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Improving the Integrity, Intelligence and Impact of Factory Audits

With worker welfare a greater concern for consumers and companies, brands are turning to audits for insights into what is happening in the supply chain. But how valuable and reliable is the data coming out of these evaluations?

Often, audits are not getting the full picture, and they’re not achieving the desired social responsibility results, according to a panel during the Sourcing Summit on Oct. 19. In the session, moderated by Jasmin Malik Chua, sourcing and labor editor at Sourcing Journal, experts explained how to improve the efficacy of audits—including taking them beyond a test for suppliers to simply pass or fail.

Jason Judd, executive director of the Cornell University New Conversations Project, noted that private regulation has not moved the needle in supplier compliance. Zeroing in on 40,000 audits conducted by one company between 2011 and 2017, he and other researchers found that while there were slight upticks and downturns in the average number of labor violations each year, on the whole they stayed largely the same over that period.

One of the factors preventing progress is a lack of effort by both suppliers and buyers. Another aspect holding back compliance is unreliable data. In some instances, more than half of the data collected cannot be trusted. “This is a serious problem if you were a brand interested in improving labor compliance along your global supply chain—you’re getting bad data,” Judd said.

According to Avedis H. Seferian, president and CEO of Worldwide Responsible Accredited Production (WRAP), auditing is about quality over quantity. It also requires long-term thinking. “If you see an audit as a factory or brand as just a necessary evil, as a cost, then the natural thing to do, the correct thing to do would be to minimize the pain,” he said. “Whereas, if you are able to think of it as an investment, then you understand that, yeah, there’s going to be some cost, but it’s going to have some return on the other side.”

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During the pandemic, the auditing process transformed as it became difficult to physically visit a factory. WRAP transitioned to virtual evaluations, but these had to be limited to recertification for sites that auditors had already seen in person. For new applicants, the digital checks wouldn’t have been sufficient, since some things—such as odors that indicate harmful substances—don’t translate through screens. Anouschka Jansen, director of sustainability solutions at QIMA, echoed this, adding that while her company was asked to do virtual compliance checks, some clients doubted the reliability of a remote evaluation.

In practice, how can companies build more worthwhile auditing procedures?

For starters, Judd recommended working with third-party companies that have local knowledge and cannot be bribed, adding,“You get what you pay for.”

Familiar Problems, Far Away Sourcing Summit 2021
During Covid, Seferian has seen brands increasingly tap third-party auditors. Whereas in the past, a retailer may have had its own in-house team check up on a factory, when visits slowed, they turned to external compliance solutions. He noted that in addition to being independent, the auditors should also have a system in place that monitors the evaluators. Sourcing Journal

Another best practice is being able to speak to workers themselves. Auditors need to be capable of circumventing any coaching that workers may have received from their employers. When unionization is possible, Cornell’s research has shown a benefit in workers having a voice via collective bargaining.

Per Jansen, a plus of Covid’s virtual shift has been the adoption of worker engagement tools, which expanded the population of employees who can be reached by auditors, such as homeworkers and migrant workers who speak a language the evaluator cannot understand.

“Companies with a higher degree of supply chain digitization have less issues, not just on quality but also less issues on supplier communication, and I think that’s really critical for doing any work in your supply chain,” Jansen said, citing the results of a QIMA client survey. She added that this connection can allow companies to move away from blanket audits of every single factory by providing them with the data needed to perform risk assessments.

To encourage responsible practices, Judd suggested that retailers match up their sourcing and social compliance data to send more business toward compliant factories. Typically, the opposite has been true. “Suppliers that don’t play by the rules see their orders go up, and suppliers that do see their orders fall,” he said.

Rather than being an end goal, audits should be looked at as a starting point. To illustrate this, Seferian used the analogy of fattening a pig. The audit is the scale that weighs the animal to determine the course of action. “Weighing the pig is not going to make it any fatter,” he said.

Jansen similarly cautioned against making audit results the end of the conversation, and suggested clarifying the expectations for suppliers. “You need to be realistic about how you’re going to communicate with your suppliers, making sure they understand it’s not a pass/fail,” she said. “An audit is just one small part of the entire communication, the entire dialogue that needs to happen.”