preparing for the future -...
TRANSCRIPT
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Brittney De Stefano Business Development Manager
Tony Pelli Senior Global Intelligence Analyst
Footwear Sourcing Risks and The Need for a Prequalification Assessment
Preparing For the Future
FDRA Footwear Forum 2015
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Agenda
• BSI Professional Services Overview
• SCREEN Intelligence – Footwear Sourcing Risks
• Industry Challenges and the Need for a Prequalification Assessment
• Scenario: Sourcing a New Athletic Shoe
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BSI Professional Services Supply Chain Intelligence & Risk Management Solutions
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BSI Supply Chain Solutions sits within the Professional Services organization. The Supply Chain Solutions organization is the leading global provider of supply chain intelligence, auditing services, audit and risk management compliance solutions, as well as advisory services. Our charter is to help corporations, governments and associations identify, manage and mitigate global supply chain risks and maintain world class governance risk and compliance programs. Our holistic supply chain risk management suite is designed to predict and visualize risk, and develop robust risk mitigation and compliance management programs to protect your supply chain, brand and reputation.
BSI Professional Services Holistic Supply Chain Risk Management
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SCREEN Intelligence Country Risk Analysis Tony Pelli Senior Global Intelligence Analyst
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Increasing Labor Unrest in China
• Labor strikes are increasing in all of the major exporting provinces in China
54
154
243
300
0
100
200
300
400
2011 2012
2013 2014
Labor Strikes in Guangdong
9 23
42
103
10 27
54 60
6 12 11
44
21 16 18
85
5 15 20
47
0
50
100
150
2011 2012
2013 2014
Labor Strikes in Select Provinces
Jiangsu Zhejiang Shanghai Shandong Fujian
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Increasing Labor Unrest in China
0 10 20 30 40 50 60 70
6.0%
7.0%
8.0%
9.0%
10.0%
2011 2012
2013 2014
Strikes and GDP Growth in Zhejiang Province
GDP Growth Strikes
0
50
100
150
200
250
300
350
0.0%
5.0%
10.0%
15.0%
2011 2012
2013 2014
Strikes and GDP Growth in Guangdong Province
GDP Growth Strikes
• In some provinces this may correlate with decreasing GDP growth
• In other provinces different factors may be driving the strikes
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Increasing Labor Unrest in China – Strike Profile
• Strikes are concentrated in heavy manufacturing, electronics, and garments
• Footwear strikes see some of the largest numbers of employees participating • 40,000 in 2014 strike, direct losses of $27
million • Strikes with 1,000+ workers occur regularly
• Working conditions are typically not a cause of strikes in China • Wage arrears, compensation, and benefits
much more commonly cited as causes
Heavy Manufacturing
(steel, machinery, etc.), 20.9%
Electronics, 17.5%
Garment and Textiles, 16.9%
Consumer Goods and
Retail, 10.3%
Food, 6.9%
Footwear, 5.9%
Automotive, 5.3%
Pharmaceutical, 2.8%
Not Specified, 4.0%
Other, 7.5%
Strikes by Industry in China Year-to-Date 2015
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Increasing Labor Unrest in China - Causes China’s economic catch-22 • Fast growth:
• Wages increase • Emboldens workers • Leads to relocations that drive
strikes
• Slow growth: • Wage increases stall • Increases employer wage
withholding
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Increasing Labor Unrest in China – Causes
• Lower-end manufacturing increasingly moving elsewhere
• Wages lower in Vietnam, Cambodia, Myanmar
• Primarily in the garment industry, with electronics following
• Increasing factor in strikes • 12 relocation-related strikes in Q2
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Increasing Labor Unrest in China – Government Response
Police Response54.0%
Other Outcome 46.0%
Police Response to Strikes All Strikes in China, 2014-2015
Police Response62.0%
Other Outcome 46.0%
Police Response to Strikes Hong Kong-, Macau-, Taiwan-Owned
Factories, 2014-2015
Police Response 37.0%
Other Outcome, 63.0%
Police Response to Strikes Foreign, Joint-Venture Factories,
2014-2015
• Moves towards empowering official government unions
• CCP becoming more intolerant of unofficial organizing • Mainly driven by migrants
• Crackdown on civil society may extend to NGOs that aid in unofficial labor organizing
• Harsh police responses, including arrests or organizers, are less common when the factory is foreign-owned, but more common when owned by a Hong-Kong/Taiwan-based contractor
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South China Sea – Recent Developments
• China stated in mid-June that it would halt island-building projects
• Most had already been completed
• China will continue to build military facilities on the seven existing islands
• China rejected arbitration with the Philippines by an international tribunal that will begin hearings this week
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Vietnam – Social Responsibility Challenges
• Footwear exports increased nearly 25%
threat rating for human rights
• Health and safety a primary concern • 75% of factories had weak roofs or walls • 90% use outdated equipment that could lead
to worker injury
• Other risk areas (child and forced labor) are less of a concern for footwear
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Vietnam – Labor Unrest
social unrest rating
• Labor unrest driven by lack of an official outlet for grievances
threat to freedom of association and collective bargaining
• Official trade unions tightly controlled
• Leads to more volatile ‘wildcat’ strikes
• Wage increases have increasingly become a cause for strikes • Inflation in 2009-2011 drove strikes
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125 147
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541
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216
424
981
539
355
0
200
400
600
800
1000
1200
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 Labor Strikes in Vietnam
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Supplier Prequalification and Risk-Based Sourcing Brittney De Stefano Business Development Manager
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The Challenge & Need for a Prequalification Assessment
Common Industry Challenges:
• Enormous complexity around pre-qualification
• Little Visibility into a Direct & Multi-Tier Supply Chain
• Lengthy Process to Validate and Onboard New Suppliers
• Global Diversification – No reliable country risk intelligence available
• Lack of Collaboration within the Organization
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Supplier Prequalification Assessment PAS 7000 – Utilize a Global Standard of Excellence PAS 7000 provides flexibility for tailoring the information to particular organizational needs: • Steering group composed of over 40
organizations based in US, Europe and Asia
• Review panel composed of over 200
organizations based in US, Europe and Asia
• 9 core modules are always included
• 6 additional modules can be selected as per the business nature and buyers’ procurement policy.
Organization Profile
Supplier Capabilities &
Capacities
Financial Information &
Insurance
Business Governance
Employee Policies
Health & Safety
Data Protection
Environmental Management
Quality Management
Business Ethics
Supply Chain Traceability
Supply Chain Security
Equal Opportunities
Disciplinary Practices &
Abuse
Business Continuity
Management
9 PAS 7000 Core Modules:
6 PAS 7000 Additional Modules:
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Implement the Assessment Methodology that best suits your resources and needs:
• PAS 7000 Self-Assessment
• PAS 7000 Onsite Audit
• Or Combination of Assessment Methodology
Once you identify the methodology, use an automated, risk-based solution to increase the efficiency of the process.
Supplier Prequalification Assessment Implementing the PAS 7000 Standard
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Scenario: Sourcing for a New Athletic Shoe Traditional vs. Risk-Based Sourcing
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Scenario: Identifying a Supplier for a New Athletic Shoe Traditional vs. Risk-Based Approach to Supplier Sourcing
Traditional Sourcing Program – RFI Identifies Qualified Suppliers for Product Spec and Pricing requirements
Traditional Sourcing factors:
o Total Cost
o Product Quality
o Technical Capability
o On-Time Delivery
o Service
Supplier B: China
Supplier A: Indonesia
90% Compliance 70% Compliance
Higher Total Cost Lower Total Cost
Child Labor – Elevated Child Labor – High
Risk-based Program – Sourcing will also look at geographic risk and prequalification results
Additional Sourcing factors:
o Country Risk
o Supplier Compliance
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Review of the Key Elements in a Risk-Based Sourcing Program
Step1: Identify Qualified
Suppliers
Step 2: Analyze Geographic Risk
Result: Holistic Risk Scoring for
Suppliers
Step 3: Prequalification
Assessment
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Questions?
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