A company that manages compliance for one of the world’s major sourcing firms—one that’s also continuously named among the world’s most ethical companies—knows a thing or two about maintaining compliance in sourcing.
Jon White, managing director of Omega Compliance, which is owned by Hong Kong-based William E. Connor & Associates, said there are some key factors that keep the company compliant and ranked most ethical.
“Because of where we have come from, we understand the commercial realities and practicalities on the ground,” White said adding that the company is particularly well-versed in understanding the pressures that people in sourcing are under because it started with Connor as its only client and how now expanded to a point where 80 percent of its business is direct contracts with other companies.
Omega’s core services include social compliance, like factory audits and supply chain security evaluations, and also integrity related services like preventative measures and training. Many companies, it seems, are looking for a quick fix to eliminate compliance issues, but that’s not quite how it works.
“The key is understanding you can never 100 percent solve it,” White said of social compliance. “Everyone’s looking for the magic want to eradicate compliance issues from a company, but that doesn’t exist.”
It’s almost like asking ‘how can we make product so there’s never a quality issue again?’ and that isn’t something anyone would say because it simply isn’t realistic.
The better way to approach ethical compliance, as White explained, is by making it a partnership among all parties in a supply chain. Companies should be training their internal teams in ethical compliance and the policies to ensure it, then following up by doing the same training with their vendors.
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According to White, the three biggest challenges in ethical compliance for sourcing today are: tracing and oversight of second and third tier suppliers, falsification of records, and audit duplication.
Many companies are out of touch with Tier 2 and 3 suppliers
As more brands and retailers get slammed for supply chain issues that happen at subcontracted suppliers they weren’t aware were working for them, more are looking to improved supply chain mapping to help them avoid the problem.
The only way to get an accurate grasp and understanding of suppliers beyond Tier 1 is to be on the ground watching the product being made.
“If you don’t go there and see it, then I’m sorry, you don’t know,” White said.
First and foremost, the vendor and the factory are not the same. Often, a vendor will use multiple factories, only deciding which gets what when they see the size of the purchase order and the margin they’re going to make.
Suppliers could very easily put their best factory forward, never letting clients know about those subcontracted facilities that can go unregistered and aren’t subject to the same audits and safety inspections as their more legitimate counterparts.
Bangladesh taught the industry a lesson about both the need for greater attention to compliance and safety conditions after its Rana Plaza factory fell, and the importance of knowing which suppliers your suppliers are working with, as unauthorized subcontracting was a major contributor to the facility’s plight.
Since the Rana Plaza building collapse in 2013, initiatives like the Accord on Fire and Building Safety in Bangladesh and the Alliance for Bangladesh Worker Safety have helped increase factory inspections, remediation and transparency in the garment sector. But those programs have made progress because they are in the country and on the ground.
A presented factory may tick all of the compliance boxes, but if a brand or retailer can’t physically see its product being made there, there’s no guarantee it isn’t actually being made in a non-compliant facility somewhere else.
What’s more, audits should be taking place close to when the product is being made.
“I’ve seen examples in the past where a client has evaluated and qualified a factory based on the results to manufacture a specific product for them, then done inspections on that garment and they’ve passed,” White explained. “But the inspections were done at a totally different factory and the two were not communicating.”
There are also companies who claim to know who’s producing their product, only to proudly pull up their factory list, though a closer look at the addresses of some of those supposed factories are places where there are no factories at all.
“We [as a compliance provider] can only give you the assurance if we go and see it,” White said. “If a factory is not receiving the raw materials to make your product, how are they making your product? If a factory doesn’t have water, how are they making your product?”
Companies without an internal presence where their product is being manufactured, are putting their brand integrity at high risk at a time when consumers won’t stand for companies claiming ignorance of an ethical issue.
“It’s not acceptable to say your relationship was only with the vendor,” White said. “Contractually, companies may have all the documentation they need, but it’s not enough. You have to go and look.”
Falsification of records continues to pose problems
Corruption exists on some level everywhere in the world, but in developing nations—where much of the world’s apparel is produced—the struggle to survive and get ahead may mean it’s more rampant.
When it comes to compliance, factories still provide doctored records as owners often make a commercial decision about whether they will show a compliance auditor the real documents and risk whatever may come from that.
“It’s much better than it used to be,” White encouraged. “Companies are willing to give some assurances if they’re seeing the real records.”
Apart from being out of touch with who their actual suppliers are, when companies do track them down, they often put unattainable compliance rules and timelines on them, rather than encouraging a partnership and assessing what that supplier would require in order to make improvements and attempting to work together to move forward.
Once factories are aware of what potential ramifications for non-compliance may be and what a brand or retailer requires in order to continue doing business with them, they may better understand there’s an opportunity to work toward those conditions, rather than living in fear of losing the relationship—which could incite falsification.
“Don’t say ‘here are all our policies’ before you know what you’ve got,” White said. “Go and look at those factories and then say ‘OK, what is achievable?’ Don’t put in place a policy that’s then unachievable because you’ll be trying to catch up the whole time.”
Compliance scrutiny should still be sensible
Compliance audit duplication, and even triplication, is a problem that hasn’t yet quit.
“There are still many instances where a factory will go through an audit from us for one company and then another audit for another company,” White said.
And sometimes the need for the additional audit will be simply because company A requires 12 employee interviews as part of the process, while company B requires 25.
Most companies will engage a third-party compliance provider to assess their factories, then use their own teams to do the follow-up and to check that the factories are making the agreed-upon improvements, White explained.
The excess audits cause tension for the factories and can often be costly.
But, as White said, some progress has been made in the area, albeit slight.
“There have been a lot of initiatives of people trying to agree on audits and process, but that’s never quite come off so far. One of the big reasons for that is, number one, sometimes companies are not keen to share information like that, and number two, their risks are different. Very big companies are very likely going to have a much more strict check,” he said. “We have seen some improvements, but there’s a way to go on that.
Fifteen years ago, senior sourcing executives were often the only part of a company’s team meeting with the compliance providers, White explained. Now, however, discussions can include general council, chief compliance officers, CFOs or CEOs.
“There is a much greater acceptance and understanding that compliance is an area that everyone really needs to get a hold of,” White said. “There’s no use having your compliance team work in isolation. It needs to coordinate with sourcing and your quality assurance and inspection program.”