There is “No-Size-Fits-All” Approach to Environmental Monitoring

Climate change is a hot topic these days.  When we travel by plane we can choose to offset our “carbon footprint”. When we buy groceries we are encouraged to buy locally produced food to reduce our “food miles”. Environmental issues are finding their way into factory audits and collaborative partnerships in supply chain management. Fair Factories Clearinghouse (FFC) spoke with Nicole Bassett, Corporate Social Responsibility, at Patagonia, and Collen Von Hadden, Code of Conduct Senior Manager at The Timberland Company (Timberland) to see how these FFC member companies are integrating environmental monitoring into supply chain management.[1]

Environmental Provisions in Factory Audits and Compliance Programs

Patagonia and Timberland are incorporating environmental concerns into their factory audit and compliance programs. Reducing energy consumption in factories is the current focus of Patagonia and Timberland’s environmental monitoring strategies.

Patagonia began to integrate environmental issues into its factory audits in 2007. Bassett explains the company wanted to get a baseline of where each factory was at on resource consumption and waste generation. Bassett explains that Patagonia’s environmental monitoring strategy is new and limited by Patagonia’s small company size, limited staff and resources, but it is moving toward incorporating more environmental provisions into its compliance program.

Timberland began to integrate environmental issues into its code of conduct and factory audits in 2005 after five years of fact-finding by Timberland’s internal auditing team. The process has led Timberland to create an “environmental scoring system” that assesses the factory in conjunction with the normal factory audit.[2] The system uses 7 criteria to establish an overall score reflecting the factory’s commitment to minimizing their environmental footprint.  The seven criteria are:  1) systems, 2) compliance, 3) wastewater, 4) hazardous-materials, 5) water-based adhesives – footwear manufacturers only, 6) energy and 7) waste. Each criteria produces a score between 1 to 5 (5 being the best or most environmentally friendly) and represents a range of implementation towards better environmental compliance and reduced environmental footprint.  Von Hadden emphasizes that environmental issues are tied to workplace safety and that improving a factory’s environmental score is about civic engagement.

Both companies are interested in educating its supply chain stakeholders that reducing energy consumption reduces operating expenditure and is good for both the environment and business. Timberland uses consultants to educate factory management that using less energy reduces expenditure. Von Hadden pointed out that the downturn economy is an opportunity to convince factories to implement energy reduction policies. Von Hadden stated, “it is easier to sell the savings the factory could earn if it reduces its energy use” (Von Hadden, 2009). Although, Bassett believes that in an economic downturn, the core social issues of factory working conditions such as wages and labor rights takes priority over implementing new environment policies and practices.

Different Products Require Different Environmental Provisions

Environmental practices vary from factory to factory depending on what type of product is being manufactured. Bassett explains that most of Patagonia’s products require “cut and sew” factories where environmental hazards have been less of an issue than at raw material developers or mills. At raw material developers and mills, Patagonia has partnered with a consultative firm to advise on environmental issues in the manufacturing process. Bassett explains that the consultation advises mill management on alternative processes that eliminate chemicals and increase water and energy efficiency. The consultation also demonstrates how improving the manufacturing process will reduce resource use and decrease factory operating costs. Bassett points out that the process is time consuming and expensive for factories as it’s the factories who have to pay for the consultation.

Timberland deals with tanneries differently than those factories that only manufacture clothing. Leather manufacturing is chemical intensive and Timberland has sought out collaborative relationships to develop better policies and practices in this area. Timberland is part of a “leather working group” that cooperates through membership in the British Leather Group. The working group established separate procedures and restrictions to address issues that are unique to leather manufacturing.

Collaborative Partnerships

Both companies cultivate collaborative partnerships to improve environmental monitoring in supply chain practices. Patagonia and Timberland are working with the Outdoor Industry Association (OIA) to create a benchmark system that will standardize environmental monitoring practices with the vision that other outdoor brands will find the system easy to implement and create an industry standard. Von Hadden offers that choosing which elements of the supply chain to populate the benchmark is currently in negotiation,” but adds,  “the factory audit is an integral component to environmental monitoring and will be included as part of the benchmark”.

Both Patagonia and Timberland are members of FFC and use the FFC software to manage its factory audits, develop factory self-assessments and build collaborative partnerships. Through the FFC, both Patagonia and Timberland are part of a supplier-led collaboration on joint audits between several companies that share the same factory. The companies agreed to a “highest standard” principle so where one company’s audit has high standards in environmental monitoring, those questions will be used, a process that raises standards for companies and factories involved. Patagonia explains that brand collaboration is important because “as more brands become vocal about their social responsibility efforts, suppliers become more aware that social responsibility is a part of doing business. Consistent messaging from all brands builds momentum for social responsibility”.[3]

There is no “one size fits all” approach to environmental monitoring. Patagonia and Timberland have sought out ways to incorporate environmental concerns into factory audits in their own business operations. Working collaboratively with other companies, they are improving environmental monitoring in supply chain management and creating industry standards.

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References:

[1] The interviews that form the basis for this are article are cited below:

Bassett, N. (2009) Interview with Nicole Bassett, Social Responsibility Manager, Patagonia. (environmental monitoring), 20 July 2009.

Von Hadden, C. (2009) Interview with Colleen Von Hadden, Code of Conduct Senior Manager, The Timberland Company. (environmental monitoring), 28 July 2009.

[2] Timberland (2008) “Enviornmental Scoring System” in Timberland’s Code of Conduct Assessors Manual, Chapter 10: Supplier scoring. Provided by Colleen Von Hadden.

[3] Patagonia (2009) “Company Info: Corporate Social Responsibility – Frequently Asked Questions”. [Online]. Available from: http://www.patagonia.com/web/us/patagonia.go?assetid=37493#publish [Accessed 5 August 2009]

FFC Pilot Project Showcases Supplier-led Collaboration in Monitoring Practices

Fair Factories Clearinghouse (FFC) is facilitating a pilot project where one supplier is working with seven companies to eliminate duplicate audits at shared factories. The goal is to share information from previous audits, work together on remediation, and then conduct one annual verification audit at three factories shared by the participating seven companies. Normally, each company would conduct its own corrective action plan (CAP) and audit at the factory increasing costs and resources for all involved.[1]

FFC’s first supplier member initiated the collaboration process with its customers that are also FFC members; first, by joining FFC, and then by engaging FFC to moderate the pilot project. This initiative demonstrates that the supplier can be a partner in the monitoring and remediation process. The supplier aims to share audit findings and corrective action plans (CAPs) with its customers through FFC online-sharing platform.

Marianne Voss, Executive Director, Fair Factories Clearinghouse, explains that, “FFC was originally created for purchasers, for the top of the supply chain, who managed the factory compliance process. The pilot project demonstrates that suppliers have a bigger role to play in collaboration and for this reason FFC is opening up membership to suppliers.”[2]

The pilot project demonstrates the challenges brands and suppliers face when collaborating on factory audits and remediation activity.  Voss points out that one obstacle to collaboration has been the inability of companies to trust supplier data or other company’s data.[3] Negotiation and dialogue between all participants is required to gain a level of trust and fundamental to moving forward on mutually agreed conditions.

The pilot project has shown that in order to conduct a successful joint audit, it is important for all participants to agree on 1) who conducts the audit, 2) the audit template and the standards of audit questions, 3) negotiating the remediation process, and 4) delegating tasks.  It was also important to get each of the participating companies, and the supplier, to agree to the highest level of standards across the brands for remediation, so that all felt comfortable that collaboration was not lowering standards.  Meredith Danberg-Ficarelli, Member Services Manager, Fair Factories Clearinghouse explains that the pilot project has been a huge undertaking. The collaborative process involves a lot of conference calls, a lot of back-and-forth clarifying issues and questions.[4]

Joint factory audits will reduce costs for both the supplier’s factories and the companies involved in the pilot project. In arrangements where the factory foots the bill for audits, conducting one annual audit instead of several will see direct savings for the factory who would have normally had to pay for multiple audits. The supplier will also only need to pay for one round of remediation. In this project, the supplier’s group of factories had over 20 audits, which are now being consolidated. However, while resource and cost-savings is important, Voss points out that the biggest benefit of a joint audit and joint remediation process for a supplier is one consistent message from the companies to the supplier throughout the monitoring and remediation process.[5]

The pilot project highlights how the FFC sharing-platform can enable effective collaboration between all stakeholders in the supply chain. FFC membership allows members to share factory and audit information at their own discrepancy letting members initiate collaboration. Working with FFC’s first supplier member has helped to tailor FFC software to the supplier’s requirements and preferences.

Collaborative relationships forged among FFC members in the pilot project stress the importance of patience and forward-thinking to understand that working with several stakeholders will be time-consuming, require clear communication and accountable delegation. But once the groundwork has been laid, joint audits and joint remediation will ultimately save time and resources for both factories and companies in the audit process.

The pilot project’s joint audits are scheduled to take place towards the end of 2009. A follow-up post will review the outcome of the pilot project and the opportunities and challenges of joint remediation.

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References:

[1] The supplier and the companies involved in the pilot project are participating voluntarily. Each stakeholder is responsible for building its own business relationships and voluntarily decided if they were going to participate in the pilot project and to what extent.

[2] Voss, M. (2009) Interview with Marianne Voss, Executive Director, Fair Factories Clearinghouse. (Fair Factories Clearinghouse Pilot Project, brand collaboration), 11 August, 2009.

[3] Voss, M. (2009) Interview with Marianne Voss, Executive Director, Fair Factories Clearinghouse. (Fair Factories Clearinghouse Pilot Project, brand collaboration), 11 August, 2009.

[4] Danberg-Ficarelli, M. (2009) Interview with Meredith Danberg-Ficarelli, Member Services Manager, Fair Factories Clearinghouse. (Fair Factories Clearinghouse Pilot Project, brand collaboration), 28 July 2009.

[5] Voss, M. (2009) Interview with Marianne Voss, Executive Director, Fair Factories Clearinghouse. (Fair Factories Clearinghouse Pilot Project, brand collaboration), 11 August, 2009.

Collaboration and Technology Research

Many factories producing consumer goods are visited every two weeks on average or 25 times a year.[1] It is a time-consuming and repetitive process, which sucks up resources and produces a lot of duplicated information. Resources spent on auditing could be allocated towards remediation and capacity training in factories – actually improving the issues found in audits, rather than re-finding the same problems. Interested companies are finding ways to collaborate with each other in shared factories through audits, corrective action plans and remediation to assess and improve factory workplace conditions. Fair Factories Clearinghouse (FFC) wants online information-sharing technology to be part of the solution.

FFC received a grant from the Levi Strauss Foundation to research how technology enables brand collaboration in supply chain practices. FFC developed a survey and conducted interviews to reach 101 people from companies, NGOs, academics, governments, and audit firms. FFC wanted to know how companies are currently collaborating, what are the drivers and obstacles to collaboration, and what role technology is playing.

Current Collaboration Practices

Research showed companies are currently collaborating formally and informally. Formal collaboration is where companies collaborate through a structured and mediated program. Research indicated approximately 60% of companies are collaborating on joint codes of conduct, joint projects in a specific geographical region, and participate in multi-stakeholder initiatives.

Informal collaboration is ad-hoc and impromptu consultation between companies. Research revealed that companies rely heavily on informal collaboration. Ninety percent of respondents consult with another brand or other brands on specific compliance or remediation issues, 85% of respondents participate in working groups, and approximately two-thirds are conducting joint audits and joint remediations with other companies.

Companies tend to collaborate with companies in the same industry and not just with any brand that shares the same factory. The most used and most useful sharing practices between companies are sharing audits, corrective action plans, and remediation reports. Over half of the companies agreed that sharing audit results was the most useful for their company. One respondent stressed that sharing audits is good for business, “sharing audit results with other companies increases our own leverage.” Shared audits alleviate factory audit-fatigue and free up resources for remediation and capacity training. One respondent emphasized that sharing audits allows resources to be reallocated, “We need to focus more on issue solving and remediation rather that issue finding.”[2]

Drivers and Obstacles to Collaboration

What is driving companies to collaborate? The FFC research found that companies are collaborating on supply chain practices to reduce cost, increase efficiency, enhance performance and improve factory working conditions.

There are many obstacles to collaboration. The biggest obstacle is differing auditing standards and methodology between companies. Lack of confidence in another company’s ability, competency or quality of work is another hurdle. Legal concerns around company collaboration, an unclear return on investment, and lack of technology also hinders collaboration.

The Role of Technology

The research revealed that technology does not make companies collaborate, but facilitates the collaboration process. Companies must initiate collaborative relationships with other companies, while technology can make the process efficient by providing data collection, sharing and storage.  Seventy-two percent of respondents believe that technology aids them in their collaboration efforts.

The FFC research identified additional software tools to develop to facilitate online sharing which include 1) profiles, 2) matchmaking and 3) shared calendars.

Profiles of factories, auditors and companies would help identify potential collaborating opportunities. Factory profiles would include the number of audits conducted, areas on non-compliance, trainings and certification received, and information on management. Auditor profiles would increase users’ knowledge of auditor’s experience, skills, and audit methodology. Company profiles would provide company philosophy, code of conduct, audit methodology, remedial strategies and auditor preferences.

Matchmaking tools would use factory data to match companies who use the same factory and then supply all associated information on past audits, upcoming audits, and pending activity.

Two types of shared calendars, the factory audit calendar and the social compliance calendar, would alert users to opportunities to collaborate in factory audits and trainings. The factory audit calendar would alert companies to scheduled audits at shared factories. A social compliance calendar would alert CSR managers, auditors and suppliers to webinars, trainings and facilitate e-learning.  E-learning is an opportunity to provide training to suppliers at a reduced cost by using online technology.

Future Aspirations for Collaboration

Overall, the research indicated companies see brand collaboration as useful and would like to see more openness between companies in supply chain practices.

Future aspirations for collaboration are more joint projects with other brands in specific geographical areas, increased participation in multi-stakeholder initiatives and increased use of shared data platforms like the FFC and Supplier Ethical Data Exchange (SEDEX).  Also, the research found there is a desire to conduct trainings with other brands, and create a joint service to respond to worker grievance.

Levi Strauss & Co. is one company embracing brand collaboration valuing the benefits despite the challenges. In 2006, the company made public their factory list to identify which brands shared the same factories and how could they start working together to improve the audit process. The initiative has grown and Levi’s currently works with 20-25 brands on auditing, corrective action plans, remediation and training. Leslie Croshaw, Social and Environmental Sustainability Manager, Levi Strauss & Co., points out that while collaborating with other brands can be time consuming, the measure of a successful collaborative relationship is when brands are alternating on audit visits to shared factories. Through working with other brands, Croshaw and her team have discovered that companies can trust each other and are much more similar than different once they begin working together. [3]

Technology can play an instrumental role in collaboration by making information sharing efficient and easily accessible, but at the end of the day, brand collaboration works when relationships between companies are built on trust, transparency, and shared values.

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References:

1. Podcast with Michael Kobori (Levi Strauss & Co.) and Carrie George (CSCC) (2008) [Podcast] Recorded. 5 May 2008. [Online]. Available from: http://cscc.typepad.com/responsiblesourcing/2008/05/podcast-with-mi.html [Accessed 10 June 2009].
2. Fair Factories Clearinghouse (2009) Collaboration and Technology: Analysis of Research. June 2009. [Online]. Available from: http://fairfactories.org/resources/research.html [Accessed 20 July 2009].
3. Croshaw, L. (2009) Interview with Leslie Croshaw, Social and Environmental Sustainability Manager, Levi Strauss & Co. (brand collaboration), 27 July 2009.

Codes of Conduct and Monitoring Practices

What are a company’s “codes of conduct”? How does a company monitor factories in the supply chain? What is an audit? Answering these questions will help explain how companies can work together to improve the monitoring process.

A company is also known as a brand or purchaser. In this article, “company” will be used for simplicity. A factory can also be a supplier and these terms will be used interchangeably.

A company sets “codes of conduct” to address labor issues and guide employee behavior and responsibility. Ethical and social responsibilities in the workplace are often a focus.[1]  A company’s codes of conduct are established internally by companies themselves or by external organizations such as the Fair Labor Association (FLA) and the Business Social Compliance Initiative (BSCI). A company’s codes of conduct often attribute underlying principles to the UN Declaration of Human Rights and the International Labor Organization (ILO) conventions that establish international human and labor rights.

Codes of conduct address the following labor issues: (1) employment standards, (2) health and safety, and (3) the environment.

Employment standards address issues such as forced labor, child labor, freedom of association (the right to organize and bargain collectively), and fair and equal treatment (freedom of harassment and discrimination issues). It also includes wages and benefits, working hours, and disciplinary practices.

Health and safety covers safe working and/or living conditions. This includes but is not limited to proper lighting, adequate toilet facilities, accessible fire extinguishers, and training in the handling and use of chemicals.

Environment draws attention to a factory’s impact on its surroundings. A company that is concerned with the environment may have more stringent environment requirements. Some require factories to eliminate toxic and hazardous substances from products and production process. Less concerned companies only require proper waste management and waste disposal.

Generally, codes of conduct do not differ greatly from company to company. Michael Kobori, Vice President of Supply Chain Social and Environmental Sustainability, states, “80% of the language is the same.”[2]   Here are a couple examples codes of conduct from leading apparel companies which are available online: Adidas “workplace standards” and Timberland’s codes of conduct.

Different companies’ codes of conduct cover many of the same issues, however monitoring practices can vary from company to company. Marianne Voss, Executive Director, Fair Factories Clearinghouse points out, “the language is not that different, the difference is in implementation.”[3]    There are various ways a company can monitor labor practices in factories. There are no universal standards for monitoring practices, which leave a lot of room for interpretation.

Monitoring and verification is a way to monitor labor practices in factories. The audit is a measurement tool to evaluate factory compliance with a company’s codes of conduct at a specific point in time.[4]   A traditional audit requires a team of auditors to visit a factory premises either announced or unannounced. The auditing team meets with factory management and often interviews a number of employees. The audit document asks a range of questions some that require tick-box answers. Where remediation is warranted, further explanation may be required. A factory audit can be carried out by the company, an intermediary, or external auditors such as Societe Generale de Surveillance (SGS) and Bureauveritas. An audit can also be paid for by all of the above actors or the factory itself. To get a sense of what a traditional audit asks, check out the Outdoor Industry Association’s fair labor and social compliance toolkit.

Remediation takes place when a factory is found to be in non-compliance with a company’s codes of conduct. A corrective action plan (CAP) is devised for the factory to make corrective changes.  Capacity development requires resources to develop training programs and often depends on the strength of the business relationship between the company and the supplier.

Stakeholder engagement is when a wide range stakeholders, companies, suppliers, international non-governmental organizations (INGOs), non-governmental organizations (NGOs), and governments, develop solutions in the monitoring, verification and remediation of factory labor practices. Stakeholder engagement can bring attention to underlying labor issues and initiate change through collaboration.

Multi-stakeholder initiatives come out of collaborative efforts from companies across multiple industries, labor unions, INGOs, NGOs and government actors to facilitate change. Coalitions such as the Ethical Trading Initiative (ETI) and the Fair Labor Association (FLA) work towards better labor standards by developing codes of conduct and principles member organizations commit to implementing in their supply chain. Membership in multi-stakeholder initiatives demonstrates an organization’s values to consumers and non-consumers.

Industry initiatives are when companies in the same industry work together towards sustainable supply chain management and improved factory workplace standards. In the electronic industry, the Electronic Industry Citizenship Coalition (EICC) requires members to commit to and implement its codes of conduct and management systems. In the toy industry, International Council of Toy Industries (ICTI) has established the CARE compliance program for toy factories to participate. Toy factories that apply to the CARE program must pass an audit to receive certification of compliance annually.

Accreditation and certification are monitoring practices that are voluntary or member-based and require companies and/or factories to be accountable to standards set by advocacy groups. For instance, the Worldwide Responsible Accredited Production (WRAP) has a certification program for member apparel factories to monitor for “lawful, human and ethical manufacturing.”[5]   Social Accountability International (SAI) aims to improve working conditions through certification and training programs for both company and factory management. SA8000 is a voluntary management certification available to both companies and factories that emphasizes improved social performance in the supply chain.

Root cause analysis is another way to evaluate working conditions by examining management systems. This process examines the life-cycle of a worker to identify where remedial action is required. The life-cycle of worker includes hiring, wages and hours, management, disciplinary actions, pensions, and firing or quitting. Nike is using root cause analysis to complement traditional audits and identify underlying labor issues.

Current trends in monitoring practices focus on information sharing between companies that use the same factories. “Brand collaboration” has the potential to improve the compliance process by eliminating duplicate audits and reallocating resources to remediation and training. Fair Factories Clearinghouse is a non-profit organization that provides software to support online information sharing to allow purchasers, intermediaries and suppliers to manage and share factory audit information and other data on monitoring practices, remediation, and training programs. Finding ways to make the compliance process more efficient and to make companies and factories work together more effectively is not only good for working conditions but it is also good for business.

References:

1. Casey, R. (2006) “Meaningful Change: Raising the Bar in Supply Chain Workplace Standards.” Corporate Social Responsibility Initiative, Working Paper No. 29. Cambridge, MA: John F. Kennedy School of Government, Harvard University.
2. Podcast with Michael Kobori (Levi Strauss & Co.) and Carrie George (CSCC) (2008) [Podcast] Recorded. 5 May 2008. [Online]. Available from: http://cscc.typepad.com/responsiblesourcing/2008/05/podcast-with-mi.html [Accessed 10 June 2009]
3. Voss, M. (2009) Interview with Marianne Voss, Executive Director, Fair Factories Clearinghouse (codes of conduct and monitoring practices), 24 June 2009.
4. Casey, R. (2006), ibid.
5. ibid.