August 26, 2020

Why Conduct On-Site Social Compliance Audits? | Vetting Chinese Suppliers (Part 6)

In This Episode...

We continue our exploration of the vetting process when sourcing new Chinese suppliers in this episode. You can read more about this topic in the series of blog posts on which we refer to throughout - read all of those posts here.

Social compliance audits are the next factory audit type that buyers need to be aware of and consider, certainly if you're from a big brand or in a niche where social issues (such as child labor) are common, for example, apparel.

Ideally, using a social compliance audit to assure that your supply chain is free from illegal practices such as modern slavery is an important factor in vetting and working with a new supplier. Many large companies, like Walmart for instance, have their own standards that they insist that suppliers meet concerning employee welfare, adherence to local laws, and elements like environmental standards, too. Fundamentally, a social compliance audit protects you from being associated with things in your supply chain which could damage your company or brand.

So, let's explore what this type of audit is, how effective it is, and the drawbacks it has, too.

Show Notes

Start to 8:53 - Introduction + explaining WHAT a social compliance audit is. Some examples of the 3 'big' circumstances that importers want to avoid: Child laborforced labor, and dangerous working conditions.

8:53 to 10:24 - Does adding in the cost of improving working conditions increase costs overall for buyers? Why the costs associated with paying injured staff, negative government scrutiny, or reduced efficiency due to a shortage of staff put off by unsafe conditions can quickly escalate.

10:24 to 13:55 - Elements of a social compliance audit that are probably given too much importance, for example, working longer working hours and overtime. Even where hours worked are into an 'illegal' amount, this doesn't mean that abuses are occurring, especially in China with migrant workers.

13:55 to 17:20 - What does a 'dumb' importer do when performing a social compliance audit? The dangers of sticking rigidly to a standard in terms of forcing suppliers to lie in order to pass (this may be unavoidable if big customers demand certain things).

17:20 to 18:00 - How the 'smarter' importer approaches social compliance auditing with a selective focus. If the supplier is safe and improving, this should be the goal. Focusing on things like consensual overtime is a red herring.

18:00 to 20:30 - The different social compliance standards and how these have become a good business for large testing groups, to the point where it can be used by buyers and labs to profit from the suppliers who are forced to be audited in order to win business.

20:30 to 22:30 - How and why factories in places like China and Vietnam are improving over time naturally these days and why, therefore, many social compliance audits aren't helping other than for improving the buyer's image.

22:30 to 23:26 - The risks of social compliance auditors being corrupt.

23:26 to 24:45 - How buyers train their suppliers to lie by enforcing rigid social compliance audits with a lot of short-term pressure (pass or lose the order) and also possibly create corruption in the supply chain if the wrong auditor goes in.

24:45 to 26:52 - Why a rigid social compliance scale is good for a buyer's statistics, but not so helpful on the ground. Is it merely ass-covering?

26:52 to END - Exploring a better, more holistic way to approach social compliance audits which is likely to be less open to abuse and more likely to lead to positive changes.

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