In this exclusive guest article designed to accompany the launch of ecVision Comply™, Gary Barraco (Director of Product Marketing) addresses the sensitive, timely topic of supply chain compliance and the responsibilities inherent in modern, multinational product development.
Factory compliance issues have come to dominate the news where supply chain management is concerned – especially in the apparel and footwear industry, where poor working conditions in production facilities have led to thousands of preventable deaths, inextricably tied to the brands for whom these facilities worked. In the aftermath of the factory fires and tragedies in garment factories in Bangladesh, companies who may previously have been isolated from these concerns have found themselves having to take immediate action to insulate their brand names from consumer backlash and the attention of NGOs. While most, if not all, of these retailers have previously implemented costly, time consuming, extensive programs to monitor and document their due diligence efforts, recent events have demonstrated that not all of them are working – some to a degree that exposes their parent companies to significant risk.
The reason that many supply chain compliance programs prove ineffective is that isn’t sufficient for retailers and brands just to know their supplier facilities and products are compliant. They also need to know where the goods are actually being manufactured (production can be contracted out, for example, without a brand’s express permission or knowledge) and if those goods are produced using compliant components and materials. Lack of visibility into these crucial aspects, and a lack of direct influence over suppliers further down the supply chain, can lead to distinct problems: sub-contracted work can be handed to suppliers with poor health and safety standards, dismal labor rights records or detrimental environmental practices, and the costs saved in production and materials can be diminished several times over by negative publicity and brand damage.
According to a report from Supply Chain Resource Cooperative at NC State University, proper risk mitigation requires this kind of visibility to the tier 2 and 3 level suppliers, working in conjunction with an “event management” solution that alerts key staff when any indication of a disruption may occur. (Handfield, Blackhurst, Craighead, & Elkins, 2011.) Additionally, the report supports collaboration as a key component of compliance at every link in the extended supply chain.
“Organizations are adopting a variety of mechanisms to prevent disruptions from occurring. Prevention involves first understanding the key players in one’s global sourcing channel, and establishing the need to work together to minimize the potential for disruptions. Once these relationships are established, the partners can meet in an open environment to identify the leverage points that represent risk, and work collaboratively to plan in advance for potential problems, or better yet, eliminate these risks altogether.“
The solution to total compliance goes beyond prevention and planning, however, and the root cause of non-compliance can often reside outside direct sourcing and manufacture, in another area of the business where decisions are made almost in a vacuum, with little or no influence from safety and social compliance.
The problem here stems from the fact that brands and retailers source products from tier one suppliers, go through the effort and expense to audit these suppliers, require them to agree to a bevy of codes of conduct, and seek to drive enforcement to the tenets of a code of conduct as identified by the ILO. This is a tremendous investment in time and money, a noble goal, and it keeps organizations out of trouble.
But what happens when tier one suppliers decide to subcontract their work to other factories that are not on the “approved list”? These subcontracted suppliers often aren’t audited by the tier one suppliers themselves – unless of course the retailer mandates that they to do so. And when they do subcontract, and accidents happen (as in the Walmart Bangladesh fire), research shoes that that the brand owners of the products being produced in that facility were routinely kept in the dark about the fact that sub-contracting was occurring in the first place.
This is where an additional layer of supply chain management comes in – one that we might call “supply chain intelligence”.
Supplier capacity management is one component of this additional layer; it’s all about knowing how much volume a supplier can handle within a fixed amount of time. So if I were to ask you for 2,000 piece goods for delivery by next week, and your stated capacity is 3,000 units per week, that would seem to be no problem; it’s within the scope of your capabilities, and doesn’t raise any red flags. But, if I’m a buyer in the same hypothetical scenario and I ask you to produce 5,000 units by next week, there’s no way that’s going to happen – the request exceeds your capacity, and I can be fairly certain that in order to fulfill it, you’re going to have to break the rules.
In many cultures in this part of the world, the appropriate behavior is to never say no – but find a way to get it done. This environment gives rise to a practice where suppliers will always accept a PO even when they know they can’t physically fulfill the order without subcontracting the additional capacity to a facility down the street that is running an unsafe operation. For that supplier, this is the only way to keep the cost low and still make margin.
Using a technology platform and making changes to the business processes, brands can put some stop gap measures in place to monitor this issue and others, and to begin working towards real supply chain intelligence.
- First, a supplier profile database can be established, containing all of the detailed information about capacity and volume, weekly hours, number of employees, production lines, etc.
- The brand will also collaborate on how much of this capacity is dedicated to their production needs and maintain this information on a monthly/quarterly basis in each supplier’s profile.
- As purchase orders are issued, additional steps can be taken:
- Production facilities need to electronically confirm that all production for that PO will take place at the approved factory listed on the PO and that the facility itself remains compliant.
- They can also confirm that each item on the BOM is an approved component that will be used in the production process.
- The brand can compare allotted capacity to actual production based on the orders issues within the negotiated timeframe. If a factory accepts a PO that will exceed the capacity given, this is a red flag to make further investigation.
- Finally, since finished goods inspectors are in the factory more than auditor, retailers and brands can add a series of critical questions to the FG inspection form. Inspectors can conduct mini-audits more frequently to ensure no infractions occur.
As the terrible events in Bangladesh and further afield have shown us, supply chain visibility is no longer enough. Supply chain capacity tracking, supply and demand management, and the lack of improved collaborative forecasting are the real culprits, and brands ignore them at their peril.
In a world of accountability, where brand perception is tied so closely to profitability, everyone in the supply chain needs to work better together on operational processes and share in the development of supply chain intelligence.
Handfield, R. B., Blackhurst, J., Craighead, C., & Elkins, D. (2011, January 20). Risk Reduction Mechanisms: A Managerial Framework for Reducing the Impact of Disruptions to the Supply Chain. Retrieved from http://scm.ncsu.edu.
Gary M. Barraco is Senior Director, Product Marketing for ecVision based in the United States. ecVision offers a cloud-based supply chain collaboration platform that optimizes product lifecycle and supply chain processes. The enterprise platform, ecVision Suite™, reflects the standardized business processes from design to delivery, creating a single collaborative solution for private label brands, retailers and their trading partners. With increased visibility and workflow, users can improve their reaction time to demand changes, shorten product lifecycles, lower product and materials costs, and improve sourcing and logistic efficiencies. Tailored specifically for smaller brands, manufacturer and importers, ecVision Comply™ is a risk management/data management platform that revolutionizes supplier and product safety compliance. Learn more at www.ecvision.com