Audit Safe?

by Lora Cecere on March 17, 2013 · 1 comment

It takes many shapes … like the deaths of nine unknowing consumers. In 2008, 762 people became dangerously ill in 48 states from contaminated peanut butter in the United States. The recalls permeated the food industry. Over 3800 products from 361 companies were recalled.  It should not have happened. The PCA factory that manufactured the peanut butter was certified as safe by the American Institute of Baking (AIB).

Audit safe graphic

Fatal fires are also a grim reminder. 262 workers died in Pakistan in September 2012 in a factory fire. The factory had a SA8000 certificate of approval; but when the fire started, locked exit doors doomed factory workers to a fiery death.  Just two months later, more than 100 people died in a garment fire in Bangladesh in November 2012.  A Walmart garment order was on the cutting room table. Walmart has worked hard on ethical sourcing. It was an order being manufactured by a supplier of Walmart.  The factory had recently passed an ethical sourcing audit.

Over the last ten years, supply chains have become more complex.  Companies are more dependent on a network of suppliers and suppliers’ suppliers.  Supply chain risks abound.  Supply chain leaders may have outsourced their supply chains, but they cannot outsource the risk. They are responsible. The management of this risk has grown in importance in boardroom discussions, but best practices remain elusive.  One thing that we do know is that audits do not work. A supply chain  cannot be made audit safe.

In a recent study, completed by Supply Chain Insights in cooperation with GreenBiz Group, we see that sustainability leaders and supply chain teams are not aligned on the effectiveness of supplier audits.  While both groups see that working with suppliers on ethical behavior and tying the behavior to contract terms is the most effective, supply chain leaders have more belief in supplier third-party audits than their sustainability counterparts.  What is clear is that expectations on sustainability behaviors require taking responsibility for the relationship.  In the words of one supply chain leader, ”We have to do the hard work.” This includes the setting of clear expectations and ensuring that there is compliance in contract terms and conditions.

What is a suitable alternative to an audit?  We believe that unstructured text mining is a potential answer, but only 3% of supply chain leaders are using unstructured text mining and supplier sensing to mitigate supplier risk.  In the use of unstructured text mining, publicly available documents are continuously scoured for information on factory performance. This includes local filings, social sentiment, and local news.

Contract management also offers promise. Companies need to put their money where their mouth is.  In the words of a presenter on this week’s Sustainability webinar, “We tie desired supplier behavior to contract terms. We consider everything else as just communication.”

For more on our work on corporate sustainability check out our recent report.

Also, for insights on the recent book tour of Bricks Matter, follow our progress on the Bricks Matter website.

 

{ 1 comment… read it below or add one }

Navdeep Sidhu March 18, 2013 at 10:48 am

“Supply chain leaders may have outsourced their supply chains, but they cannot outsource the risk”

Agreed. That’s why end-to-end visibility is so important. You have to know what is going on at every stage of your supply chain because if the worst happens you are responsible for it. Ignorance is not bliss, especially when lives are lost in the process.

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