The Dark Side of the Supply Chain Thinkstock

The Dark Side of the Supply Chain

Manufacturers are being called to take responsibility for every link in their extended supply chains.

Fishermen in Thailand. Cocoa farmers in the Ivory Coast. Palm oil harvesters in Malaysia. Even under-aged migrant workers in the United States. The world is slowly learning that in too many places, the lowest but perhaps the most crucial link in a supply chain depends on forced labor. In a business climate that trumpets every corporate social responsibility (CSR) initiative, the exposure of human trafficking in the darkest corners of a company's extended supply chain is calling into question exactly how much visibility companies have into their product lifecycles.

Consider global food giant Nestlé, for instance, which made headlines recently when a class action lawsuit alleged that one of the suppliers to its company's Purina cat food division is using slave labor. The allegations claim that Thai Union Frozen Products, a Thailand-based supplier of fish products, engages in human trafficking to crew its fishing boats.

In a statement, Nestlé stated that it requires all of its suppliers to "respect human rights and to comply with all applicable labor laws." The company also added, though, that forced labor is a "serious and complex issue," and that it was working with an NGO to get a better idea of where and why forced labor was occurring in Thailand and other Southeast Asian countries.

Illustrating the fluid perception of what constitutes CSR, Nestlé also was honored recently as one of the top performing food product companies on the 2015 Dow Jones Sustainability Index, which measures company performance across economic, environmental and social dimensions.

Charges that Thai food companies are linked to human trafficking are nothing new. Mars Inc. and Procter & Gamble Co. have joined Nestlé on the list of catfood producers being sued for allegedly turning a blind eye to forced labor practices in Thailand. In 2014, several major food retailers, including Walmart, Costco and UK-based Tesco, were linked to reports that CP Foods, a Thai food conglomerate, was purchasing fishmeal from fishing vessels employing slave labor; that fishmeal was then fed to shrimp products sold in retail stores worldwide. According to The Guardian, which conducted a six-month investigation into the Thai fishing industry, as many as 500,000 people are believed to be living in slavery in Thailand.

One step taken by the U.S. government has been to tag Thailand with a Tier 3 designation, the lowest ranking in the U.S. State Department's annual Trafficking in Persons report. (That report itself has come under fire as being politically slanted, as Malaysia was upgraded to Tier 2 despite the notoriety of the Malaysian palm oil industry's labor abuses.) And earlier this summer, a bill was proposed in Congress that would require public companies with revenues over $100 million to disclose annually how they monitor and prevent slavery, child labor and human trafficking in their supply chains. However, the court of public opinion has been largely responsible for causing U.S. manufacturers and retailers to more closely scrutinize their global supply chain practices.

Technology is also being leveraged to identify and expose the darker side of some product lifecycles. Companies are being held accountable for not only their own supply chain, but for the supply chains of their suppliers and suppliers' suppliers, notes Justin Dillon, CEO of Made in a Free World, a network of individuals, groups and companies dedicated to combating human trafficking through the use of digital technology to uncover and end it.

Made in a Free World, based on SAP's Ariba Network platform, has developed a database which maps the bills of materials of numerous products and services, down to the raw materials and labor used in a product's lifecycle. The network is capable of triangulating various inputs, such as supplier performance ratings and payment history, to identify potential future risks. It can also suggest alternative sources of supply in those situations where a manufacturer is leery of doing business with companies in areas where forced labor might exist.

Corporate social responsibility throughout the extended supply chain needs to become a higher priority for companies, particularly given greater consumer expectations for responsible sourcing and production, states Mark Pearson, senior managing director with Accenture Strategy. It's true that adhering to the highest CSR principles can help companies generate higher margins, but "this is not about trade-offs," Pearson emphasizes. "It's about behaving in a socially responsible way that can also deliver a competitive edge."

 

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