CSCMP's Supply Chain Quarterly
April 24, 2019
Forward Thinking

Three ways to combat the risk of forced labor in supply chains

Forward Thinking
Research shows that forced labor touches every supply chain. But there are some practical steps you can take to reduce the chances of it infiltrating yours.

With more than 20 million victims of forced labor around the world, it's likely that no company's or industry's supply chain is protected from this heinous crime.

The International Labour Organization, a specialized agency of the United Nations, defines forced labor as situations in which persons are coerced to work through the use of violence or intimidation. Forced labor taints every company's supply chain and has been documented in production stages as diverse as the manufacturing of electronics, the extraction of gold, the catching of seafood, the production of apparel, and the harvesting of palm oil. Furthermore, 71 percent of companies believe there is a likelihood that forced labor could occur in their supply chain, according to a recent survey by the Ethical Trading Initiative, an alliance of companies, trade unions, and nongovernmental organizations (NGOs) that promotes respect for workers' rights around the globe.

It is crucial that procurement departments understand how their decisions are connected to forced labor. The procurement department is the part of the business most likely to come into contact with forced labor. Additionally, the increased awareness of forced labor has led to more regulations requiring purchasing departments to work proactively to ensure they're taking adequate steps to address and prevent this problem.

What can a company do to ensure its procurement department can successfully mitigate the risk presented by forced labor? While there is no "silver bullet" solution that will completely protect companies, there are some practical steps they can take.

1. Address practices that drive risk
There are certain practices that contribute to a company's risk of forced labor. For example, failing to evaluate a supplier's capacity to fulfill a purchase order before awarding the contract may lead to unauthorized outsourcing. Outsourcing decreases the potential for oversight and creates an environment in which unauthorized sub-suppliers can engage in abusive practices.

Additionally, feeding widely fluctuating demand signals to suppliers also increases the risk of forced labor. As suppliers rush to meet unpredictable demands, they may turn to unscrupulous labor brokers to bring in bonded laborers, who are required to work around the clock without pay. When a company's procurement department can instead provide accurate forecasts to its suppliers, it can help them prepare for increased demands while ensuring that they have the capacity to fulfill the order. According to KnowTheChain's benchmark report on the information and communications technology (ICT) industry, Ericsson, for example, strives to provide medium to long-term forecasts to its suppliers to allow for long-term planning and an even workload.

2: Build strong tracing efforts
A skilled procurement officer knows that it is important to understand where specific inputs and commodities are coming from. Supply chain tracing efforts can not only reduce forced labor risks but also help increase the general knowledge of the supply chain. KnowTheChain's newest benchmark report on food and beverage companies shows that more and more companies are implementing processes to trace elements of their supply chains.

This is particularly important for companies in the food and beverage sector, which are often sourcing a diverse set of commodities produced in higher-risk countries. The U.S. Department of Labor's annual list of goods produced with forced and child labor identified 19 different food commodities with documented instances of forced labor.

Nestlé, which identified cases of forced labor in its supply chain, has taken steps to trace 12 "priority" commodities. This includes a commitment to trace 99 percent of the Thai seafood sourced for its Purina pet food brand following reports of abuses in this sector.

In short, you cannot manage what you don't see. For many procurement officers, tracing inputs and commodities is a prerequisite for taking action to address forced-labor issues or reduce risk.

3. Collaborate with competitors
It is rare for a company to collaborate with its competitors, especially when it comes to its supply chain. However, addressing forced labor is a shared challenge. In fact, addressing the deep-rooted risks, which are often happening beyond the first tier of suppliers, requires engagement with a company's industry peers.

Companies that work together through industry associations or other collective dialogues recognize that they all benefit from a supplier and sourcing network that rewards responsible practices and prohibits forced labor. Cohesion is imperative when creating common industry standards or sharing audits on suppliers, which can strengthen an industry's practices and protect the workers that all companies depend on. The Electronic Industry Citizenship Coalition (EICC) for information and communications technologies (ICT) companies, Fair Labor Association (FLA) for garment manufacturers, and Consumer Goods Forum for consumer packaged goods companies are all examples of industry groups working to engage competitors on some of the collective supply chain challenges they face. These types of groups provide an opportunity for industry peers to engage in conversations about shared risks, such as the exposure they all may have to a certain commodity. The discussions, commonly known as pre-competitive forums, can allow for the sharing of effective strategies and best practices that do not compromise their individual businesses' positions.

In a globalized world, purchasing and supplier relationships have become a key differentiator. Yet, no global company with thousands of suppliers and multiple stages of production has complete visibility into its supply chain; such opacity creates forced-labor risks for all companies. Engaging the purchasing department and determining how best to strengthen procurement decisions and practices is a necessary starting point for companies looking to meaningfully address and prevent these risks.

Kilian Moote is the project director for KnowTheChain, a Humanity United project dedicated to helping businesses and investors understand and address labor abuses within their supply chains.

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