The Two-Million Dollar Question: Are Your Factories Compliant? - Global Trade Magazine
  February 19th, 2018 | Written by

The Two-Million Dollar Question: Are Your Factories Compliant?

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  • The Rana Plaza disaster in Bangladesh killed over 1,000 factory workers.
  • Global companies are taking action to ensure compliance with regulatory and voluntary guidelines.

Over the course of the last several decades, social compliance was viewed as a voluntary, nice-to-have feature that saw a lot of lip service, but very little concrete action for many years. When the Rana Plaza disaster struck in Bangladesh in 2013, killing over 1,000 factory workers and injuring twice as many, the world sat up and took note. Corporate Social Responsibility (CSR) moved out from the periphery of consumers world-wide into the forefront, forcing global companies to take concrete actions to ensure compliance with both regulatory and voluntary guidelines.

For some, it seems, even the concrete actions taken in the wake of Rana Plaza were not enough. News broke in January 2018 that a global apparel brand (the company remained anonymous) is shelling out $2.3 million to cover factory remediation in Bangladesh, five years after the disaster. The judgment was reached through an arbitration process under the Bangladesh Accord for Fire and Building Safety, which is a legally binding agreement between global brands and trade unions that promotes safer work conditions in Bangladesh’s garment sector.

This new, costly judgment is sounding the alarm once again for the global trade industry to take social compliance seriously, or else.

Gain Visibility Through Audits
What should a global company do to mitigate risk and ensure their downstream suppliers are following all applicable safety and labor regulations? While communicating CSR policies and expectations downstream is of utmost importance, one of the best ways is by conducting frequent and thorough supplier social responsibility audits. Audits help paint a complete picture of what is happening at certain points in your supply chain. Equally important are the follow-up activities to ensure corrective action plans (CAPS) are completed.

Supplier inspections are a vital component to any global operation. Quality, safety, social responsibility standards, and regulatory practices must be enforced to protect brand integrity and reduce the risk of costly product recalls. CSR should become part of a company’s DNA, not an afterthought.

Auditing has also come a long way in the past few years. In the past, duplicative audits, with multiple companies conducting the same audits on overlapping factories, was a serious issue. It led to audit fatigue at the factory level, with often contradictory requirements leading to confusion during the audit. The advent of third-party and shared auditing has resolved many of these issues, with companies working together to resolve issues and mitigate risk without stepping on each other’s toes or exposing sensitive information.

Proactive companies will approach their auditing practices with a goal of increased transparency. It is also important to leverage technology systems that manage trading party and service provider data, and then leads to the building of collaborative relationships with suppliers.

The information provided through audits helps provide visibility and clarity so companies can be assured their global supply chains will continue to operate efficiently. Risk mitigation comes through identifying potential issues, such as workforce issues and instability. Auditing has moved into the new age, with strategies to help companies better understand their supply chains. But managing the data provided via auditing can’t be left in the 20th century, either.

Managing Audits with Technology
Cloud-based global trade management (GTM) technology allows companies to work with closely factories, vendors, and outside inspection teams to maintain strict adherence to CSR and other types of audits. An innovative technology solution provides benefits and features such as:

  • Communication with inspection teams and scheduling compliance inspections
  • Calendars for wide-level visibility and scheduling recurring audits
  • Monitoring and managing vendor and factory performance for on-time delivery, social compliance, environmental footprint, and regulatory compliance
  • Establishing audit processes and ensure audits are performed and compliance is reached
  • Analyzing risk by cross-matching current and future activity with non-compliant suppliers
  • Selecting suppliers that meet compliance standards using Key Performance Indicators established by the brand
  • Lockdown activity, like future orders, with non-compliant suppliers
  • Digitization of data that is shared regarding product, suppliers and orders

The role of social compliance continues to morph alongside the global trade landscape. Compliance professionals must not only adhere to corporate standards and government regulations but have also become responsible for creating and nurturing strong, ethical corporate cultures in order to insulate organizations from financial, legal and reputational risk.

Keeping on Top of the Supply Chain
Digital, collaborative technology solutions are the key to preserving the trust of valued consumers and alleviate risk from litigation. Technology-based solutions help companies increase supplier collaboration and visibility, support greater supplier accountability, and provide a conduit for broader, proactive supplier management activities. The best technology solutions offer the functionality to fulfill the end-to-end, develop-to-shelf needs of both retailers and suppliers.  It is equally important to realize that integration to external and third-party systems can push and pull information into a central repository to increase its value and preserve existing investments.

To ensure complete visibility and collaboration, technology should facilitate internal sourcing and compliance teams to work with factories, vendors and outside inspection teams to maintain strict adherence to the numerous performance standards, and subsequently build stronger relationships with each link in the supply chain through the collaboration tools on the platform.

Armed with solid information about human trafficking and labor conditions in their supplier network, companies will find themselves better positioned to mitigate risk and avoid the negative press that accompanies breakdowns in social compliance.

Gary M. Barraco is director of global product marketing at Amber Road.