In Part 1 of this series, we looked at some of the reasons every legal team needs to adopt cloud-based legal solutions. In Part 2, you’ll discover why you need to know exactly who your suppliers are and what they’re up to–and the risks they represent.
What happens in Bangladesh matters in Arkansas
A little more than three years ago, a shoddily constructed eight-story building located across the world in Bangladesh collapsed, killing more than 1,100 people and injuring at least 2,000 more. Shockingly, even as large cracks emerged in the building’s structure, and an engineer warned of a collapse, factory owners sent their employees inside to work. The building, called Rana Plaza, housed multiple garment factories supplying low-cost clothes to some of the biggest brands in the world. While Bangladesh is a major center of clothing manufacturing, its web of 5,000 plus authorized and unauthorized factories makes it difficult for companies to know where their products are being made and under what conditions.
In the immediate aftermath of the Rana Plaza disaster, Wal-Mart declared that none of its suppliers used Rana Plaza garment factories. However, in the rubble of Rana Plaza, several contracts were found that suggested otherwise. One document revealed an order from a Wal-Mart supplier for 5,322 dark blue wash, skinny fit girl jeans to be delivered to Wal-Mart. The supplier’s CEO blamed “rogue employees,” telling The New York Times, “It’s very clear that Wal-Mart did not authorize me in any capacity to work within this factory .” 1
Wal-Mart’s reputation is now linked to this tragedy because of a lack of transparency with its supply chain. As are others like the Italian brand Benetton,2 the Spanish fashion giant Zara,3 and the UK-based retailer Primark who all sourced clothes from Rana Plaza’s factories.4 Even though Wal-Mart did not authorize its supplier to source from Rana Plaza, it still found itself incurring the costs and attention shifting of litigation as Rana Plaza survivors filed a lawsuit in the United States against Wal-Mart, J.C. Penney, and the Children’s Place.5 Similar lawsuits are still pending in other jurisdictions.
Some of the biggest names in technology have also faced intense scrutiny because of their suppliers. Apple has been particularly vigilant about abuses within its supply chain, especially in the wake of recent controversies involving its massive Chinese-factory supplier, Foxconn. These included allegations of sweatshop conditions, forced overtime, and other factory-floor miseries that contributed to a rash of Foxconn employee suicides in 2010.6 Apple has taken an aggressive stance with its suppliers and issues an annual Supplier Responsibility report highlighting its efforts to manage abuses in its supply chain. Due to its diligence, the company uncovered children working in 11 factories that assembled its products in 2013.7 This led Apple to cut ties with a Chinese component maker after 74 children were found working on the factory floor. In its most recent Supplier Responsibility report, Apple found just three instances of underage employees in its supplier facilities.8 This improvement shows the progress that companies can make with a focused effort on managing their suppliers.
Without a large team or a cloud-based solution that helps automate the process, it’s incredibly difficult to audit all of a company’s suppliers. You may not have factories in China, but supplier audits are just as important at home. Wal-Mart, Apple, and other well-capitalized companies can survive hits to their reputation and the ensuing legal costs. The key question is whether yours can. And, given the ubiquitousness of social media and 24 hour news channels, events on the other side of the world can have enormous consequences for your company.
Beyond sweatshops — Sweating your suppliers’ details
It’s not just the hot-button issues of child labor and sweatshop conditions that put your company at risk. It includes: knowing if your suppliers’ certificates of insurance are up to date; ensuring that your suppliers abide by your company’s code of ethics and environmental policies; suppliers adhering to established food-safety protocols; and suppliers meeting diversity requirements. And, it includes having an audit trail to prove your suppliers have agreed to conduct business in a certain way by uploading certificates and certifications and executing your company documents including an NDA.
The costs of not having an effective and efficient process in place to manage your suppliers go beyond dispute costs and damage to your company’s credibility.
It also includes potential administrative investigations and penalties from federal, state, and local regulators; crisis-management expenses if your supplier’s poor record has a sensational element; and unwittingly exposing customer and employees to identify theft or online piracy if a supplier has lax data security. Far from the sweatshops of the developing world, these supplier risks touch each of us.
In Part 3, you’ll learn how organizations in different industries are integrating solutions into their business practices to demonstrate supplier compliance—and their own—with government, regulatory, and corporate policies.
Speaking of integrating solutions, take a look at this on-demand webinar DIY CLM to learn the workflow and compliance value of providing CLM access to users across an enterprise.