This post was written by James P. Gallatin, Jr.
Companies with global supply chains are rapidly imposing detailed standards for their suppliers that go way beyond the traditional performance and quality specifications. Until recently, the most obvious categories of concerns for global manufacturers were rules of origin for products and parts for purposes of customs valuations and treaties, heightened by protectionist legislation such as that recently introduced in the U.S. Congress regarding steel. Now come laws regarding the use of conflict minerals and the state of California (where else?) has gotten into the action to require the disclosure of how companies act to prevent human trafficking in their supply chain . And Apple is grappling publicly with allegations regarding its China-based manufacturing.
To minimize legal challenges and, more importantly, brand damage, companies with global supply chains are moving rapidly to address a broad range of issues with every level of those chains. They are imposing detailed and public supplier standards for workers’ health and safety, wages and benefits, and the use of child labor, as well as prohibitions against the use of coercion and discipline to maintain a workforce, and prohibitions against forced sex. Two examples of companies that have imposed such standards are Hewlett Packard, the U.S.-based manufacturer of IT products, and LEGO, the Danish manufacturer of children’s toys and games. Their standards and practices reflect the dramatic impact that recent laws and social norms are having on such diverse global enterprises.
But standards are not enough. Companies with global supply chains are also moving rapidly to enforce these standards through unannounced audits and inspections, and by reviewing facilities, inspecting records, and interviewing current and former employees. They are using internal or third-party resources, and are cooperating with local governments, NGOs, and international standards organization. Where they find noncompliance, they are taking action under their agreements. Many companies are still trying to figure out where their products are actually being made this month. They are falling behind of today’s norms.