Taking a tough approach to supply chain compliance

  • Written by Peter Needle
  • Published on 8 September 2015
  • Blogs

Supplier compliance is vital for retailers that want to source high quality products in an ethical and affordable manner. However, the scale of the challenge can be considerable. We’ve taken a look at how two retailers are tackling supply chain compliance problems, and what other companies can learn from them.

The scale of supplier compliance problems

In a global supply chain study, MetricStream discovered that 50% of organisations have experienced issues relating to supplier non-compliance. Of these issues, 59.5% revolved around management and documentation, while 29% were related to environmental, health, and safety standards.

Consumers commonly hold an expectation that their favourite brands will enforce supplier compliance policies across the entire supply chain. However, as the Modern Slavery Act comes into force, UK companies are also being held increasingly responsible for the behaviour of their suppliers in the eyes of the law.

Taking a tough approach

Following the Rana Plaza factory collapse in Bangladesh, the garment industry has come under increased scrutiny over health and safety standards. Adidas are one of many retailers making a concerted effort to distance itself from unethical labour practices.

Last year, Adidas terminated agreements with 13 suppliers in Asia due to non-compliance, as detailed in their 2014 sustainability report. The brand’s global sourcing team assessed 226 factories in total, and initially rejected 104, though many were given three months to improve prior to a second audit. Adidas argued that the brand works closely with suppliers to improve performance, although certain situations may still result in the termination of a professional relationship.

In addition to this, Adidas issued 65 warning letters to suppliers about ongoing non-compliance issues, such as the poor treatment of workers and lacking safety standards. Most of the offending suppliers were based in Asia, where 60% of the brand’s supplier base is located.

Japanese fashion retailer Uniqlo has also taken a strong stance on supply chain compliance, after two of its Chinese manufacturers were alleged to use “harsh and dangerous” working conditions. Just Style reports that the retailer has implemented training programmes for factory managers, now conducts unannounced audits, and monitors suppliers that provide 30% of all textiles used by Uniqlo. From September, workplace and environmental monitoring will take place across the supplier base for 70% of all textiles used annually by the brand.

What's being done

MetricStream found that 91% of organisations have already established some sort of supplier compliance strategy. The most popular methods of measuring supplier compliance were found to be audits (76%), self-assessments (60%) and third party evaluations (52%).

However, the study argued that many companies had a defensive approach to supply chain compliance management, aiming to simply avoid penalties rather than meaningfully improve processes. What’s more, 48% had segmented suppliers and directed their attention towards critical vendors.

We’ve examined the complexities of supply chain compliance before, and found that companies cannot afford to be this selective. Compliance problems are most commonly found several tiers down the supply chain, where issues are harder to see and more difficult to correct.

Here at Segura, we’ve created supply chain compliance software that can monitor and manage a huge supplier database. Simply place orders within a framework of approved suppliers, and we will gather tenders based on cost, supplier performance and product quality. Our cloud-based solution traces orders back through the secondary supply chain and alerts users to any missing links in the chain, indicating that an order was fulfilled by an unauthorised supplier.

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