On February 24th, President Obama signed into law the Trade Facilitation and Trade Enforcement Act of 2015 which now officially prohibits the importation of goods produced by forced labor or child labor, closing an 86 year old loophole and reauthorizing the Customs and Border Protection Agency to seize any imports suspected of being produced by forced labor. The International Labor Organization estimates forced labor fuels $51 billion a year in profits in international trade and more than 14 million people worldwide work as a result of force, fraud or deception in homes, factories, mines, and farms.
“If the US government works to really keep out goods made with forced labor, this change will have a profound ripple effect on supply chains worldwide,” said David Abramowitz, vice president of Humanity United and a major advocate of the Act.
Resilinc has released a new report entitled "New Forced Labor Legislation to Impact Global Supply Chains" which, in concurrence that forced labor produced goods are common across industries and that the new law can significantly impact global trade, examines forced labor hidden in the supply chain as a palpable, three-pronged risk to companies, irrespective of industry or company size. These include business continuity risk, brand risk, and compliance/legal risk.
“Companies may be inadvertently linked to sub-tier suppliers that may engage in unethical, and now, purely illegal, business practices,” said Neil Shenoi, the lead analyst and primary author of the report. “Clean companies may still be at risk due to increased scrutiny of US imports and newly implemented import regulations. Regardless, the new law will inadvertently require companies to achieve a greater degree of supply chain visibility to assure both the government and the public at large that forced labor has no role in their supply chains.”
An overview of the Trade Facilitation and Trade Enforcement Act
Why SCM practitioners and stakeholders should care about the new law
An examination into how the legislation will be implemented and enforced
An assessment of key regions, industries and goods impacted by the new law
Tactical and strategic recommendations on how to prepare for the foreseeable supply chain impacts
The report concludes that it is critically important not to think about supply chain risks in isolation.
“Companies need to think strategically about supply chain risks in the context of the broader array of risks that they face every day,” said Shenoi. “Supply chain risks should be addressed as part of a comprehensive resiliency strategy and not a “one off” risk mitigation exercise. This is because the processes associated with risk mitigation and the treatment options available are common across a wide variety of risk types.”
In the process of developing a robust supply network across the globe, enterprises unwittingly leave behind a deep carbon footprint. Even companies that have gained some visibility to their supply chain and potential impacts are not always sure what to do next. A recent study published by CDP and Accenture (CDP & Accenture, 2014-15) reveals that policy guidance in the United States has helped equip only 50% of North American suppliers with climate risk management strategies for dealing with carbon emissions and other ecological challenges. This puts the country in the most vulnerable quadrant for climate-related risk mitigation.
The good news is that a meaningful reduction in the carbon footprint of our global supply manufacturing and distribution/logistics networks is achievable and best practices are emerging. Green supply chain management (GSCM) is a proven set of strategies to control environmental impacts and risks to your global supply chain manufacturing and distribution processes. The benefits to business from developing a green and sustainable multi-enterprise supply network via GSCM techniques are numerous and compelling. They range from improved brand image, to reduced costs, to reduced operational risks.
Green Supply Chain Business Drivers and Benefits
Here’s what you can do to adopt a ‘Green Supply Chain Strategy.’
Commitment is the key first step towards green operations.
Gain executive commitment and sponsorship to visibly support program goals, strategies, and execution plans.
Identify an accountable program champion.
Define metrics and benchmark environmental impact in areas like waste generation, energy consumption, emissions, etc.
Set targets and devise policies that offer guidance on how to achieve targets at every level of the enterprise and across the product life cycle.
Ensure policy compliance goal/target achievement across the extended enterprise leveraging executive support.
Develop a green corporate culture by offering training and workshops to employees and stake holders, as well as incentives and recognition.
Consider acquiring green certifications and performing green audits.
Supply Chain Visibility and Monitoring:
Map your supply chain end-to-end to gain visibility to your multi-tier supplier network and sub-tier suppliers. It is impossible to implement GSCM strategies if you are not sure what your network looks like and who your suppliers are beyond your tier 1 partners.
In a blog article I posted back on May 1, I rehashed John Oliver’s tirade on apparel industry supply chain practices. In a segment of his satirical HBO news commentary show “Last Week Tonight” that aired in May, he made a scathing indictment of the supply chain practices of the likes of H&M, Walmart, Nike, and the Gap. He essentially accused these brands of being negligent, or at best claiming to be clueless, about the exploitive and unsafe working conditions in places like India’s garment factories. I just came across a very interesting alternative view on this topic in a brief article in the July/August edition of Yale Alumni Magazine entitled “Sweatshops Opening the Door to Change” (Carole Bass, Yale College ’83; Yale Law ’97).
The article interviews Mushfiq Mobarak, an economist at the Yale School of Management, who argues that the explosive growth of India’s garment industry benefits girls and young women, who hold most of the sector’s 4 million jobs. The availability of factory jobs, he claims, is a significant reason why girls are staying in school longer and delaying marriage and childbirth.
At the same time, fatal factory fires and building collapse have killed over 1,000 workers in recent years, prompting calls for boycotts until conditions improve. Mobarak and Rachel Heath (Yale PND) postulate in a piece they co-authored for the Journal of Development Economics that boycotts are the wrong answer because factories have created the first job opportunities for Bangladeshi women. By comparing pre- and post-factory data in villages close to new factories and in more remote towns, the economists estimated the influence of the new jobs on choices about marriage and age at the birth of their first child.
Older girls might leave school to work in a factory. But, because employees who are literate and numerate draw higher paychecks, younger girls are staying in school longer, they found. “For the first time, it becomes worthwhile to invest in girls’ education,” Mubarak says.
Are the authors making a case for sweatshops, Bass asks? “It’s a case against the knee-jerk reaction that we need to stop importing from Bangladesh,” Mubarak responds. “The right policy response is not to ban imports, but to invest in factory safety.”
Indeed, according to the most recent Resilinc EventWatch™ Annual Report, factory fire was the number one cause of supply disruption events worldwide in 2014. An investment in corporate social responsibility programs and the monitoring of sub-tier factory safety and working conditions may be one of the best ways to manage both hidden supply disruption and continuity risk, as well brand risk. The first step in this approach is investing in supply chain event monitoring and supply chain visibility tools.
What was your immediate reaction the last time you came across a news headline about unsafe working conditions or incidents of forced labor?
Did you question the companies involved and who should be held accountable for employee safety, even if they were a tier 3 supplier? Perhaps you wondered if the companies have an outlined Corporate Social Responsibility (CSR) program in place? And if so, was it implemented as effectively as possible?
Such questions are important to consider as CSR—while not a new concept for businesses—continues to gain increased adoption, and encompass the suppliers in their supply chain.
According to the Global Reporting Initiative (GRI), the number of U.S. companies that published CSR reports increased from 70 companies in 2007 to more than 540 companies in 2012.1 Additionally, more stakeholders and shareholders are paying closer attention to their relative company’s CSR actions and results. For example, during the 2013 proxy season (January 1-June 30, 2013), the number of Environmental and Social (E&S) resolutions filed by shareholders with U.S. companies rose to 395 filed (compared to 368 in 2012), according to the Institutional Shareholder Services Inc. (ISS).2
As more businesses’ continue to report on their CSR programs, companies will need to utilize the right solutions to integrate their suppliers into their CSR program and to better understand how such factors as supplier location, compliance efforts, consumer demand, and industry growth factor into their business models and CSR initiatives.
Supplier locations do matter
Many elements go into selecting the right supplier for a business, from the supplier’s purchasing habits, lead times, product quality and cost, and consistency, to name a few.
Equally important is the region or country a supplier is located in. Issues of human rights violations and forced labor continue to exist and receive increasing global awareness. As such, businesses may want to reconsider areas with high reports of human trafficking because of the ramifications on their multi-tier suppliers and overall company. They may also consider such realities in their CSR program, as extreme a situation as human trafficking may be when compared to other areas their CSR initiative may account for. Such CSR program areas can include ensuring that products are produced ethically, e.g., include fair employee pay, safe working conditions, and legal working hours.
And according to the U.S. State Department’s 2015 Trafficking in Persons Report (TIP), even countries that fall into Tier 1, classified as “governments of countries that fully comply with The Victims of Trafficking and Violence Protection Act’s minimum standards for the elimination of trafficking,” are not necessarily exempt from the issues of human trafficking.3 Countries must continue to address the issues of human trafficking and fair labor to ensure complete transparency of the matter. Those that don’t may, in some cases, face certain consequences. Thailand, for example, was listed in Tier 3 of the U.S. State Department’s TIP report. The placement comes despite the country’s recent efforts to crackdown on human trafficking camps in Thailand reported back in May 2015.4 (Note: countries listed in Tier 3 placement of the TIP report are categorized as having “governments that do not fully comply with the TVPA’s minimum standards and are not making significant efforts to do so.”)
Compliance efforts underway
Businesses alike must also increase supply chain visibility to identify risks and labor issues based on geographic locations. In fact, governments and federal regulations are increasingly tracking whether businesses are taking the right measures to prevent such issues as human trafficking in their supply chains.
The International Labour Organization (ILO), United Nations (UN), the North Atlantic Treaty Organization (NATO), and the Organization for Security and Co-Operation in Europe (OSCE) all continue to fight against human trafficking and related issues affecting global supply chains. Organizations such as the Sustainable Accounting Standards Board (SASB) also made great strides since 2012 to address the issue of sustainable disclosures in company’s annual SEC filings. However, lawmakers are taking such steps even further, following the U.S. State Department’s published TIPS report.
Reps. Carolyn B. Maloney (NY-12) and Chris Smith (NJ-04) introduced the Business Supply Chain Transparency on Trafficking and Slavery Act of 2015.5 The bill would require public companies with over $100 million in global gross receipts to publicly disclose any measures to prevent human trafficking, slavery, and child labor in their supply chains as part of their annual reports to the Securities and Exchange Commission (SEC).
Existent regulations, such as the California “Transparency in Supply Chains Act” (SB 6571) of 2012, requires retail companies (those which have annual revenue of $100 million or more and annual California sales above $500,000) to disclose their efforts to eliminate slavery and human trafficking from their supply chains.6
Consumers affect CSR and industry growth
Increasing consumer demand is another indicator which continues to heighten the need for complete supply chain visibility. More and more product consumers consider not only the quality of a product, but its company, where the product came from, who made it, and how it was made.
In fact, 55 percent of global consumers are willing to pay more for products and services provided by companies that are committed to positive social and environmental impact, according to a study by Nielsen.7 And 67 percent of survey respondents prefer to work for a socially responsible company. Of those global respondents, half are millennials (born between 1980 and 2000).
As millennials ask for more sustainable actions from companies in their CSR programs, their influence also extends to other areas. Social media, evolving mobile technology, and digital innovation all resulted from the needs and patterns of the millennial generation. The impact and purchasing power that the growing millennial population—projected at 81.1 million in 20368—may have on specific industries also has much relation to a company’s CSR program.
The electronics industry, for example, is expected to reach $286 billion in revenue this year, according to the Consumer Electronics Association.9 Wearables, such as health and fitness devices, smart watches, and smart eyewear are all technologies that will add to the industry’s growth. And with such development, businesses may have an even bigger responsibility to ensure ethical practices and measures are taken in their supply chains.
Organizations such as the Electronics Industry Citizenship Coalition (EICC) continue to make headway in addressing risks and greater supply chain visibility for electronic OEMs. New rules added this past April to its EICC Code of Conduct further address issues of forced labor.10
What you can do
There are numerous ways businesses can take proactive steps to learn about issues affecting their supply chains and how they should be addressed in their CSR programs, protect against brand risk, and increase their visibility past Tier 1 of their supply chain.
Be cognizant of local and government regulations affecting countries that are home to certain aspects of your supply chain. Before working with global suppliers or manufacturers, understand which countries are classified as Tier 1, Tier 2, Tier 2 Watchlist, or Tier 3 of the U.S. Department of State’s annual TIPS report, as mandated by TVPA. Know what efforts your state or local communities are making and what regulations are already effective that require you to take greater accountability for your supply chain.
Leverage available supply chain risk prevention (SCM) resources. Identifying your company’s CSR program is a crucial step to addressing ethical issues that affect your global supply chain. For those ready to take the next step, using integrative mapping platforms can enable businesses to generate immediate score cards at both company and site level, or identify which supplier sites do/do not comply with local regulations.
Build deeper supplier relationships. Work with your suppliers to create a sense of trust. Understand their core business, capabilities, and pain points that may prevent your supply chain from operating efficiently. Share relevant information they need to know, such as supplier business continuity plans, to enable them with best practices. This can ensure you receive the result you need and that your CSR program needs are met.
Find out how the Resilinc CSR module can help you protect your brand with end-to-end supply chain partner visibility. Learn more about our product or download a copy of our Supplier CSR Data Sheet and learn how you can gain data that can improve your supply chain visibility.
Did you catch John Oliver’s tirade on apparel industry supply chain practices? In a segment of his show that aired earlier this week, the case for supply chain risk management and visibility investments was made by an unlikely source. The popular TV program’s scathing indictment of the supply chain practices of the likes of H&M, Walmart, Nike and the Gap is, in and of itself, proof of the brand risk associated with complex globalized supply chains.
Oliver asked how is it that companies can charge as little as $4.95 for a dress (comparing that to the $5 price point of a jar of cricket food) and yet still be “massively profitable.” He then proceeded to trace the roots of incredibly cheap apparel to exploitative labor practices and working conditions in developing countries.
“Sweatshops aren’t one of those 90s problems we got rid of, like Donnie Wahlberg,” said Oliver. “They’re a 90s problem we’re still dealing with, like Mark Wahlberg.”
And, despite increased monitoring, worker age verification, safety and other measures companies claim have been implemented, the problem arguably has only gotten worse as a result of the accelerated pace of globalization. As late as 1990, 50% of the clothes consumed in the U.S. were manufactured domestically; today it is less than 2%, according to an individual interviewed in the segment.
Oliver then adroitly put his finger on the role of supply chain visibility (or lack thereof) in driving company behavior and practices, and in doing so made the case for multi-tier or sub-tier supply chain visibility.
“One of the biggest problems in holding many brands accountable is that deniability seems to have been stitched into the supply chain.” He then explained a scenario in which Walmart sent an order to an approved apparel factory that sent it to an unapproved (subcontractor) factory without Walmart’s knowledge. He proceeded to chide Walmart for portraying it as just a “crazy, one in a million, random accident that only happened a few times in the last few years.”
“This is not the last time that Walmart has been caught unaware,” he continued. "And they are losing the right to act surprised. They’re like the characters in the Hangover movies. It’s not an accident the third time, boys. It’s a pattern of reckless behavior that has to be addressed."
In an attempt for greater transparency, Oliver recommended that some companies change their names. He suggested, for example, that American Eagle change its name to “Bangladeshi Swamp Hen.” He was OK with Banana Republic, however.
There are a lot of good reasons to invest in supply chain visibility as part of your supply chain risk management and corporate social responsibility (CSR) strategy. John Oliver, by his own admission, is not pointing out anything new. In fact one of his main points was that CSR, vis-a-vis the supply chain, is an old issue and we should have made more progress by now. He was just using his platform to keep the pressure on. Well done John Oliver. There are now two TV shows you definitely don’t want your company to be featured on: 60 Minutes and Last Week Tonight.
Looking to get ahead of this issue? Here's a good place to start: