The Importance of A Long-Term Relationship – Business thoughts

In business on April 14, 2008 at 10:01 pm

More multinational companies are reporting on the progress of their responsible sourcing programs. A look at their data over a few years reveals mixed results.

Since 2004, Gap has been reporting on its responsible sourcing efforts, including specific data on factory monitoring. Following Gap’s lead, Wal-Mart, Ikea, Reebok, Nike and others have begun to disclose monitoring statistics as well. These numbers typically indicate the percentage of suppliers by region that are compliant, with anywhere from ten to 100 compliance indicators.

To get a quick idea of what the abundant data shows, we can look at a few key indicators related to child labour, wages, work hours and worker treatment from suppliers based in Asia.

The Gap reports indicate that there were improvements in supplier compliance related to age documentation, voluntary overtime and worker treatment, over a three-year period from 2003 to 2005. For Wal-Mart, the findings in these areas were nearly the opposite. Wal-Mart saw an increase in violations over 2004-05.  For both Gap and Wal-Mart, the data showed no visible changes in wages and work hours indicators over the multi-year period. Ikea, which classifies its findings by much broader categories, saw no change in the area of wages and hours and an increase in the violations related to worker treatment in Asia from 2004 to 2006.

Important to understanding this apparent conundrum, Gap provides an excellent discussion of the limitations of monitoring data in its 2004 report. For example, Gap discusses how training monitors and improving detection skills may result in a related spike in findings in the subsequent year. In evaluating overall supply chain performance, it is important to consider these types of contributing factors that may skew data.

Even more important to understanding the data, consider that sourcing locations are constantly changing, for some product types more than others. Therefore, the variation in findings from year to year normally will not represent the same pool of suppliers, but rather the current suppliers for that year. Newer suppliers may have less experience with compliance and therefore demonstrate worse performance.

The data underscores the importance of a long-term relationship with the supplier when seeking sustained improvements in labor rights. For some product lines, this is much easier said than done.

Nike shows one way forward in its latest report, where different goals are set for the 20% of its supply base that is long term, representing 80% of Nike’s products. Nike is focusing on improving conditions with long-term partners, capitalizing on increased influence and opportunity for improvement over time.

Hopefully its future monitoring data will also set new standards. While the reporting of monitoring data has come a long way in a few short years, it still has a long way to go.

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