Should brands now include regular financial audits of their suppliers? The answer should be yes if there is any learning from Nike's recent experience in Honduras.
Under pressure, Nike had to agree to pay $1.54 million after two of its suppliers in Honduras closed factories without paying severance compensation to workers.
A New York Times report says that "Nike agreed to the payment after several universities and a nationwide group, United Students Against Sweatshops, pressed it to pay some $2 million in severance that the two subcontractors had failed to pay."
The report says that the "the University of Wisconsin, Madison terminated its licensing agreement with Nike over the Honduran dispute, and Cornell warned that it would do the same unless Nike resolved the matter."
Nike however explains that the payment is for a "worker relief fund" and not for severance. But the point is that campaigners for the first time have succeeded in extracting a payment from a brand after a supplier has failed to pay to workers. This may the beginning of a new trend, no matter how unfair it may seem to some.
In recent years, incidents of sudden factory closures have significantly increased in the garment industry in what are called "shut and run" cases. In many cases, the factories were owned by foreign vendors who fled the country overnight leaving behind sewing machines in the closed factory. In most cases, workers are not paid even the legal severance.
So far brands have audited and monitored working conditions in their supplier factories. Now it may make sense that brands also evaluate the financial conditions of their suppliers to prevent such incidents. Brands may consider requiring their suppliers to maintain certain fund, enough to cover severance pay, in a separate account at all times. Or buy an appropriate insurance cover. This however will increase the cost of doing business and suppliers will not like it.
How else can they protect the rights of workers in the event a supplier shuts shop all of a sudden without any severance pay? Ideas welcome.
Showing posts with label Supply chain. Show all posts
Showing posts with label Supply chain. Show all posts
Wednesday, August 04, 2010
Wednesday, May 26, 2010
String of suicides by workers of Apple's supplier factory in China
A couple of months ago, technology giant Apple was praised for disclosing supply chain issues in a candid annual report. The report included violations such as child labour that Apple discovered during 2009 audits of supplier factories.
What Apple did not disclose was that workers of its biggest supplier in China have been killing themselves inside or outside the factories. Foxconn, a Taiwanese-owned electronics supplier in Shenzen, China, produces iPhone and iPad for Apple. Foxconn is also the world's largest contract manufacturer for electronics products and has been in news for a spate of suicides by workers.
The media reported the 10th suicide by a Foxconn worker last week. Human rights activists blame harsh working conditions in the factory that push workers to commit suicide. Two other workers have made unsuccessful attempts to commit suicide in recent months. Last year in July a worker had committed suicide after being interrogated by the factory management over a missing iPhone prototype.
Other customers of Foxconn include Intel, Dell, Zoostrom, HP among others.
Activists point out to stressful working conditions in Foxconn factories.
Foxconn has said it regrets the incidents of suicides by its workers. The company is taking unusual steps to stop the spate of worker suicides. A media report says that the Foxconn management is asking "workers to sign letters promising not to kill themselves and even agree to be institutionalised if they appeared to be in an "abnormal mental or physical state for the protection of myself and others"."
A New York Times has quoted Foxconn executives as saying that the "company is planning to hire psychiatrists, counselors and monks, and intends to bring in 2,000 singers, dancers and gym trainers to improve life on its two sprawling campuses in Shenzhen."
Foxconn is also building tall fences at its dormitories to prevent workers from jumping to their deaths.
Here is another report on the suicide incidents involving Fixconn workers.
Last month, a National Labor Committee report alleged sweatshop conditions in a Microsoft's supplier factory in China
What Apple did not disclose was that workers of its biggest supplier in China have been killing themselves inside or outside the factories. Foxconn, a Taiwanese-owned electronics supplier in Shenzen, China, produces iPhone and iPad for Apple. Foxconn is also the world's largest contract manufacturer for electronics products and has been in news for a spate of suicides by workers.
The media reported the 10th suicide by a Foxconn worker last week. Human rights activists blame harsh working conditions in the factory that push workers to commit suicide. Two other workers have made unsuccessful attempts to commit suicide in recent months. Last year in July a worker had committed suicide after being interrogated by the factory management over a missing iPhone prototype.
Other customers of Foxconn include Intel, Dell, Zoostrom, HP among others.
Activists point out to stressful working conditions in Foxconn factories.
Foxconn has said it regrets the incidents of suicides by its workers. The company is taking unusual steps to stop the spate of worker suicides. A media report says that the Foxconn management is asking "workers to sign letters promising not to kill themselves and even agree to be institutionalised if they appeared to be in an "abnormal mental or physical state for the protection of myself and others"."
A New York Times has quoted Foxconn executives as saying that the "company is planning to hire psychiatrists, counselors and monks, and intends to bring in 2,000 singers, dancers and gym trainers to improve life on its two sprawling campuses in Shenzhen."
Foxconn is also building tall fences at its dormitories to prevent workers from jumping to their deaths.
Here is another report on the suicide incidents involving Fixconn workers.
Last month, a National Labor Committee report alleged sweatshop conditions in a Microsoft's supplier factory in China
Monday, April 19, 2010
Microsoft accused of abusive working conditions in China supplier factory
Two weeks ago I wrote on this blog how eager Microsoft was to expand buisness in China taking advantage of Google's decision to exit. This week is about activists discovering substandard working conditions in a Microsoft supplier factory in China.
The National Labour Committee, a US-based labour rights campaigner, said in a report last week that it found abusive working conditions in KYE Systems Corp, a Taiwanese-owned factory in Dongguan, China. KYE factory has been making products for Microsoft, its largest buyer, since 2003 including Microsoft Life Cam VX-7000; Basic Optical Mouse and Wireless Notebook Laser Mouse 6000, according to the report.
Other customers of KYE include Hewlett Packard, Best Buy, Samsung, Foxconn, Acer, Wi/IFC/Logitech and Asus-Rd.
The NLC report resulted from a three-year investigation into working conditions in the factory which also produced a number of pictures secretly shipped out from the site.
The report alleges that:
KYE recruits hundreds of "work-study" students 16 and 17 years of age, who work 15-hour shifts, six and seven days a week making webcams, mice and other computer peripherals. Some of the workers appear to be just 14 or 15 years old.
Along with the students, KYE prefers to hire only women 18 to 25 years old, who are considered easier to discipline and control.
Workers report that before the recession, they were at the factory 97 hours a week, while working 80 ½ hours. In 2009, workers were at the factory 83 hours a week, while toiling 68 hours.
Workers are paid 65 cents an hour, which falls to a take-home wage of 52 cents an hour after deductions for factory food.
Workers have to report early, unpaid, for military-like drills. Management controls every second of their lives.
The work pace is grueling as workers race to complete their mandatory goal of 2000 Microsoft mice per shift. During the long summer, factory temperatures reach 86 degrees and the workers are drenched in sweat.
Security guards sexually harass the young women. Workers are prohibited from talking, listening to music or going to the bathroom during working hours. Freedom of movement is restricted and workers can only leave the factory compound during regulated hours.
Fourteen workers share each primitive, dirty dorm room, sleeping on narrow bunk beds. To "shower" workers fetch hot water in a small plastic bucket for a sponge bath. Workers report that the food is awful.
See the full report here.
Microsoft, embarassed by the expose, has said it is sending factory auditors to investigate the matter. The factory owners have denied all allegations.
Hope the episode will result in Microsoft taking some solid steps to prevent such allegations in the future. The company will need to be completely transparent about what it finds during own investigations at the factory and how it plans to fix the problem.
Promoting sexting?
The week was tough on Microsoft, really. Apart from being accused of abusive working conditions in China, the technology giant was attacked by another set of activists who said the advertising campaign for the company's just launched Kin line of phones was promoting sexting among young people. See the promotional video here which has offended people.
Microsoft was quick to say it was withdrawing the ad.
Wednesday, March 03, 2010
Apple Computers find labour violations in supply chain; sets new benchmark for disclosure
In its 2010 Supplier Responsibility Progress Report, Apple Computers has disclosed that their auditors continued to find serious labour violations in supplier factories around the world last year.
Apple audited 102 suppliers in 2009, up from 83 in 2008. Eighty of these were audited for the first time while the remaining 22 were repeat audits. The computer giant requires its suppliers to comply with the Apple Supplier Code of Conduct.
The report says: "In 2009, our audits identified 17 core violations: eight violations involving excessive recruitment fees; three cases where underage workers had been hired; three cases where our supplier contracted with noncertified vendors for hazardous waste disposal; and three cases of falsified records provided during the audit."
Then the report goes on to inform what remedial actions Apple has taken to correct these violations. For example, audit findings led to reimbursement of $2.2 million to foreign migrant workers who had paid the sum to middlemen in illegal recruitment fee over the past two years.
Apple's simple to read, and understand, annual report sets a new benchmark for reporting on supply chain responsibility. Something that fashion retailers have failed to do. And other electronics peers have not bothered to match.
Apple started paying attention to supply chain responsibility after several high profile cases were reported highlighting labour and human rights violations in its supplier factories in Asia. Though the electronics industry has introduced Electronics Industry Code of Conduct, a voluntary initiative, the uptake has been frustratingly slow.
While the mainstream media has taken interest in exposing bad working conditions in fashion retailers' supplier factories, electronics supply chain has generally remained off their radar. But Apple's report, as well as several other reports by activists, indicate that electronics supply chain potentially poses serious social and environmental risks which must be managed effectively by the brands to prevent reputational damage.
Here is an interesting report "Silicon Sweatshops" which alleges poor working conditions in supplier factories of some of the largest electronics brands.
Apple audited 102 suppliers in 2009, up from 83 in 2008. Eighty of these were audited for the first time while the remaining 22 were repeat audits. The computer giant requires its suppliers to comply with the Apple Supplier Code of Conduct.
The report says: "In 2009, our audits identified 17 core violations: eight violations involving excessive recruitment fees; three cases where underage workers had been hired; three cases where our supplier contracted with noncertified vendors for hazardous waste disposal; and three cases of falsified records provided during the audit."
Then the report goes on to inform what remedial actions Apple has taken to correct these violations. For example, audit findings led to reimbursement of $2.2 million to foreign migrant workers who had paid the sum to middlemen in illegal recruitment fee over the past two years.
Apple's simple to read, and understand, annual report sets a new benchmark for reporting on supply chain responsibility. Something that fashion retailers have failed to do. And other electronics peers have not bothered to match.
Apple started paying attention to supply chain responsibility after several high profile cases were reported highlighting labour and human rights violations in its supplier factories in Asia. Though the electronics industry has introduced Electronics Industry Code of Conduct, a voluntary initiative, the uptake has been frustratingly slow.
While the mainstream media has taken interest in exposing bad working conditions in fashion retailers' supplier factories, electronics supply chain has generally remained off their radar. But Apple's report, as well as several other reports by activists, indicate that electronics supply chain potentially poses serious social and environmental risks which must be managed effectively by the brands to prevent reputational damage.
Here is an interesting report "Silicon Sweatshops" which alleges poor working conditions in supplier factories of some of the largest electronics brands.
Monday, December 28, 2009
Ethics and politics of sourcing from Sri Lanka
Three weeks ago I wrote on this blog how the apparel manufacturers in Sri Lanka have embraced social and environmental responsibility and have benefited from it by way of increased productivity and peaceful industrial relations. I also mentioned how high-street retailers are failing to recognize the Sri Lankan garment industry's leadership in social responsibility.
Now a political action by the European Commission threatens the very existence of the garment industry in Sri Lanka. The Commission recently recommended temporary suspension of preferential trade terms for Sri Lanka because of the country's "poor human rights record." If approved by the Member Council, Sri Lankan garment industry's duty-free access to Europe will come to an end, a benefit the country has enjoyed since 2005. The Council has two months to decide by way of voting. If the Council accepts the recommendation, the suspension of benefits will become effective after six months.
The withdrawal of Generalised System of Preference benefits would mean garments exported from Sri Lanka will attract 9.6 percent duty in Europe, making made-in-Sri Lanka garments comparatively more expensive.
European retailers are maintaining a silence on the matter. Will they continue to source from Sri Lanka even if it means the products will cost 9.6 percent more? Or, will they move their orders to other low cost countries ignoring the excellent work Sri Lankan factories have done to improve working conditions?
European Commission's reference to "poor record of human rights" relates to the government's handling of ethnic violence in the northern part of the Island. But the industry has a clean record of human rights. Garment industry in Sri Lanka, like many other apparel producing nations, is the largest employer. European Commission's action could mean hundreds of thousands of innocent workers will lose their livelihood.
While politics has its own dynamics, it will be interesting to see how retailers view the situation and whether they do the right thing.
Now a political action by the European Commission threatens the very existence of the garment industry in Sri Lanka. The Commission recently recommended temporary suspension of preferential trade terms for Sri Lanka because of the country's "poor human rights record." If approved by the Member Council, Sri Lankan garment industry's duty-free access to Europe will come to an end, a benefit the country has enjoyed since 2005. The Council has two months to decide by way of voting. If the Council accepts the recommendation, the suspension of benefits will become effective after six months.
The withdrawal of Generalised System of Preference benefits would mean garments exported from Sri Lanka will attract 9.6 percent duty in Europe, making made-in-Sri Lanka garments comparatively more expensive.
European retailers are maintaining a silence on the matter. Will they continue to source from Sri Lanka even if it means the products will cost 9.6 percent more? Or, will they move their orders to other low cost countries ignoring the excellent work Sri Lankan factories have done to improve working conditions?
European Commission's reference to "poor record of human rights" relates to the government's handling of ethnic violence in the northern part of the Island. But the industry has a clean record of human rights. Garment industry in Sri Lanka, like many other apparel producing nations, is the largest employer. European Commission's action could mean hundreds of thousands of innocent workers will lose their livelihood.
While politics has its own dynamics, it will be interesting to see how retailers view the situation and whether they do the right thing.
Monday, December 14, 2009
Otto raises the bar for retailers
A new model for producing clothing responsibly is taking shape in Bangladesh. Germany's Otto Group, the world's largest mail order company, has partnered with Nobel Laureate Muhammad Yunus' Grameen Trust to set-up "the factory of the future."
Otto and Grameen have formed a joint-venture to establish Otto Grameen Textile Company in Dhaka, Bangladesh. The factory will produce clothing for export under socially and ecologically sustainable conditions, according to Otto.
Otto is providing interest-free loan for the project to cover the cost of setting up and running the factory. The loan will be paid back in 10-15 years from the profits of the factory. The factory will initially hire 500-700 workers with plans to expand in phase-two.
The company says that the profits will not be distributed to shareholders. The profits will serve to expand and modernise the company, and to pursue social objectives locally. The earnings will be used to offer healthy lunch for workers, set-up daycare centres for workers' children, and launch educational and health care initiatives for workers and their families.
On the environmental front, the factory will be carbon neutral. The company says that the ecologically-optimised, CO2 neutral building will be fitted with the most up-to-date insulation, energy-saving lighting and optimised air-conditioning systems, paying special attention to the use of renewable energies.
Dr. Michael Otto, Chairman of the Supervisory Board of the Otto Group says: "The Grameen Otto Textile Company will show that it really is possible to reconcile ecological and social criteria with economic goals. It should become a model for textile production in Bangladesh and for similar factories all around the world."
The plan includes expanding the number of factories across Bangladesh over time and even spread to other countries.
What Otto has committed to do is revolutionary and sets a new benchmark for retail brands who often don't do more than lip service when it comes to the welfare of workers and their families. The big question is: will socially conscious customers flock to stand behind Otto?
Otto and Grameen have formed a joint-venture to establish Otto Grameen Textile Company in Dhaka, Bangladesh. The factory will produce clothing for export under socially and ecologically sustainable conditions, according to Otto.
Otto is providing interest-free loan for the project to cover the cost of setting up and running the factory. The loan will be paid back in 10-15 years from the profits of the factory. The factory will initially hire 500-700 workers with plans to expand in phase-two.
The company says that the profits will not be distributed to shareholders. The profits will serve to expand and modernise the company, and to pursue social objectives locally. The earnings will be used to offer healthy lunch for workers, set-up daycare centres for workers' children, and launch educational and health care initiatives for workers and their families.
On the environmental front, the factory will be carbon neutral. The company says that the ecologically-optimised, CO2 neutral building will be fitted with the most up-to-date insulation, energy-saving lighting and optimised air-conditioning systems, paying special attention to the use of renewable energies.
Dr. Michael Otto, Chairman of the Supervisory Board of the Otto Group says: "The Grameen Otto Textile Company will show that it really is possible to reconcile ecological and social criteria with economic goals. It should become a model for textile production in Bangladesh and for similar factories all around the world."
The plan includes expanding the number of factories across Bangladesh over time and even spread to other countries.
What Otto has committed to do is revolutionary and sets a new benchmark for retail brands who often don't do more than lip service when it comes to the welfare of workers and their families. The big question is: will socially conscious customers flock to stand behind Otto?
Friday, December 04, 2009
Garments Without Guilt don't fit in with retailers' conscience
Sri Lanka is a small island nation in the Indian sub-continent. The country's economy heavily relies on apparel exports. Sri Lanka has done well in the apparel sector even though it has to mostly rely on imported input including fabrics, machinery and other raw material. Good quality, cheap and disciplined workforce is the only significant resource available within the country. Then how the nation managed to do well?
To begin with, the government worked with the industry to ensure decent working conditions in garment factories. The industry itself paid early attention to improve productivity to off-set higher input costs resulting from the need to import almost everything to sew a garment. Sri Lanka has the highest productivity levels among Asian garment producing nations due to heavy investments in training over the years.
Early on, Sri Lankan factory owners realized that decent and comfortable working conditions contribute to increase in worker productivity. So, it's not uncommon to find centrally air-conditioned production floors in garment factories, something unheard of in other countries where only the owners or top managers have the privilege to sit in an airconditioned office.
Sri Lanka was also the first country where the garment industry openly embraced sustainability. So, the world's first eco-factory came up in Sri Lanka last year with support from Marks & Spencer. The success has inspired other factory owners to set-up green-factories and many are in the pipe-line.
In the same spirit, three years ago, Sri Lankan apparel industry came up with a great-looking idea to differentiate itself from other garment producing nations. It launched a path breaking scheme: Garments Without Guilt. The idea was to reassure retailers and consumers in the western markets that clothing in Sri Lanka was made in factories with decent working conditions and not in sweatshops. The local apparel industry wanted to position the country as a destination for ethical production; free from child labour and other abuses so common in several other garment producing countries.
A brilliant idea. Usually retailers drive the labour compliance programme through a social responsibility code of conduct and repetitive factory audits and monitoring. They often complain that the suppliers are slow to take the ownership. But Sri Lankan manufactures decided to change that and take the lead.
Over 130 factories -about 90% of all factories in the nation - agreed to participate in Garments Without Guilt scheme. They submitted themselves to an independent audit, to be conducted by SGS, of their factories for working conditions.
Then the industry approached multinational brands with a request to allow the participating factories to attach a Garments Without Guilt hand tag on the garments. Guess what? All retailers have turned down the request though they refuse to confess it publicly. Privately, they say that the scheme is problematic. If they allow such hand tag for garments from Sri Lanka, then what will consumers think of garments produced in other countries such as China but stocked in the same store? Since factory owners in other countries cannot guarantee guilt free garments, Sri Lanka cannot be allowed to claim guilt free products, is their logic. Ill conceived? Well, I will be happy to hear what you think.
To begin with, the government worked with the industry to ensure decent working conditions in garment factories. The industry itself paid early attention to improve productivity to off-set higher input costs resulting from the need to import almost everything to sew a garment. Sri Lanka has the highest productivity levels among Asian garment producing nations due to heavy investments in training over the years.
Early on, Sri Lankan factory owners realized that decent and comfortable working conditions contribute to increase in worker productivity. So, it's not uncommon to find centrally air-conditioned production floors in garment factories, something unheard of in other countries where only the owners or top managers have the privilege to sit in an airconditioned office.
Sri Lanka was also the first country where the garment industry openly embraced sustainability. So, the world's first eco-factory came up in Sri Lanka last year with support from Marks & Spencer. The success has inspired other factory owners to set-up green-factories and many are in the pipe-line.
In the same spirit, three years ago, Sri Lankan apparel industry came up with a great-looking idea to differentiate itself from other garment producing nations. It launched a path breaking scheme: Garments Without Guilt. The idea was to reassure retailers and consumers in the western markets that clothing in Sri Lanka was made in factories with decent working conditions and not in sweatshops. The local apparel industry wanted to position the country as a destination for ethical production; free from child labour and other abuses so common in several other garment producing countries.
A brilliant idea. Usually retailers drive the labour compliance programme through a social responsibility code of conduct and repetitive factory audits and monitoring. They often complain that the suppliers are slow to take the ownership. But Sri Lankan manufactures decided to change that and take the lead.
Over 130 factories -about 90% of all factories in the nation - agreed to participate in Garments Without Guilt scheme. They submitted themselves to an independent audit, to be conducted by SGS, of their factories for working conditions.
Then the industry approached multinational brands with a request to allow the participating factories to attach a Garments Without Guilt hand tag on the garments. Guess what? All retailers have turned down the request though they refuse to confess it publicly. Privately, they say that the scheme is problematic. If they allow such hand tag for garments from Sri Lanka, then what will consumers think of garments produced in other countries such as China but stocked in the same store? Since factory owners in other countries cannot guarantee guilt free garments, Sri Lanka cannot be allowed to claim guilt free products, is their logic. Ill conceived? Well, I will be happy to hear what you think.
Friday, October 09, 2009
Fiji garment factories opposing wage hike, what are brands doing?
Garment factory owners in Fiji are asking the government to exempt the sector from the new wage order. They are complaining that the recent government order to raise mininum wages for workers is making their business uncompetitive. They say brands are moving their orders elsewhere as revised wages have increased the cost of production in Fiji. This has forced factory owners to retrench workers. They are threatening more lay offs and shut downs if the government does not back track on wage hike.
Fiji's Reserve Bank also recently reported that the garment exports from the country slipped in the first quarter.
The new wage order, which came into force on the 1st July, was originally scheduled to be implemented from the 1st January. But the labour ministry agreed to six months extension under pressure from business lobbies. The wage hike covers nine industries that include garment, security, printing, building, road transport, saw milling and retail. Even after the raise, garment workers will remain the lowest paid in the country.
A large number of garment factories in Fiji are owned by suppliers from Australia and New Zeland who took advantage of massive tax incentives in the early 1990s offered by the local government to boost foreign investment.
Workers in the garment and security industries are the lowest paid in Fiji. Wages in Fiji's garment industry have comparatively remained low since early days. Currently, average wage of a garment worker in Fiji is below the national poverty line. The new wage rate of $1.38 per hour is significantly lower than other sectors. Compare this with the mining sector which will be paying $2.57 per hour for unskilled workers under new wage order.
Last month, the labour ministry launched an investigation into complaints that most garment factory owners were not complying with the new wage order.
The question is what should brands do in this situation? Should they leave the country and move orders to cheaper destinations? What stand should they take when their suppliers are lobbying with the government to keep the wages low? Suppliers cannot pay higher wages if brands are not willing to pay higher price. And why should brands pay a higher price when suppliers in Bangladesh, for example, are willing to offer much lower price for the same garment?
Fiji's Reserve Bank also recently reported that the garment exports from the country slipped in the first quarter.
The new wage order, which came into force on the 1st July, was originally scheduled to be implemented from the 1st January. But the labour ministry agreed to six months extension under pressure from business lobbies. The wage hike covers nine industries that include garment, security, printing, building, road transport, saw milling and retail. Even after the raise, garment workers will remain the lowest paid in the country.
A large number of garment factories in Fiji are owned by suppliers from Australia and New Zeland who took advantage of massive tax incentives in the early 1990s offered by the local government to boost foreign investment.
Workers in the garment and security industries are the lowest paid in Fiji. Wages in Fiji's garment industry have comparatively remained low since early days. Currently, average wage of a garment worker in Fiji is below the national poverty line. The new wage rate of $1.38 per hour is significantly lower than other sectors. Compare this with the mining sector which will be paying $2.57 per hour for unskilled workers under new wage order.
Last month, the labour ministry launched an investigation into complaints that most garment factory owners were not complying with the new wage order.
The question is what should brands do in this situation? Should they leave the country and move orders to cheaper destinations? What stand should they take when their suppliers are lobbying with the government to keep the wages low? Suppliers cannot pay higher wages if brands are not willing to pay higher price. And why should brands pay a higher price when suppliers in Bangladesh, for example, are willing to offer much lower price for the same garment?
Subscribe to:
Comments (Atom)