A safer conversation: supply chains

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A group of experts discuss health and safety across the supply chain in the first of a two-part article.

How can an international company ensure that high health and safety standards are applied throughout its supply chain?

Alex: The opportunities are quite different depending on what type of business we are talking about, but a first point is ensuring that application of health and safety regulations should not be an ‘option’. Respect for human rights should be already happening and it should be a core part of everything. It is something that applies to supply chains as well as to customer service and companies producing goods. So every part of the business should have human rights respect embedded. In the Forced Labour Monitoring Group [Alex is member of the FLMG Steering Group] we tend to differentiate between labour supply chains and product supply chains. But the point is that labour supply chains are quite lengthy within countries as well as across countries. In the UK we have companies that have very long subcontracting supply chains within the country, generally in order to recruit labour; product supply chains are often transnational.

In terms of how they can do this the most obvious answer is due diligence. So it’s really about how well this is done, who is doing it and what sort of knowledge they might have of whatever risks exist in their supply chain. So it’s important that it isn’t just ‘box ticking’.

We know that in certain sectors there are different types of risks. Certain countries have different types of risks and different gaps in governance. If we’re using the example of Bangladesh and Rana Plaza tragedy, we know that there are problems with the construction of factories and buildings. But sweatshop conditions exist in every country, including the UK.

The important thing is that companies know their sectors and have good knowledge of those risks. There’s a number of ways to improve how they can protect themselves – one of those ways would be incorporating some sort of human rights aspect into company policy. Large companies in the UK already have to report on human rights through the Companies Act and now we are hearing about maybe being extended through the Modern Slavery Bill.

Another way would be to create a code of conduct, which we know some companies have done, and then having that code of conduct agreed across all their contracts. That would be advantageous if it really was a partnership, if this was a code of conduct which could be agreed sector wide, ideally across all companies in the supply chain.

Mark: From our perspective as a membership organisation with about 37,000 members around the world, I completely agree with that, in particular for the buyer members we work with.

I am going to build a little bit on what you are saying, Alex. Since it is very complex, a targeted approach to supply chain management is really important. Some of our larger members talk of having 30,000 or 40,000 supply bids around the world, so we very much advocate that companies take a risk-informed approach. Obviously they can’t audit every single one of their suppliers but there are various different tools and judgements they can make to improve their understanding of risk. As Alex was saying there are different risks that are appropriate to different types of sectors, but then there’s also health and safety risks that will exist at a regional or country level.

So it’s about taking a broad look at the key risk indicators; a more detailed look. That might mean that if you are a company in the apparel or the garment sector and you are sourcing, and part of your supply chain spans countries like China, India, Pakistan, Bangladesh or Vietnam, then you know that in the broadest sense some of the risks will be around fire safety and supply chain labour standards, those kind of high-risk issues. In that case you make sure to look at those issues in those countries, but obviously not necessarily across the board in the more developed countries.

Another really important point when applying health and safety regulations or indeed any other regulation through a supply chain is making sure that you are taking a multi-tiered approach.

Last year we ran some research exploring the extent to which companies are looking right down the supply chain, looking beyond just first-tier suppliers, looking at the risks that exist beyond tier two, tier three, tier four. We found that while companies are getting better at doing this, globally still only a third look much beyond first-tier suppliers. We have also found that the severity of health and safety and other risks increase when you get further down the supply chain.

It is really important to understand and acknowledge how complex supply chains can be; to make targeted decisions that are risk informed, but also taking a multi-tiered approach as well.

Dave: I would agree with the points made by Mark and Alex in respect of organisations adopting a risk-based approach to ensuring health and safety standards are applied throughout the supply chain. However, I do think that organisations have a massive moral obligation to set minimum expected standards and drive the monitoring of these standards right through their supply chain. Whether such minimum standards involve suppliers being certificated to recognised standards such as OHSAS 18001, ISO 14001, or they are an internally developed process such as a code of conduct, is for each organisation to decide.

In my experience of auditing retail organisations internationally, the former – being certified to a minimum standard – is the most common approach, as the implementation of this is primarily the responsibility of the supplier rather than the organisation itself, as is the case with an internal process. It is, however, essential that international organisations place as much emphasis on this aspect of supplier procurement as they would on quality and financial conditions. As we have seen, and are all aware, the business benefits of ensuring good health and safety practice and management are many and not to drive this through to your supply chain makes little sense to me.

Supermarkets are not so good at spotting issues further down the supply chain.

Do you think after the Rana Plaza disaster in Bangladesh and the subsequent Accord on Fire and Building Safety western companies working in developing countries are more alert and more able to control what is happening at the bottom of their supply chain?

Mark: Yes and no. In some respects the biggest thing that’s changed since the collapse of Rana Plaza and the formation of the accord and also the alliance that was set up to respond is that obviously a lot of audits and factory checks have been conducted since 2013. I think there are a lot more audits now. So there is more understanding of what conditions are in the factories. However, I think we’re at the stage where we understand more but there hasn’t necessarily been a huge shift in terms of efforts to tackle and address those or prioritise actions. So while some factories have closed temporarily to allow for emergency repairs to be conducted there are still thousands of factories that haven’t been audited and a framework for clear action plans to address them and improve conditions has yet to come into play. So it is necessary to have a clear pathway ahead for who is going to finance the improvements and what the timeframe is for rolling these out.

Alex: I feel the same way. There are some good bits and some bad bits that have come out of what was a horrendous tragedy. Obviously there is more light now being shed upon building regulations in Bangladesh and there are reportedly thousands of inspections which have taken place. That’s obviously a good thing.

The Bangladesh accord is a multi- stakeholder initiative and lots of clothing companies have signed up and I think that’s all to be applauded. It does remind me a little bit of the Morecambe Bay tragedy in the UK where a terrible incident did result in collaboration and an improved inspection regime. So that’s good, but as with the Morecambe Bay tragedy what we found out was that the underlying problem was actually quite a tricky one to solve. And while the improved inspections obviously are welcome, the core problem isn’t so easy because in Bangladesh there are structural problems about inequality, corruption, injustice and the difficulties workers face in campaigning and organising to improve their conditions.

Those problems are not going to be completely solved by a multi- stakeholder initiative, or they can be solved only partially. It’s a good thing and I think the garment industry is potentially leading the way in a sense. We find similar situations in other sectors; the food sector for example has recently had the scandal about slave workers in shrimp fishing in Thailand. Supermarkets in the UK are getting better at looking at their supply chains within the country, but they are not so good at spotting things further down the line, whereas garment manufacturers are now much more visible.

We now know that brands like Gap and Nike have factories in certain countries and are quite vulnerable to publicity about poor practices or incidents occurring in those places. We now need to think about those sectors and industries we do not have any information about.

Mark: That’s a really good point. I think the accord and the alliance are examples of brands working together and perhaps helping to make the case that certain supply chain risks, particularly health and safety risks, are pre-competitive issues. Leading brands are recognising there are some issues on which they are not competing on, issues they see as important to tackle collaboratively. It is really good to see strong collaborative action.

While the Rana Plaza disaster has increased awareness of risks in the supply chain, in particular sourcing from Bangladesh, it would be good and important to think about the same risks that are repeated across other garment-producer countries. So do we need an accord and alliance for the garment sector more widely? Because if you look at places like Pakistan, Vietnam or China you can find different risks, but key health and safety and fire risks are still very pertinent.

It is really great to see companies collaborating together and hopefully this will lay the foundations for a wider look at the risks in the garment sector and more widely as well.

Dave: I would entirely agree that a unilateral approach is required to ensure the ethos is accepted across all sectors. In an ideal world this would be a legislatively-driven requirement rather than a best practice measure, but obviously there are difficulties in implementing such practice.

There are 168 million child labourers globally, according to the International Labour Organisation.

The United Nations Guiding Principles on Business and Human Rights (UNGP) and the OECD Guidelines for Multinational Enterprises recognise the notion of corporate responsibility, but these international standards are not legally binding. Is there space in existing British and European legislation to guarantee proper control of H&S across the supply chain?

Alex: I’ve been involved in this slightly because I was working on a project looking at corporate social responsibility (CSR) across the European Union. The EU has been interested in doing something about the UNGP and launched a CSR strategy in 2011.

The UK has actually formulated an action plan that has been published, so there is something going on. It’s early days because we are talking three or four years since the process started at EU level and just getting the agreement on the three-pillar approach of the UNGP has taken a long time. But my initial response to your question would be that implementing strategies have been fairly ambiguous and fairly short on detail.

As you say, worryingly, it is not legally binding. I’m not a legal scholar but I think legal scholars have some concerns over the whole framework, but it does provide something of a conceptual basis upon which to at least understand how we should share these responsibilities between business and government.

To a large extent we are seeing that governments are not willing or not able to regulate properly. We are seeing this in developing countries, but we are also seeing to a certain extent a withdrawal of the state in developed countries where there’s a lot of pressure to scale back regulations to reduce burdens on business – the ‘red tape challenge’ in the UK for example. The UNGP has the benefit of bringing the debate back into how can business and government work together to respect and protect human rights. But that’s all it is at the moment; it’s pretty much just a conceptual framework and a discussion point.

The current situation in the UK is interesting because the Modern Slavery Bill has bucked this trend slightly and has managed to bring some ideas on to the table with supply chains. We’ve got ideas such as: should there be a voluntary initiative or voluntary codes; should we expand reporting requirements through the Companies Act; should we use the transparency and supply chains model that we’re seeing now in California [the California Transparency in Supply Chains Act of 2010] or, as a lot of the NGOs would like, do we apply something a bit more muscular like the Bribery Act, which means we actually extend corporate liability to become extra territorial?

These are quite interesting options, but I think what we are going to end up with is more in the way of voluntary codes, non-binding initiatives. That leaves us with the question: what’s the best way forward and is it something like the UN guiding principles or another ‘top-down’ initiative? I think and hope the UNGP provide some sort of impetus for social partners, but also workers’ organisations to actually start demanding improved standards.

Hopefully we are going to have more opportunities for the government, like the Modern Slavery Bill, to take a lead so the UK, for example, could claim leadership in cleaning up problems of exploitation in supply chains. Maybe if a country like the UK can take a lead and do something brave, then others will follow. This depends on how optimistic or pessimistic you are, but I think it’s better now that we have the guiding principles than it was before.

Mark: I pretty much agree with all of that. Taking a perspective from the businesses we work with, I suppose the companies that are doing the most on human rights issues or health and safety issues often cite different things that underpin those efforts. I think legislation and regulation to the extent it does exist on these issues in different parts of the world does help. Voluntary guidance really helps, but I think companies need to recognise from a strategic perspective that these are issues they either should tackle or want to tackle. You need to see real change, you need early recognition from companies such as the case of Unilever, which is one often cited for good practice. But there’s lots of companies out there that are getting to grips with these issues now.

A safer conversation: supply chains, part two

Fire is responsible for 32% of health and safety failings in supply chains, even in Europe where standards are considered to be better. What are the other main hazards and how can they be eliminated or mitigated

Mark: This is an interesting question. In our research [Sedex Global, Supplier Ethical Data Exchange] we basically looked at fire safety risks that were being picked up by audits of suppliers around the world and we did indeed find risks in developing countries and developed economies too.

The first point to make is that the severity of those risks varies. There are fire hazards across Europe, but when you compare the severity of those risks in countries like Bangladesh or China, in Europe they are not as severe. But the truth is these risks do exist across the board. A very severe risk for fire safety could be something like blocked or locked fire exits or the absence of those altogether, a lack of a sprinkler systems, failure of any kind of fire alarm system, failure to carry out regular fire drills or lack of ownership of fire safety issues that are within a supplier.

There’s a broad range of risks which exist but, interestingly, we did find that because fire safety is such a critical risk issue it’s something that auditors look very carefully at when they’re visiting suppliers. It explains its prevalence as a risk but also it is still a marker of the fact that, even across North America and Europe, companies’ suppliers aren’t necessarily getting fire safety right. And what might be deemed a small risk on fire safety could obviously have quite key significant consequences.

The collapse in Rana Plaza in Bangladesh was in April 2013 but before that there was another big fire in Bangladesh. I think that fire safety is an issue that more brands are looking at now. Unfortunately it sometimes takes tragic events for this to happen.

The other key risk that generally comes across in research is a lack of policies and management systems. That is a big problem because if there are no actual systems, ownership of issues or evidence of hazards then you can’t necessarily be confident that key risks are being tackled. We also find that worker safety, building safety and building integrity are key risks too.

The challenge is that social audits or audit companies are traditionally looking at ethical or more social issues and supply chains, but to make a proper assessment of building safety you need to have the skill set to properly understand structural integrity. The lack of the relevant building certificates and safety certificates is one of the markers that audits look at.

In the top-10 risks a generally come in our analysis are working hours and wages. Fire safety is one of the most critical but then you generally get more about labour standards.

Alex: I haven’t been involved in research looking at the extent of different risks, but it does sound to me that there’s a certain level of complacency, particularly in developed countries on things like fire safety and building safety.

I’d like to echo the point about expertise. Obviously auditors can only do what they can do and it’s a snapshot thing. A top-down audit system is necessary but it doesn’t solve all the problems. As Mark mentioned you might have someone who’s an expert in labour standards but then they’re not going to spot a building that’s on the point of collapse.

Going back to Rana Plaza, there were reports in the days leading up to the disaster that the workers had complained to their managers and some of them had been threatened with dismissal or withholding of wages if they didn’t show up for work. You could actually make a connection between all of these things, because if you have labour standards and workplace rights, that offers extra security against these other risks. If you don’t have labour standards then you are effectively increasing all sorts of risk.

David: From my experience carrying out and managing audits across Europe, India and Middle East, I would agree that fire safety issues are still being consistently identified and that these risks are cross-sector by nature. It is also apparent that risks such as fire safety are perhaps more system-based within European countries (for example, assessments, maintenance of equipment schedules, etc) whereas in other regions they are more physical in nature (for example, lack of fire fighting equipment or structural fire protection).

The primary hazards and risks consistently identified are often system-based and there is still a noticeable variation in standards across organisations from all sectors. However, it is also encouraging that globally organisations are keen to embrace the continual improvement ethos in such matters and the key, in my opinion, is driving this down the relevant supply chain.

We must be working to educate all suppliers on the business benefits arising from good health, safety and welfare practices while the universal adoption of recognised standards (such as 18001 – or at least elements of the standard) as a minimum procurement requirement by organisations for their entire supply chain would go a long way to progressing this issue.

The opportunity exists with the development of a new international standard for safety management systems (ISO 45001) to introduce a global framework which can be adapted – in full or in part – to suit all sectors and at least provide organisations with the basis for ensuring suppliers have a sound safety management system in place.

How can organisations reduce costs across their supply chains, keep the workforce safe and healthy and still be competitive?

Mark: There are different ways of looking at it. There are of course lots of examples and research showing that a happier, healthier, safer workforce is more productive. There’s that kind of imperative that shows that the more that you look after your workforce the more they feel empowered, the more they feel safe and the more that they feel that they are being listened to, it leads to greater productivity and generally better supplies. It is something that we hear from across our global membership: it creates tangible improvements and benefits, so it is part of running a competitive business.

In China, a country that is becoming more and more developed, the workforce is now expecting more in terms of health and safety and workers’ standards. We organised a responsible sourcing conference in China in 2013 and one of the really interesting things that came out from the suppliers’ community is that they are having to improve standards within the factories because actually that’s expected by their workforce and if they do not have those standards then people will go elsewhere. It’s actually becoming a point of competition.

From a buyer’s perspective it obviously comes down to risk. So, big supply-chain issues can have a very significant impact on a company’s reputation. Consumers are becoming a lot more savvy and social media is making the supply chain more transparent. So I think that again it’s a backdrop of greater transparency. Companies that aren’t looking at these issues are running very large reputational risks. It creates a greater imperative for improvements as well.

From a buyer’s perspective there’s a risk management prerogative to look at these issues. Obviously the more a company is sourcing from suppliers that are working to protect and improve their standards they’re benefiting from the efficiencies that they can generate. But I think that from a supplier’s perspective it’s increasingly the case that if they get these issues right and they’ve got a happier, healthier, safer workforce, that is generally more productive.

Alex:   There’s definitely growing research on supply chains that has underlined the value of long-term relationships with suppliers. If you try and cut costs too sharply and you take the lowest price and a short-term gain, you’re risking a long-term loss. I suppose in one sense we need to just make sure the costs of not complying, the costs of not doing the right thing, are sufficiently high.

There’s also the fact that we do need to come back to what governments can do in terms of increasing those costs, punishing companies that do the wrong thing. Loss of reputation is probably one of the most powerful weapons and so is perception. It’s about companies understanding that there is a real risk. Unfortunately until something terrible happens to the company, it often won’t know or understand what sort of damage could be done.

David: I would reiterate that the primary responsibility lies with organisations to provide education, support and advice to their supply chain in terms of introducing minimum expected standards and continually improving such standards to ensure sustainable attitudes and behaviours toward health, safety and welfare are maintained.

Stakeholder pressure in many sectors is now such that the reputational risk for organisations who do not adopt a progressive business ethos in respect of these matters is massive. Conversely, a positive corporate image is one of the many business benefits resulting from implementing minimum expected standards throughout the supply chain for all parties involved.

Some of the risks in developing countries include high levels of corruption, environmental pollution and poor working conditions. What can be done to globalise better employment and CSR standards?

Mark: That’s certainly something that as a membership organisation working on supply chain issues we are trying to do more and more. We recognise that one of the ways in which you expand good practice is sharing it. When we reach out and work with our members around the world we don’t just highlight risks and problems, it’s increasingly equally about identifying what’s working, why it’s working and showing the benefits of tackling different issues.

The costs of corruption to businesses have been widely reported. But people need to understand what to do to actually deal with those issues. That’s obviously the case with environmental pollution or working standards. We gear up our members to share good practice and we are increasingly publishing videos, briefings and reports to try and encourage more companies to follow the good lead of the good work that’s taking place.

We live in a very connected world where transparency is increasingly expected and that means more and more companies have to explain and share details of what they’re doing. Expectations are growing around companies tackling these issues, even not necessarily for an initial financial motive. But the changes that we need at scale are not going to happen unless companies collaborate and work together on these issues.

If you think about corruption or child labour then you quickly begin to see how collaboration is really important. We’re simply not going to address these issues at scale unless we get companies identifying the risks and working on them in a similar kind of way. Ideally collaborating even further to make sure that companies across the board don’t pay bribes or are very aware of supply chain risk in relation to child labour. I would say collaboration is really important here.

Alex: I’d echo all of that. This is a really interesting question because it does go to some of the big issues in international politics and how we manage global processes, and how we protect ourselves against these problems where some people are taking advantage of globalisation and immigration and others are suffering as a result of that.

We’ve talked about some of these global initiatives, like the UN Guiding Principles; obviously the International Labour Organisation has been doing work on this for more than a century. But I think collaboration is essential because sometimes people are talking different languages. You have the NGO world talking in the language of human rights which I think is perfectly reasonable, but businesses do not always see how that connects to what they do. All these differences need to be bridged, we need to be able to talk to each other, otherwise you end up with a dialogue of the deaf.

Some people consider we must have more global governance, but the reality is that it’s not happening. It isn’t likely to have more global government but it appears we can develop guidelines at that level. Ultimately it will take collaboration with businesses and between businesses. That is probably the most feasible option.

We probably need to slightly calibrate our expectations of government, but at the same time maybe increase our expectations of businesses. There’s a lot of talk of consumer power, consumers demanding better standards. And I think that’s important. After Rana Plaza the question arising was who are the guilty ones? Is it the consumer that’s demanding the cheap product?

I certainly think that’s part of it but I’m a bit worried about us putting too much pressure on the consumer to know and resolve everything. To have knowledge of all these really quite complex issues – when even the companies themselves struggle to understand the complexity of their supply chains – is quite a hard ask. Obviously that’s part of it, but we can’t put everything onto the consumer.

There are some parts of the things we buy, the products and the services that we use, that we just can’t possibly know the full extent of the supply chain. A good example is the mobile phone which has some really exotic components that come from very far reaching parts of the globe. And do you really expect a 15-year-old kid who’s just bought a mobile phone to really fully understand all of that? It would be great if they did and they only bought the phone that was ethically produced, but I think we’re slightly barking up the wrong tree if we expect that to be the silver bullet, to mix metaphors. What I’m trying to say is that we should calibrate our expectations on governments and consumers and maybe look towards business to try and take a lead.

Mark: I completely agree with that, maybe instead of consumer power we need business power. Clear communication around the relationship between buyers and suppliers, making sure that buyers explain to their suppliers what their expectations are in relation to environmental and social governance issues. And also respect their suppliers as businesses in their own right.

At the end of the day suppliers around the world – be they a small farmer in Africa or a garment producer in Bangladesh – they are businesses and they are operating in a competitive environment. And it’s important they’re respected as such and the conversations and relationships are built on trust. Collaboration is important because it means that you’re working with your suppliers on the risks as you identify them and come across them. So rather than maybe taking a punitive approach and switching trade elsewhere when problems arise, an equally valid approach can be to make it clear that you expect and anticipate risks, but where they do occur you’re going to have an open and transparent conversation so that they can be addressed.

Alex: I would like to add that some of the risk factors are quite specific to sectors and countries and also have a lot to do with informality and the size of companies.

Mark: 2015 should be quite a key year for sustainability in general but in particular for the supply chain applying sustainability. We’ve got key events such as Global Sustainability Institute research conference in January, the date for delivering the Millennium Development Goals expiring and the year sustainable goals will be set. They’re very big things for the world but  key events for business as well.


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