of expertise, and much more to do with these countries possessing large volumes of impoverished labor.

What needs to change?  In this excellent (12 page) report, titled Human Right and Professional Wrongs, by Ernst & Young (2014),  several recommendations emerge:  (1) Companies need to use 3rd-party certifiers and auditors more strategically; (2)Procurement systems need to be tightened to prevent orders from being placed with factories that have not had their social compliance status assessed; (3) Agents need to be brought in line with the social compliance expectations of retailers; (4) Companies need to maintain longer relationships with a smaller number of suppliers; and (5) Companies need to incorporate human rights before they begin manufacturing.









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