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China Supplier Vetting, Part 6: On-Site Social Compliance Audits

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This is another article in our “supplier vetting” series.

So you vetted a potential supplier through background checks and a factory quality audit. Great. You might also have to check their social & environmental policies if you are in one of these cases:

  • One of your customers require you to work with responsible manufacturers;
  • Your brand might be tarnished if a negative story comes up in the press;
  • Your brand promises certain things that are not to be taken for granted (e.g. cruelty-free farms and slaughterhouses).

1. What is usually checked

There are several standards (SA8000, BSCI…) and many retailer proprietary requirements (Walmart, Disney…). Here is an overview of what is checked in most social compliance audits.

Cooperation of factory management and compliance with laws

  • Does management cooperate with the auditor, or does it seem they are trying to hide something?
  • Is the minimum wage, the labor contracts, the mandatory benefits, etc. compliant with local law?

Voluntary labor

  • Any child labor?
  • Any forced labor, excessive discipline, etc.?

Labor hours

  • Is the local law respected when it comes to the normal number of hours, the maximum number of overtime hours, the pay of those OT hours, the breaks, etc.?
  • Any bad practice for checking how many hours are really worked?

Health and safety

  • Any risks of fire? Sufficient equipment to stop a fire?
  • Sufficient space for escape routes? Clear evacuation plan?
  • Regular fire drills and related training?
  • Is adequate personal protection equipment provided, and worn at all time?
  • Any other sources of risk for employees?

Note that many other topics can be audited. For example the respect of the environment (is waste water treated before releasing, and so on).

2. What really matters

Is child labor a big issue in China? Not really.

Does it make sense to fight again and again on the number of overtime hours, if both management and operators want it to be very high? I don’t think so.

Why forbid home workers, if entire villages depend on it and it is a way to keep people in their traditional environment while keeping costs low? I don’t really get it.

On the other hand, does it matter that fingers and entire hands get chopped off every day somewhere in China? Hell no! The level of safety awareness and practices in Chinese factories is horrendous.

Does it matter that some rivers are red like blood, or blue like the Samsung logo? Yes I think so.

Unfortunately, this is only my opinion. I wrote more about those issues here.

3. Are social audits helping the workers?

Probably a little bit, especially in some large factories that work mostly for the US/EU markets.

Have the conditions of workers improved in the Chinese manufacturing sector over the past 2 years? Yes, sure. But mostly because the supply of labor is lower than the number of job available, and employers have to attract workers.

Many people will say that the system is broken. Here are my estimates:

  • 30% of the time, auditors get bribed and ignore some “inconvenient” evidence.
  • 50% of the time, auditors don’t look deep enough, or the problems are very well hidden — remember, social audits deal with people and papers; employees can be instructed to lie and records can be fake.

Of course, all the retailers and brands know about this. And yet, they keep paying for social audits of their suppliers and sub-suppliers. Why?

Because, in 90% of cases, it is a fundamentally hypocritical situation:

  • The purchasers award the business based on the lowest price;
  • The compliance department needs to ensure there are no excessive risks in the supply chain.
  • The factories see no other solution than creating fake records and instructing their staff to lie. Note that there are many “consultants” (most of them former auditors) willing to help them do this.

Those large companies need to show they are not negligent… they need to engage a third-party or have an in-house audit team, and they need to collect reports upon reports about the situation on the ground.

The one aspect that I like is the followup on issues and the constant pressure to make changes. In some cases it does help.

As you can guess, I am not impressed with the widespread use of social audits. But it might be a ‘cost of doing business’ imposed by your distribution channels…