Archive for the ‘Sustainability & Transparency’ Category

Iphone Manufacturers Getting Heat. Should you care about the working conditions of the factories you source?

By admin on February 28, 2011 | Category: Product Sourcing and Strategy,Sustainability & Transparency | Tags: , , , , | Comments Off

I think so. Wired Magazine’s March 2011 cover/issue (available in print, not yet online) “1 Million Workers. 90 Million Iphones. 17 Suicides”, raises the question from a consumer perspective.  Article author Joel Johnson hopped on a plane and toured through the main Foxconn factory, Apple’s largest contract manufacturer, in hopes of learning and telling the world more about the kinds of places the vast majority of our electronics products come from. The article did a good job of portraying the conditions of a chinese factory, and even Johnson admits that his tour guides were not far off the mark when they described the city-state factory (1 million workers) as looking like a typical community college campus in the U.S. (Are the keg lines long?).

The working conditions of overseas manufacturers are always a hot issue and scrutiny of the way large companies like Apple treat their masses of contract manufacturer workers is a good thing. Surprisingly, the Wired article may seem like a disappointment to many hoping to find the chink in Apple’s armor, because it did a good job of exonerating Apple by showing that their business with Foxconn hasn’t led to anything outside the norm for society from a statistical standpoint. The article points out that the worker suicides at Foxconn, 17 people out of 1 million, are well below the national averages for both rural and urban China, and that the suicide rate of U.S. College students is four times the incidence of suicide at Foxconn.   Geez, it almost seems as though, if you’re kid was considering suicide, statistically–you would want to send them to work in this Chinese factory.   Either way, some people will buy the magazine because more people care these days about sustainability in general and would like to know the truth, at least, according to Wired. What may be more troubling, is many people will read the magazine cover and assume there are problems because, “why else would a magazine write about it?”  The point is, these are sensitive issues for ANY company.  So even if you’re not Apple, or HP, or Sony, but you’re a start-up, how do you approach this in your supply chain?

Sustainability and labor conditions in international supply chains is a concept that is still relatively new. For all the public and media lashings that companies like Nike and Walmart have taken over the last 20 years regarding the treatment of factory workers and environmental impacts of supply chains, we still have a long way to go in moving industries in a more sustainable and transparent direction. But it’s happening. See my posts on Walmart and IBM, for a taste of the progress.

At the start-up and growth stages, you’ve got to start early and you’ve got to approach sustainability in a way that makes sense given the challenges before you. My advice: focus on the social and environmental standards of the factories you’re sourcing. Look for the manufacturer who is already doing it right, rather than thinking you’ll change the one that isn’t.

How do you know if they’re doing it right?

There are many issues with the way large companies institute and monitor social and environmental policies with their suppliers. Typically, companies send teams of auditors to inspect factory conditions every so often.   The auditors then report either a pass for the supplier, a change in the supplier’s status to the ‘watchlist’, or elimination from the purchasing base altogether. The truth is, the monitoring system widely used in the industry is not very effective as a cause for improvement in industry conditions beyond a baseline point. Andrea Harney’s book, The China Price, does a fantastic job of laying out the problems of this system in the industry. Despite this system, there are so many factories out there that don’t even meet baseline standards.   As a start-up or small company, how do you assure the standards of the factory you’re working with?   I have 3 options for you, any of which will give you some information to make a judgment on.  Coupling a few of these tactics together will give you a more well-rounded perspective: 1) source a factory that is working with larger companies that must enforce standards, 2) go there and see the factory for yourself, 3) have an audit team go in and report on the status of the factory conditions.

Simple as that. You should start with #1, do #2 at some point anyways, and pay for #3 if you’re very serious about the issue.

Why is it unlikely that I’ll be able to push change with my manufacturer?

First, let me say that this is something that the largest of the large companies in the world are continuing to struggle with. Some companies and industries have made greater advances than others, but the fact remains that even organizations with far greater resources and budgets must work hard to make improvements. Oftentimes, industry leaders like Levi and Nike don’t have enough clout themselves to push suppliers to change their operations, and companies like these must band together with their competitors in the industry to lean on suppliers and advance their standards and operational practices. Thus, thinking you will begin to do business with a new contract manufacturer (and as a start-up, the importance of your business will likely be small compared to their larger, steady customers) and demand they adhere to guidelines they don’t already subscribe to is not realistic. For these reasons, it’s much more important to think about the factory you’re sourcing to begin with, rather than trying to change a supplier you’re already working with.

Thinking about these issues going forward, I encourage my clients who are interested in the sustainability of their products and supply chains to consider the entire lifecycle—from the materials and design of the product and packaging, to the location of the factory, the practices of the factory, and the impacts of shipping. A start-up should be strategic in their approach and go after the low hanging fruit, while making sure they are focusing on successfully growing their business. As business grows, there will be increasing opportunities and resources to continue building your business in a responsible fashion. Just like Apple, at some point, consumers and watchdogs may demand to look under the hood of your factories to see if you’re business is on the up and up.  Start early. Start smart.

Event Recap! Stanford’s Responsible Supply Chain Conference: Social and Environmental Responsibility in the Global Supply Chain

By GSS on May 4, 2010 | Category: Sustainability & Transparency | 1 Comment

This is the second year I have attended Stanford University’s conference on Responsible Supply Chains.  This year focused on the theme of collaboration in the supply chain, and  consisted of speakers and panels of top industry executives from Levi-Strauss, Nike, Johnson Controls, Business for Social Responsibility, Dow Chemical, Bon Appetit, and many others.  The conference’s growth in attendance and complexity of topics covered were representative of the continuing significance many companies are placing upon sustainability in the supply chain. Despite some of the presentations having more of an advertising slant, most of the presenters did a good job of highlighting lessons learned and best practices.  In addition, I thought the size and format of the conference helped foster candid and challenging audience questions which generally earned insightful responses from the speakers.   Here are the highlights and conversation topics of the conference which I thought were most noteworthy:

  • The conference–presenters, panel speakers, and attendees were much more international this year than last year.  In addition, it seemed several large corporations who were looking to international emerging markets for growth were taking sustainability very seriously in the development of their business models in these markets.

  • To try to implement sustainability initiatives in the supply chain from a boardroom that is an ocean or continent away from production is not realistic.To identify problems and develop practical solutions, one has to get on the ground and visit the factory, visit the field, talk to personnel and partners involved, and get your hands dirty.  Determine the unit of analysis that will be essential to spurring widespread adoption and change, and understand it deeply.  Everyone must agree on the objectives, and someone must take the reins and push action.

  • CXO leadership and support is critical.  Presenters unanimously cited that support from the top echelons of management was essential to being able to push change and achieve sustainability objectives in the organization and supply chain.

  • It is clearly not just about reputation management anymore.  Many feel regulatory risks are on the horizon and its best to begin addressing high profile issues now. Furthermore, at a more fundamental level, a few executives cited the inevitable increase in scarcity of resources and the rise in input costs as a growing, long-term risk to their competitiveness.  Whether the company relied heavily on cotton, oil, plastics, chemicals, food, etc., the cost and scarcity of future resources were prime motivations to address sustainability in the supply chain and make the long term business case in light of short-term financial pressures.  Sustainability in the supply chain will be a competitive driver of the next decade and will eventually become a price of market entry.

  • The challenges of reliably monitoring, or “policing”, the supply chain, have caused companies to adopt approaches centered on capacity building.  Supplier managers are engaged and asked to monitor themselves and demonstrate not only their effectiveness, but their continual improvement as well.  Because of the investment required to build the capacity of a given supplier, advancing these programs is more challenging in industries where switching suppliers is common.

  • The food industry is an excellent example of just how fast an industry can change and sustainability can become a major consumer concern.  In the last decade, the market progressed from consumers not caring where their food came from, to explosive growth in demand and supply of organics, locally sourced and fair trade food categories, adoption by major grocery retailers, and TV shows and documentaries stirring consumer awareness.  Apparel is another industry that is experiencing rapid change.  Executives cannot take these issues lightly with respect to how quickly they can alter the competitive landscape.

  • One presenter felt that to truly move a company towards sustainability, metrics and incentives in this area must be embedded into company management systems.  Also, some companies, which are taking sustainability very seriously, are reorganizing their structures to allow for greater innovation and information sharing in these areas.

Panjiva, Sinosure, and Historic Futures – From Knowing Your Manufacturers to Knowing Where Your Products Are, These Firms Can Tell You

By GSS on May 7, 2009 | Category: Sustainability & Transparency | 1 Comment

Supply chain information coming from all angles?  Information is power and these third party service and software providers are emerging to offer companies greater information about who their suppliers are and the location of their goods within them.

Three firms founded in the last 8 years are working to crack open global supply chains further to bring greater transparency.  One data mines customs records.  One issues credit reports on Chinese manufacturers.  One traces products through the chain of custody at the batch level.  When I prognosticate the statement of a supply chain executive in the near future:

I know the identities of all of the factories and suppliers
involved in the production of every product I make, from final assembly
and packaging to the materials suppliers 4 tiers deep. 

I
know what customers they are all working with.  I know their capacity
and exportation quantities at any given time.  I know their financial
health.

…these companies are working to make it possible.

  • Panjiva. Founded in 2006.  USA.  Panjiva data mines information on manufacturers using a variety of sources, including the US Dept. of Homeland Security (Customs), General Administration of Customs of the Peoples' Republic of China, fifty-five ISO 9001 auditing firms, forty-six ISO 14001 auditing firms, and several others, to offer companies reports containing information on which products a given supplier has shipped, which customers a supplier has shipped to, the quantity a supplier is shipping, and the frequency with which they ship.  The reports are designed to offer companies new methods of tracking the health and activity of their contract manufacturer base. 
  • Sinosure.  Founded in 2001.  China.  As described by Jason Busch at SpendMatters: "Sinosure, was set up in 2001 as the monopoly provider for export
    insurance (essentially receivables insurance) for Chinese suppliers.
    Run by the Chinese government, Sinosure conducts supplier financial
    assessments of suppliers as part of the receivables insurance
    underwriting process. They base this assessment on government data
    sources as well as standard credit rating approaches (e.g., on-time
    payment for phone bills)"  In his posts on the topic here and here, Jason raises questions with good reason about the accuracy of information upon which Sinosure bases its credit ratings.  Josh Green, founder of Panjiva, which recently announced a partnership offering with Sinosure, responded that Sinosure simply presents another source of information to cross-check supplier information they already have, and that the agency itself bases its own insurance policies on the credit information they develop. 
  • Historic Futures.  Founded in 2003.  UK.  Historic Futures has developed a trusted third party product traceability
    system, known as MyString, to allow consumers, retailers and brands to
    trace product through multiple companies in the supply chain back to
    source.  Historic Futures software and services allow companies much greater efficiency in the management and reporting of COO for raw materials used in their products, collection and analysis of KPIs throughout all tiers of the supply chain, such as "product miles", water use and energy consumed, and visualization/management of compliance and certification status beyond the first tier of the supply base.  Walmart's LoveEarth jewelry line, launched in summer of 2008, is one of their biggest and most notable projects.  Consumers can now go to Walmart's LoveEarth website, enter a batch number for a jewelry piece they purchased, and track the companies in the chain of custody from mine to retail.  

The reservoir of information in global supply chains is beginning to be tapped for greater internal management, as well as social responsibility, and marketing initiatives.  This is likely only the beginning. 

The Wave of Supply Chain Information Coming…From All Angles

By GSS on May 5, 2009 | Category: Sustainability & Transparency | Comments Off

I know the identities of all of the factories and suppliers involved in the production of every product I make, from final assembly and packaging to the materials suppliers 4 tiers deep. 

I know what customers they are all working with.  I know their capacity and exportation quantities at any given time.  I know their financial health.

My customers know who all of these suppliers are as well.  They know the working conditions at the factories, worker wage levels, safety compliance, environmental practices, and what the bathrooms looked like…last week.

In fact, one avid customer who loves our products, took a trip to visit one of our supplier's factories, created a video documentary about their trip, and posted it on several social networking and company/product fan websites.  The video was well done, and 83,344 people viewed it in the first 4 months it was online.  We project it will be viewed by 1 million consumers within 2 years, and estimate a resulting increase in annual sales of $2.7 million for the product they featured.

My 7 year old daughter viewed the video and is now doing a class Twitter project with the daughter of the production manager at the factory.

Is this the future?  By when, 2015?  2020?

When supply chains began to extend globally over the last several decades, barriers to visibility up and down the supply chain were erected that had not previously existed or did not exist at the level of complexity found today.  Communications took place by plane, phone, fax, wire, catalog, trade show, etc. 

The advent of supply chain software technologies brought about a much greater system for supply chain management and was the first step to breaking down the walls of geographical distance and the opacity of suppliers' operations.  Out of Web 2.0, emerged internet portals such as Alibaba, Global Sources, and others that allowed buyers and suppliers all over the world to make contact without leaving their office chairs.  Today, we're seeing the emergence of another layer of supply chain information, from within companies, from 3rd parties, and possibly…eventually, consumers of the goods produced by the supply chain?

More to come…

Moving Towards More Transparent and Sustainable Supply Chains?

By GSS on April 7, 2009 | Category: Sustainability & Transparency | Comments Off

Green chain
While the prevalence of "green" and "sustainability" has been rather constant, or shown slow, steady growth from 1995 to 2005, numerous consumer research sources show that consumer attitudes and preferences for sustainable and green elements in their shopping experiences and lifestyles has grown dramatically in the last few years (download Greentailing in Tough Times: How are Consumers Reacting and Retailers Responding?.  A few general observations that I have found particularly interesting:

  • The definitions and standards of "green" and "sustainability" are still under debate and refinement.  It's clear that there are many shades of green which can be analyzed in many areas of a product's lifecycle.  For example, how does one measure the "greenness" of a completely recyclable product that is manufactured in a fashion that has a large, negative impact on the environment?  Conversely, what of the circumstance in which a non-recyclable product with harmful materials is manufactured in a very low-impact environment?  Include the footprint that is created when factors such as packaging, shipping, disposal vs. reuse vs. recycling, energy consumption of the product itself, retail environment requirements, and many more–and it's easy to see that there are numerous areas in which a product may or may not be green and/or sustainable.
  • Green generally refers to elements of eco-friendliness.  Ethically sourced and Fair Trade generally refer to the social impacts of the conditions in which the goods are made.  Both might be said to fall under the general umbrella of sustainability.
  • Because the topics of green and sustainability have gained so much momentum in the last few years, many companies who jumped into marketing green without much follow through, were quickly labeled as "greenwashers".  Thus, 3rd party certification and authenticity through honesty and transparency seem to be gaining greater currency with consumers who demand that companies' claims of sustainability are real.  
  • Consumers are generally not willing to pay a price premium higher than
    10% or so for green products.  To continue towards mainstream growth,
    green cannot cost more…green.

Where do supply chains fit into all of this?  The general concept of the supply chain consists of how products are produced and moved from producer to end user.  From the consumer's perspective, this process is essentially invisible.  This may be a reason in which this area has received less focus than others, such as energy consumption of the product, packaging, recyclability. 

However, global supply chains have been a major force for economic expansion and development, as well as widening environmental and social impacts.  When companies in the United States extend supply chains to lower cost, developing countries, prices in stores drop and a whole segment of the U.S. population that would not have been able to afford a certain standard of living are able to accumulate material wealth. In China, the manufacturing base expands to support the demand, and people leave the countryside to earn wages higher than those made in the countryside.  When consumers in the United States slow down their consumption of products, areas in China developed to support previous consumption levels are again dramatically impacted.  In the area of Dongguan, a large manufacturing region in Southern China, it is estimated that up to 1/2 of the population, or approximately 6 million people, have left in the last year.  Imagine half the population of Los Angeles leaving the city in a year's time.  The positives and negatives of all of this is extremely complex and could be approached from myriad perspectives.  But one thing is clear, supply chains are having a substantial impact on the world.

Some companies like Patagonia, Timberland, and a few others are publishing the carbon dioxide footprint of their product lifecycles.  Patagonia is taking some impressive steps forward with their Footprint Chronicles and the publishing of their factory list.  Patagonia is not only making their supply chain more transparent, they are doing so in a refreshingly authentic fashion by sharing both the positive and negative impacts that their products and processes have.   Will other retailers and manufacturers follow suit?  Will consumers demand more information and transparency with respect to supply chains?

Much more to come on this topic, such as Walmart and transparency, manufacturers in China, the social compliance auditing system, and more.

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