Improving Supply Chain Compliance in Developing Countries

Dec. 30, 2010
Many enterprises can improve environmental practices and worker safety very quickly, using the money, staff and local know-how they already have.

Wondering if you can get your suppliers and subsidiaries in developing countries to do more to protect the planet, their workers and your brand? Many multinational managers struggle to strengthen supplier compliance with international standards for environmental performance, quality assurance and worker safety. Interesting experiences from the world of international development show there's a way to support such efforts in Africa, Latin America, and Asia without it costing you -- or your suppliers -- a fortune.

If you oversee a multinational corporation or supply chain, you are expected to influence suppliers to protect -- and even improve -- their impact on our planet, their workers, and your brand. However, influence is often diluted by the challenge of doing business in developing countries. Workers are often less educated; perhaps even illiterate. Government regulation is weak. Scientific and technical consultants that know how to work cross-culturally are prohibitively expensive, if they can be found at all. Add geographic and cultural separation into the mix, and it is easy to see why you might think attempts to raise standards could put a supplier's product -- and your own -- at a major cost disadvantage.

"Not necessarily," says Nadim Matta, President of the non-profit U.S.-based Rapid Results Institute. "We've shown repeatedly that even small and medium enterprises can improve their environmental practices and worker safety very quickly, using the money, staff and local know-how they already have. Admittedly it takes some coaching at first. But there's no reason why MNCs cannot catalyze better performance of their suppliers in the same way."

Support for this view comes from the world of international development, where recent projects have yielded surprising lessons for MNCs. One effort, organized with the World Bank Institute and the local NGO Enterprise Uganda, helped a diverse group of Ugandan businesses use existing technical and financial resources to achieve big improvements in environmental practices and worker safety. Even better, the projects also lifted profits -- in most cases producing savings that exceeded the costs associated with the improved social, health and environmental benefits.

The key to cost effectiveness is the use of 100 day projects called Rapid Results Initiatives or RRIs. The projects use a simple team-based structure. They allow staff to set their own stretch goal to deliver a measurable result on a difficult issue, in 100 days or less. The importance and urgency of the RRI unlocks the creativity and ingenuity of staff to experiment, with managers playing a supporting role. In almost every case staff deliver breakthrough performance improvement that is both inexpensive and sustainable.

At Leather Industries of Uganda, a large tannery located half a kilometer from the source of the Nile, managers struggled to reduce the level of heavy-metal contamination in waste water. The situation produced health and environmental issues for workers and others nearby, as well as the broader eco-system and communities downstream. In spite of management concern that little could be down without outside technical and financial help, the company kicked off an RRI with a cross-functional team of front-line workers.

Within 100 days, the tannery team found ways to reduce the amount of Chromium in their waste water by 40%, just by using their existing technology better. In the next few months the team achieved an astonishing 99% drop from pre-project levels. Now one of the cleanest tanneries in Uganda, this shift was accomplished with minimal investment and negligible increase in operating costs.

The story was similar at Igara Tea Growers Factory, where raw tea is converted into tea powder using a boiling process. Since locally harvested firewood formed the relatively expensive fuel for the boiler system, the goal was to reduce firewood consumption. Again, a Rapid Results team was launched with another immediate improvement in environmental management and profitability. Within 100 days, workers increased fuel efficiency by 20%. Ultimately they almost doubled fuel efficiency.

Again, this was done at almost no cost and with little outside consulting. These results are not unusual. Before the environmental projects in Uganda, development agencies used the approach in Nicaragua to help improve the quality of milk supplied by farmers to Parmalat. In Ethiopia, dozens of companies used rapid results teams to prevent and treat HIV/AIDS infection. In Madagascar, a team implemented stricter standards on the harvesting and handling of lychee fruit, enabling a significant increase in the volume certified for export to Europe.

According to Jenny Gold, a World Bank Institute staff member who helped organize the work with Uganda and Ethiopia, "The secret of these achievements lies in getting people on the ground motivated to pursue an aggressive goal, and then getting out of the way while they figure out their own solutions."

This differs significantly from traditional approaches that hand off solution-making to outside technical consultants. "With the rapid results approach, front-line workers use a simple project structure and resources that are readily available," says Ms. Gold. "They set their own stretch goal to tackle a vexing problem, then focus their creativity on finding inventive, cost effective and sustainable solutions. The end result is almost always a radical step-up from previous performance levels."

By better leveraging the latent capacity of front line staff, outside coaching can be low-tech and inexpensive. In the Uganda case, consultants acted as coaches to local management, helping them to organize and challenge staff in ways that better harnessed their energy and creativity. Once the coaches left, local leaders were readily able to use the approach again, expanding to other compelling issues.

Savvy multinationals can play a similar role in reaching down through the supply chain to commission improvement projects, providing light-touch coaching as needed. The results could potentially benefit your brand, your cost base and your peace of mind.

Patrice Murphy is a Partner at Schaffer Consulting, a leader in the development and practice of organizational and cultural change. Daniel Manitsky is a Consultant at the Rapid Results Institute, a non-profit organization specializing in shifting social and economic development efforts towards performance-driven approaches.

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