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Who Makes Your Widgets? Lessons From Apple's PR Nightmare

Here is a guide to how to get started on the road to having an offshore, indirect workforce that is treated fairly and doesn't cause you embarrassment.

March 6, 2012
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Apple Inc. is known for doing everything right, but this winter things seemed to go haywire. A series of media reports revealed alleged that a Chinese company that make iPhones and iPads was exposing its workers to dangerous conditions and brutally long hours and hiring laborers as young as 15. If such a public relations nightmare can happen to one the world's most trusted brands, could it happen to yours?

The answer is pointing to yes. If your company makes or distributes tangible things, it is probably either served by a global supply chain or is part of someone else's. That chain may lead back to developing countries such as China, Indonesia or Honduras, and there, your components or widgets may come from a factory that is prone to dangerous accidents, enforces overtime work without pay, and uses child labor. Apple demonstrates that just because those workers aren't on your payroll doesn't mean you can escape the blame.

"If you're not a name brand, that doesn't mean you don't need to be concerned about this, because your brands may be coming to you soon to ask about these issues," says Rachelle Jackson, senior director of sustainability practices for UL Responsible Sourcing, a company that audits offshore factories. "You may be part of someone else's supply chain."

What can your company do to prepare for the day that someone comes asking about labor conditions in your supply chain? Here is a guide to how to get started on the road to having an offshore, indirect workforce that is treated fairly and doesn't cause you embarrassment.

It is instructive to look back at Apple's recent misadventure. For years, Apple has outsourced the assembly of its gadgets to China, as have many other American companies that sell electronics, medical supplies, stationery, cosmetics, clothing, footwear, toys and other staples of modern life. China and other developing nations can make things cheaply because they have a large and desperate pool of labor that is willing to work for a fraction of American wages and often under Dickensian working conditions.

The issue flared into the public mind in January. Accounts published in The New York Times and broadcast on radio show This American Life related the circumstances of Chinese workers' lives in anguishing detail. Public reaction was swift. By Feb. 9, labor advocates delivered 250,000 petitions to Apple stores protesting the company's practices. A public relations brushfire threatened to turn into an inferno unless Apple acted quickly.

Apple announced on Feb. 13 that it was teaming up with the Fair Labor Association, a sweatshop watchdog group, and would go so far as to publish detailed reports on the conditions in individual factories in China. Seemingly overnight, Apple, one of the world's most secretive computer companies, declared its intention to become one of the most transparent.

More recently, Apple supplier Foxconn Electronics Inc. said it would sharply raise wages in China—another sign that public pressures can make a difference in far-flung supply chains.

The road to a viable indirect workforce starts with your own supplier list. Depending on your business, they may number less than a dozen or a few thousand. Prioritize them by looking for the products that represent the highest risk.

Jackson recommends looking for products that are visible—think of those that have your company name on it or that is associated with it through a private label—or valuable, meaning that it has crucial ingredient that is difficult to replace. Next, "the goal is to get on the ground and find out what the conditions are," she says.

What country is the product made in? Do you work with the supplier directly, or do you go through an agent? If so, ask your agent to get you in touch. What is known about labor laws and conditions in that country? What is the reputation of the supplier and its factories? Do research on the Internet or seek help from others who have already done the homework.

Then it's time to put aside assumptions and put some detailed questions to the supplier. "If you don't know anything about what's going on in China, you should brace yourself," Jackson says. It can be difficult for Americans to comprehend working conditions in Indonesia or Bangladesh, where labor rules that are taken for granted in the U.S., like sick days, overtime and safety goggles, often don't exist.

Are there fire exits and bathrooms? What is the legal minimum wage, and is it met? Does the factory pay overtime and stay within overtime limits? Do workers have breaks? Is there a means to register grievances, and a mechanism for investigating them? What happens if a line worker is sick? Are there safeguards around dangerous machinery and toxic materials? Are there workers below minimum age? Does the company keep payroll records?

Whatever the answers, it is not enough to accept them with a nod. Deception is standard for a supplier that wants to keep your business. That's where audits come in.

"Social auditors" examine factories the way that an actuary examines a company's books, but with a twist: they are trained to ferret out acts of workforce deception.

Factories are "going to take you to the places they want to take you and have you talk to the people they want you to talk to," says George Galindo, a managing director for PricewaterhouseCoopers, which offers workforce audits. "You ask for things that aren't necessarily routine so you can verify that what they're saying is in fact valid."

These investigations can take dramatic turns. Auditors for UL, for example, have chased fleeing underage workers to find them being hidden in a basement, and have incurred the wrath of factory managers by refusing bribes. Auditors rush over to desks and fling open drawers in search of altered timesheets. The results of audits can guide you in whether to continue working with a supplier or not.

Along with your inquiry into suppliers' practices, develop a code of labor conduct that your company deems acceptable. Explain that code to the supplier and make clear it is meant to be followed. Then, when contracts come up for renewal, incorporate these provisions into the new contract so you have grounds to terminate the supplier if it doesn't comply.

"Anything a company can do to make these codes enforceable, that's the No, 1 thing it should be doing," Galindo says.

The upside is that coming into closer communication with suppliers develops long-term relationships that can make the product better. "A lot of our members are finding that their supply chain is becoming more efficient. They are finding that problems are getting solved at the source and they avoid being escalated," says Julia Hawkins, spokeswoman for the Ethical Trading Initiative, a London-based advocacy group for better supply-chain labor standards.

It remains to be seen whether Apple will find such a silver lining in its new effort to address supply-chain labor problems. But as Apple's example shows, poor workforce practices anywhere in the supply chain can taint an entire brand. Wise firms will get in front of the issue, protecting workers and their reputation.

David Ferris is a freelance writer based in Washington, D.C., to comment, email editors@workforce.com.

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