By George Huang
Transparency in manufacturing can make or break a retailer or distributor’s image. A factory collapse at Bangladesh’s Rana Plaza in 2013 led to over 1,100 deaths. Walmart and other retailers with goods being produced there received huge backlash and negative PR from the disaster. And what’s worse, many of these retailers had no idea their goods were being produced in such an appalling facility. Instead of carrying out social compliance audits (SCAs) at their supplier’s facilities, these companies were left to deal with a very difficult situation where there was little or no transparency in their supply chain (see How a Social Compliance Audit Can Prevent Tragedy).
Social compliance audits are one of the most powerful tools used to ensure a factory is abiding by local laws and following an ethical and moral business culture. Social compliance means that the factory meets its social obligation concerning working conditions, worker’s health insurance and other ethical labor practices. Standards are often set by local laws, but more and more retailers have developed their own standards. A social compliance audit is able to clear the smoke that a buyer typically must look through, allowing for transparency with the supplier they are dependent on for their products.
There are many areas that a social compliance audit can clarify about your factory. Below are the 4 most common issues they can bring to light regarding your supplier.
- Working Hour Violations
One of the most common violations found in factories is excessive overtime hours. Auditors will usually find there’s a lack of records documenting working hours and payroll at the factory. This usually signals overworking of the employees in weekly overtime sessions. Workers are often overworked by tens of hours weekly to earn money. Actually, Chinese workers often volunteer to work overtime as overtime can make up a large portion of their earnings, which was discussed in an earlier podcast interview with an expert. Chinese factory workers are often looking to work more hours, as the same value is not placed on leisure time like in the west. If multiple violations show up on your factory’s SCA, it often means the long-term health of workers at the factory is at risk.
- Wages & Benefits
SCA’s are great at telling you how your factory rewards its workers. Factories often skip out on producing payroll records for workers in China, for example, due to high employee turnover rates. This also allows factories to withhold wages and benefits without justification due to a lack of official records or documentation. Other common violations you may find include employees who are not provided with insurance, paid annual leave or mandated holidays.
All of this combined can heavily impact the bottom line, as product quality fluctuates as “green” workers often are found to replace the more seasoned and experienced workers.
- Health & Safety (Workplace)
One of the most important pieces of information a SCA can provide is the health and safety of the workplace. For too long, some factories have overlooked this in day-to-day operations only to have disasters occur that result in catastrophic outcomes.
A SCA can inform you if occupational health examinations are being performed on employees who come into contact with hazardous materials during work. An audit can also tell you if emergency evacuation plans are posted in the factory and about the safety and inspection reports of the specific building in which workers are housed and working. All of this information and more can be found in a SCA report to help you avoid disastrous consequences in the factories that make your goods.
- Health & Safety (Dormitory)
Factories in China often provide living dormitories for workers who are working away from home, and almost all of the workers in these factories fall into this category. A factory in Shenzhen was reported as having, “more than 300,000 people sleeping, eating and working there”, according to one article from CNN. This makes the living standards provided by the factory vital in maintaining the well-being of workers. A SCA can inform you if the dormitory follows all the health and safety regulations mandated by local law.
Buyers of goods made in foreign countries have always dealt with challenges related to lack of transparency and oversight. But we learned in recent years that a social compliance audit can save more than just your image; it can save lives.
Social compliance audits continue to shed light on labor practices within supply chains. And this kind of transparency continues to reach ever-greater importance.
Be sure to check out about two other common types of factory audits and how they might help you avoid trouble!
George Huang is a Client Manager at InTouch Manufacturing Services, a QC firm that performs product inspections and factory audits in Asia for clients in the US, EU and Australia.