Why adopt a standard
Our supply chain has evolved over many years and is centralised under a single management structure through which all third-party social responsibility initiatives are directed.
The original migration to a centralised supply chain was used as an opportunity to identify appropriate international benchmarks that our Group should work towards in its dealings with third-party contractors. This was an exercise conducted in 2005 and included a review of reporting standards among international peers. Through this review, it became apparent that the only suitable way to benchmark third-party contractor performance and demonstrate their continued adherence to appropriate labour standards was our Group to move towards the adoption of a globally-accepted standard.
The social compliance standard adopted by the Group was Social Accountability International's SA8000.
What is SA8000?
Social Accountability 8000 (SA8000) is a certification standard designed to help companies manage workplace conditions throughout a global supply chain. It was designed in consultation with 'representatives of trade unions, human rights organisations, academia, retailers, manufacturers, contractors, as well as consulting, accounting, and certification firms'.
The standard is based on the primary international workplace rights contained within the International Labour Organisation conventions, the Universal Declaration of Human Rights and the UN Convention on the Rights of the Child. It involves the implementation of management systems within the workplace of suppliers and involvement of key stakeholders including workers and factory owners. Importantly, SA8000 is an auditable certification standard which provides the ability to benchmark workplace standards and measure improvement.
An overview of SA8000 can be viewed at http://www.sa-intl.org/, which provides the following summary of key elements of the standard:
The application of SA8000 throughout the Group’s global supply chain allows for a better understanding and management of the supply chain. Over and above this, it is hoped the ongoing application of the standard may encourage generational change among contractors and suppliers and, ultimately, lead to positive social change and manufacturing excellence.
How does SA8000 apply to our supply chain?
We previously used our own supplier Code of Conduct, coupled with a series of standards outlined in the contractually binding Supplier Agreement, to influence supply chain workplace standards. While generally effective, the Code of Conduct and Supplier Agreement did not represent a global standard that could be independently audited and measured.
This led to the introduction of the SA8000 standard into the Group’s supply chain in 2005. The first step in its introduction was the education of our own regional managers about the standard. Secondly, the Group had to establish a trained audit team to provide the base SA8000 assessment of the workplace standards within its supply chain. This allowed the Group to better analyse the supply chain and document the base data from which future improvements would be assessed.
What is the supplier Code of Conduct?
The supplier Code of Conduct outlines the ethical standards that we expect within our third-party supply chain. The document is given to all suppliers and is displayed in poster format in a prominent position within their factories. If a factory is failing to comply with the code, this is generally identified during inspections and audits. There is also a toll free telephone number and an email address through which workers can lodge anonymous complaints. The Code is supplied in both English and the local language relevant to each factory location.
What is the Supplier Agreement?
The Supplier Agreement is a contractually binding agreement that outlines all trading and manufacturing terms between the supplier and companies within our Group. It covers all of the processes for matters including ordering, payment, prices, design approvals, sampling, delivery, quality, use of intellectual property, subcontracting, insurance, legal compliance and dispute resolution. In addition, it works in conjunction with the Code of Conduct to outline appropriate workplace standards, sets the expectation for compliance with our olicies and provides a set of guidelines for the adoption of responsible and commercially beneficial practices.
What is the supply chain?
The supply chain comprises a group of third party contractors that manufacture product on behalf of the Group. These suppliers are spread across some 25 countries including Asia, India, the USA, South America and Europe. As of late 2011 the supply chain comprised approximately 400 individual factories.
While the overall volume of goods that are produced throughout the supply chain is large, our Group is a small customer within the majority of supplier factories. That is, our product orders generally make up a very small percentage of the overall business of the vast majority of the individual suppliers.
While limiting the reliance on any single factory or supplier makes good commercial sense, it also presents challenges in terms of our ability to influence the work practices of suppliers. It is only through a shared commitment from each of the factory's customers that the desired generational change will be effected within the supply chain.
Appointing a new supplier
The Group has established a process to encourage prospective suppliers to build globally-accepted work practices into their corporate culture. This works to align the suppliers with the Group’s culture.
While existing contractors in the supply chain in places including Asia and India are subject to ongoing audits using the SA8000 standard, the same process has been extended to prospective new suppliers.
This sends a clear message to the supplier in relation to the social and ethical expectations of the Group. If prospective new suppliers demonstrate no motivation or ability to move towards SA8000 standards, they are denied entry to the Group's supply chain. If they submit to an audit but demonstrate workplace standards below those imposed by SA8000, then they are issued with a corrective action plan. The prospective supplier then has to demonstrate an improvement or a commitment to improve workplace standards to ensure entry into the supply chain.
Auditing of the supply chain
We have our own internal department comprising a team of trained auditors and quality control specialists to monitor our Asia-based supply chain. The department is based in Hong Kong, with a second office in mainland China. The division is overseen by a regional management team, which works in association with the Group's international sourcing managers.
The team of auditors is trained and certified through groups such as SGS and Bureau Veritas. Both SGS and Bureau Veritas are among the handful of organisations that are accredited to undertake SA8000 certification.
The trained internal auditors undertake initial SA8000 compliance audits of factories within the supply chain. After the first audit, corrective action plans are implemented to help correct any deficiencies. Further audits are then undertaken to ensure compliance with the corrective action plans.
These audits, in effect, help prepare the supplier factory for formal SA8000 certification. To formalise the certification process, the factory must submit to an audit by a certified independent body such as SGS, Bureau Veritas or RINA.
Through the 2010-11 financial year, the Group was monitoring 339 factories (up from 336 in the prior year), within which there were a total of 231 full factory audits and a further 142 corrective action plan audits undertaken by the Group. A total of 26 factories had moved on to full SA8000 certification.
How have we performed?
Through the 2010-11 financial year, areas requiring the greatest vigilance remained remuneration, the maintenance of appropriate working hours, the implementation of appropriate record keeping and health and safety standards and the provision of collective bargaining.
It should be noted that a failure to adequately demonstrate compliance with SA8000 standards does not necessarily mean the factory owners are operating inappropriately. Often it may show that a factory owner has ineffective record keeping or processes to support third party verification of their workplace practices.
SA8000 corrective action plans (see below) were implemented in each factory where potential areas of improvement were identified.
Corrective action plans
Corrective action plans (CAPs) are an essential component of the SA8000 audit process as they encourage suppliers to move towards improving workplace standards. This, in turn, leads towards positive social and economic outcomes for factory workers.
Yet it is important to understand that SA8000 compliance and certification can be a long process. Imposing the workplace rights and liberties enjoyed by many developed countries on employers in developing countries is indeed a challenge. There is the vexing question of whether to work with factories to encourage change, or simply remove them from the supply chain once any breach of standards is identified. While often it may be easier to walk away, the better social outcome may well be to work with the factory to impose generational change.
Where appropriate, the Group prefers to work with the supplier to enact a CAP. The process following a first audit is designed to ensure:
Where suppliers demonstrate a willingness to work towards the outcomes identified in the CAP, we will generally maintain an ongoing relationship. Suppliers that fail to show compliance to the CAP or repeatedly breach key aspects of the CAP are terminated.
What do we do between audits?
The supply chain comprises a group of individually owned suppliers with whom we have contractual work agreements. These agreements give us a degree of influence and the authority to audit supplier factories, but they do not afford us any form of control.
Generally, orders placed by us only comprise a small part of the overall business of the individual suppliers. This makes it a challenge to force wholesale change on the supply chain. Regardless, we are committed to encouraging improvement and will maintain long-term working relationships only with those suppliers that can demonstrate a similar commitment.
Working towards the SA8000 standard gives us the ability to measure the performance of suppliers but, on its own, does not guarantee that suppliers will consistently follow accepted work practices. Between audits, we may become aware of a breach of accepted work practices. In these instances, a remedial process is implemented.
Members of our operations team are notified of the alleged breach and all compliance records from prior audits are retrieved. An audit team is then assembled within 24 hours in the Asian region, or as soon as practicable in other regions, and then dispatched to the supplier’s factory. The team prepares a report for immediate consideration by the operations team management. There are a range of remedial actions available for consideration which, in the case of the identification of underage workers, may include:
One of the positives of SA8000 is the fact its sets the bar high. Indeed, much work needs to be undertaken in the vast majority of supplier factories before they can confidently claim to be a model employer.
With this in mind, one of the best outcomes from our move to undertake auditing against the SA8000 standard is the identification of unacceptable workplace conditions. The audits have allowed us to dig deeper into the work practices of suppliers and allowed the production of a set of base data from which supply chain improvements are measured and corrective action plans implemented.
Such measurement is beneficial to us in many ways. Stronger relationships are fostered with those suppliers who are working to the highest standards, while those who fail in their commitment to corrective action plans are withdrawn from the supply chain. In effect, the audit process empowers us to refine our supply chain.
While a large number of factories have been removed from the supply chain since we implemented the SA8000 standard in 2005, many factories demonstrated a commitment to work towards improving workplace conditions. This shows that while it is sometimes difficult to have influence over a supplier – considering that our business is often a small part of their business – SA8000 can lead to positive social change.
A further benefit is the impact the greater understanding of the supply chain has had on our own purchasing practices. Pre-engagement audits are now ensuring greater care is taken prior to the implementation of any new suppliers. Additionally, the audit process has identified preferred existing suppliers that can take on more business as non-conforming suppliers drop out of the supply chain.