A Model Factory

I'm in Jakarta again, this time visiting some factories we currently work with and assessing some others that are not yet approved for my company. It's unusual for me to get the chance to visit factories we're not yet working with and I'm learning that representing a potential client feels very different from playing the role of the social compliance guy who comes into a factory to see what's unacceptable.

The main difference is that factory management really directs their comments to me, the company representative, instead of the social compliance auditors who usually lead the factory tour. Management is eager to show me innovative practices, sparkling new machinery and practices that might set them apart.

The first factory we visited yesterday was one of the best I've seen from a CSR perspective. The factory managing director was eager to share with me some of the community investment work it has implemented, some at the behest of a customer, but others that it initiated to fulfill business and community needs it identified. Some of the highlights to me included the following practices:

CNG Power - Apparently, Indonesia sits on a huge pool of natural gas, so this factory converted its power supply to compressed natural gas. The factory has realized tremendous cost savings due to this transition and mentioned that the amount saved was so significant that they could not reveal how much it was!

Wastewater Treatment - Years ago, the factory realized it was having a negative impact on the environment when blue geese were appearing nearby, due to the dyestuff in its effluent. Since then, the factory invested in an on-site wastewater treatment facility that ensures all effluent is free of chemicals and harmful dyes.

Infant Mortality Campaign - Apparently, the region where this factory is located has one of the highest infant mortality rates in the country. Factory management found that some women workers would get pregnant, go on maternity leave and their babies would die. The women would suffer from extreme emotional devastation, return to work once their maternity leave was finished, then immediately try to get pregnant again, resulting in less productive workers and the potential of another few months out of the office. To combat this, the factory has embarked on an extensive infant mortality campaign, that includes not only education, but also training and nominating capable midwives for factory workers. The factory has seen great success in reducing workers' infant mortality rates, and continues to find benefit from this investment.

Community Health Clinic - After the factory realized workers would take time off to care for their sick husbands and family, it invested in a community health clinic that provides healthcare services at a substantially reduced cost. The clinic is used by factory workers, their families and others in the nearby community - a visible symbol of the factory's commitment to the community.

Outreach to NGOs - One of the most surprising initiatives is the factory's proactive outreach to local, national and international non-governmental organizations. It's tough to get large multi-national corporations to understand the potential benefits of partnering with NGOs, but this one factory already has seen the power of learning from civil society organizations.

There were some other initiatives that puts this factory among "best in class" in my mind, but what I was most impressed by was the factory manager's attitude toward these initiatives. She understood both the business and social/environmental benefits of these programs, realized where her team did not have expertise so brought in the right community partners and eagerly searched for additional ways the factory could support its workers and community.

If only more factories took this approach, I might be out of a job! But the world would be a better place.

Sustainable Wool Farming

Or ... who'd have ever thought my career would put me in such close proximity to sheep?

A few weeks ago, I went to Australia and visited several wool farms that practice sustainable land management. I learned all about the dangers of over-grazing, how both summer and winter native grasses help sustain food supply throughout the year, breeding techniques that eliminate the need for certain chemical treatments, the benefits of combining a flock of sheep with a flock of cattle (or a few alpaca!), natural ways to reduce soil erosion and that you don't call paddocks "fields."

In contrast to one of the farms we visited, the neighboring field used conventional techniques, including chemical pesticides and infrequent paddock rotation. The differences in the two fields was staggering. One was lush, with knee-high grasses and the other had only little shrubs and very short grasses.

The visits were very interesting and I learned a lot more than I ever expected to. My visit was initially to explore animal welfare issues in the wool industry, but took a truly educational turn once I had the chance to meet with farmers who are committed to improving the land they inherited from their fathers.

Coming into the trip, I didn't realize that the farms were family-run businesses, often passed down through several generations of farmers. At each farm, we were warmly greeted by the farmer, his wife and their adorable children. Over coffee or tea, we discussed issues like sustainable farming, wool prices, yarn quality and animal welfare. Then, we'd have a chance to actually see the paddocks, the sheep and field conditions.

The people I had the fortune to meet were so welcoming and open and generous that I feel very lucky to have spent time with them. For each of the three farms I've visited, it's clearly a family affair with wives and kids contributing to the overall well-being of the farm. It's actually a very idyllic lifestyle and one that's much simpler than the faster-paced city life I'm used to.

When we discuss wool and garments at work, we really don't discuss the human element of the farmers who toil away day after day and whose entire livelihoods depend on raising high quality sheep. We also don't get the chance to see how sustainable farming techniques can help replenish a countryside that has been exploited for generations before - to see how a new way of thinking is turning the land back to a lush, grassy landscape. And we certainly cannot see how much the farmers truly care for their flock and how animal welfare is an important element of how they run their business.

Health Enables Returns

Thursday was one of those days that reminds me why I love my job. I spent the day in a factory outside of Ho Chi Minh and we kicked off a new initiative with the factory: HERproject. An initiative of BSR, HERproject uses a factory-based peer-education model to improve women's health outcomes.

Essentially, factories invest in health education so that female factory workers gain a better understanding of reproductive health, nutrition and sexually transmitted diseases, among other health issues. In turn, factories experience lower absenteeism rates, reduced turnover and higher productivity, thanks to healthier workers.  And investing in women has impact beyond just those who experience the health training. Women take what they learn, apply it to their families and help to uplift entire communities.

I spent the day with factory management, BSR staff, representatives from our buying agent and the local Vietnamese NGO that will be delivering HERproject training and we discussed the plan for the upcoming year. It was simply one of those meetings where everyone walks away brimming with hope and excited for the possibilities.

After the meeting, we had a chance to tour the factory, meet some of the workers who would be participating and discuss additional outstanding issues. The factory tour also proved illuminating because it is a very well-run and organized facility.  It's one of the nicest factories I've ever visited, so I'm glad we've chosen a high-performing partner to launch this initiative with.

My company is proud to invest in this project and I feel lucky that I got to participate in the kick off.  In addition to this facility in Vietnam, one factory in Bangladesh is also implementing HERproject with our sponsorship. As we monitor the performance of these projects, I'm hopeful that we will be able to demonstrate both health benefits and business benefits so that we can continue to launch similar initiatives with other high-performing garment factories in our supply chain.

Moving Beyond Social Compliance

Most companies, even if they do not have a "CSR department" have a program in place to monitor social compliance in their global supply chains. For these companies, it is important to protect their brands' reputations by ensuring that the factories manufacturing their goods, often in developing countries, respect workers' rights, pay legal wages and abide by environmental legislation. It's also often from these departments that companies develop a more holistic CSR strategy.

I've spent the past two days in Ho Chi Minh City at the Better Work Vietnam International Buyers' Forum.  The Better Work program is described as:

"... a unique partnership between the International Labour Organization (ILO) and the International Finance Corporation (IFC).  It unites the expertise of the ILO in labor standards with that of the IFC in private sector development."

That's not a very telling description, but basically it's an effort to develop a sustainable, industry-wide mechanism to promote stronger industrial relations and good working conditions for garment factories in targeted countries (Vietnam, Cambodia, Jordan, Haiti).

Today, apparel retailers have different codes of conduct that they expect their contract factories to adhere to as a condition for doing business. To ensure that these factories are upholding the expectations expressed in these different codes of conduct, retailers employ auditors (either company employees or third-party audit firms) to visit factories and check conditions against their respective codes. With many retailers sharing the same factories, you can imagine that factories are visited dozens of times each year by auditors and out of each visit comes a list of "corrective action plans" for the factory to implement in order to remain in good compliance with retailers' codes.

This approach creates an environment where factories seek to solve specific problems in preparation for the next audit, but they may not take the time to understand root causes of non-compliance. Instead of understanding why they're unable to control overtime hours, factories may look for short-term solutions in order to "pass" the next audit.

The Better Work program seeks to shift the dialogue away from "auditing" and "monitoring" to truly finding long-term, sustainable solutions to poor factory working conditions.  In addition to conducting factory assessments (similar to a typical audit, but much more detailed and thorough), Better Work provides factories with consulting services and training (both for management and workers) in order to build factories' capabilities to manage working conditions and industrial relations.

Furthermore, retailers that subscribe to the Better Work program, agree to stop auditing factories and rely instead upon the Better Work assessments for insight into factory working conditions. This alleviates the factories from repetitive auditing and the International Labor Organization provides a credible approach that provides companies with the confidence that factories are being held to internationally accepted labor standards.

To me, it's a win-win situation, but these past two days have highlighted some challenges to broader adoption of this approach. Companies have had social compliance audit programs in place for decades and some are unwilling to let go of their own programs. People who represent companies and auditors have a vested interest in seeing the current environment prevail (They may fear for their jobs.), so they're not necessarily interested in promoting an industry-wide practice. Companies insist that their standards are stricter than the ILO standards and are unwilling to compromise on some points in order to support the Better Work framework.

The Better Work program has its work cut out for them, but I'm hopeful that retailers will embrace this approach more fully and the industry can move beyond the never-ending cycle of social compliance audits toward an internationally accepted, industry-wide system that focuses on the most important goal: improving the lives of garment workers.

The Independent, Third-party Factory Audit

We employ a third-party social compliance audit firm to conduct social and environmental audits of our factories. In some cases, the purpose of these audits is to check our primary auditor's performance and in others, we rely entirely on these third-party audits. Through using a third-party audit firm, we aim to introduce a neutral party to avoid conflicts of interest and to ensure that we bring in an impartial perspective that does not have a financial stake in our relationship with the supplier.

On Friday, I accompanied our third-party audit firm for a shadow audit in China. It was the first time I'd visited a factory with a neutral party (instead of a company-appointed representative or a company employee) and it proved to be fairly educational.

From the outset, the tone of the visit was very different. Usually, auditors have a pre-existing relationship with factory management. The auditors have been to the factory before, they've worked together over the years and it's a collegial, if not friendly, relationship. With a third-party audit firm that has no previous relationship, the visit has a much less friendly tone.  It's strictly professional and both sides clearly are assessing each other throughout the visit.

The factory staff seemed much more nervous than on other audits I've shadowed. It could have been because this was the first time we had ever asked the factory to be audited, or it could have been my presence, representing a customer. Whatever the case, the entire day took on a much more formal environment than I was used to.

When it came time for lunch, the factory management team offered to take us to lunch, but our audit firm steadfastly refused. Typically, I will break bread with the factory managers to build our relationship and to discuss matters like production levels, hiring challenges, compliance issues, etc. in a more casual setting. Our audit firm has a policy to have lunch on its own, again to avoid any conflicts of interest.

And in the closing meeting, when we typically discuss next steps, corrective action plans and timing for implementation, we ended up pointing out the violations we'd found and leaving it at that.  We cannot guarantee that the audit firm will return to ensure that the corrective action plans have been implemented. In some cases, companies will send their own representatives to ensure follow-up. In this case, we could only say what we'd found and the conversation never turned to remediation or true improvement.

Friday's visit really highlighted for me some of the shortcomings of the third-party audit system. I still believe they play an important part of any social compliance program, but to rely completely on them would probably not truly work toward improving factory workplace conditions.

We Are the World

Everyone talks about the "global economy" and how business is linked with the various countries around the world - either as commercial markets or as sourcing markets. In all my CSR positions, I've had the opportunity to consider the world beyond my own country borders, but never have I had to dig as deeply into country information before my current position.

I sit squarely in our supply chain organization and am focused on helping the company consider entry into and exit out of different countries from a sourcing perspective. And I'm now in the middle of a "country risk assessment" project where I've been tasked with assessing the risks of doing business in those countries where we're currently sourcing and those under consideration.

It's an interesting project and I get to learn about countries like Mauritius and Jordan, but it's been a laborious piece of work as well. Each country requires several hours of research and of course there are many other pressing demands on my time. I've started to engage external purveyors of country risk analysis to see if I can streamline the research process and am now in the position of receiving approximately 20 e-mail newsletters a week that alert me to macroeconomic shifts in different countries around the world.

The problem with these research and information sources is that I simply don't have time to filter through the wealth of information out there. And most of these sources don't do a good job of narrowing down available information to make it easily digestible or relevant to my industry. My full-time job could be to sift through information about China, but unfortunately, I have other things to do.

As I pull these country profiles together for an upcoming meeting (one that's far too close on the horizon), a growing concern is how I'm ever going to keep these profiles current and how I will be able to manage ongoing communication of their contents to my colleagues. It's a weird responsibility, being the keeper of country risk information - and one that I'm not totally convinced plays to my strengths.

After all, how does one person stay abreast of all the economic and political developments in several dozen countries, while considering all the potential implications on our supply chain and business? There has to be an easier way!

The Ethical Supply Chain

I recently returned from a trip to Hong Kong and China, where I had the opportunity to visit some of the factories that produce our goods. In today's economy, supply chains are global behemoths, with companies balancing, among other things, cost, quality, speed, trade preferences, technical capability, product assortment and "social and environmental compliance."

Obviously, it's impossible to maximize all the different variables, which is why companies also seek to diversify their sourcing base. You don't want to be beholden to one country and/or factory for all your goods. If anything happens to that country/factory, your company would find itself up the proverbial creek without a paddle.

My job is to help maximize the last dimension I mentioned in the opening paragraph: "social and environmental compliance." In my and other industries, "social compliance" is a common term. Many people are surprised to hear that most any western company with a global supply chain has a "compliance" organization. The tricky part for stakeholders is to understand what authority that "compliance" team has and how they approach this work.

Some companies take a "checklist" approach to compliance where they have a list of important attributes for their contract factories to follow. Typically, this includes a no child labor provision, no corporal punishment and paying workers. These companies are minimizing the risk that's inherent in sourcing from developing countries.

Other companies encourage their contract factories to "own" social responsibility and work with them to provide management and worker training. They focus on building socially responsible practices into factories' management systems and seek collaborative partnerships with local civil society organizations to keep all parties honest.

Not surprisingly, more companies follow the former model than the latter.

I had the chance to only visit three factories during my trip to Asia and I was pleased to see that they were all pretty good from a social and environmental perspective. Two factories had pretty robust programs where they self-monitor for social and environmental issues. They had stated philosophical approaches to social responsibility and one had even developed a set of standards that it hoped would be stricter than local law or any of its customers.

In thinking through my own company's approach, we definitely fall between the two extremes I describe above. By no means are we doing the bare minimum, hoping that social and environmental risks will never rear their ugly heads. But we haven't evolved to the point where we are actively building management systems in place for factories to embrace and own social responsibility. It's a journey that takes time and an evolution that requires resources.

I'm lucky that the executives I work with "get it" and support me in my efforts to elevate the company's ethical sourcing efforts. Would I consider my company a leader in the ethical supply chain? Not yet, but if I have anything to do with it, we'll get there.

Partnership Groundrules

I've spent the past several weeks trying to figure out how exactly we should be working with our third-party supply chain audit partners. Part of my responsibilities will be to make sure all the factories around the world that manufacture our products respect human rights, labor rights, communities and the planet's natural resources.

I used to work at a company where we had a very big, effective team that would visit factories on a daily basis. Not only did they conduct factory audits to ensure that they were upholding the company's standards, but they also ensured that factories followed up on corrective action plans and worked toward continuous improvement. At my current company, we've decided to contract with two providers of "social compliance."

The benefits of using third-party auditors is that it can be less expensive and time-consuming than building up an internal team, third-party auditors can leverage expertise and relationships from working with other customers and many of these auditors are certified by internationally respected NGOs.

The biggest challenge I've discovered with working with third-party auditors is that they don't have skin in the game. They're required to deliver audit reports, but they're don't necessarily have the incentives to follow up with factories or to do extra work to improve factory working conditions.

With that said, I don't think it's a lost cause. I'm realizing that we have to be crystal clear with what we expect as follow-up to a factory visit and we have to create mechanisms that make our auditors accountable for remediation. We need to figure out ways for our auditors to share our goals and to "own" the responsibility of factory improvement.

So, I've taken a stab at some standard operating procedures, which I hope will get us closer to this goal, but I'm not sure how well-received they will be. Hopefully they'll be strong enough to create a new dynamic of ownership and responsibility while giving us the assurance that these factories are indeed "good" factories when we don't have the manpower or the time to visit them firsthand.