Sub-tier risk can undermine supplier codes of ethics

I wrote a post earlier this week about supplier ethics as a supply chain risk and also provided links to supplier codes of ethics for several big-name corporations, such as Walmart, IBM, and HP. Are supplier codes of ethics just window dressing? In this case, it’s more complicated. Sub-tier risk can undermine supplier codes of ethics.

Apparently, the Bangladesh factory that made clothing for Walmart and where the fire killed 112 workers in November, had no fire exits and had illegally built 5 extra stories on a building approved for 3 stories. They had lost their fire certification last June, but ignored it. According to an article in today’s Wall Street Journal, the factory where the fire occurred was not directly contracted to Walmart. Walmart’s supplier, Simco Bangladesh, Ltd, illegally subcontracted to Tuba Group because Simco lacked capacity to get the order done.  Part of the problem is that poor worker conditions, pay, and treatment of workers at Bangladeshi factories has been causing political unrest, worker lockouts, and worker absenteeism. This absenteeism, in the case of Simco, made them unable to complete the job for Walmart, prompting them to turn to another supplier to get the work done.

While a code of supplier ethics is great in theory, in practice it is impossible to enforce if the whole system is corrupt and screwed up, as it is in the Bangladeshi garment industry.

Fueling our insatiable demand for cheap clothing helps create supply risk. In this case, because it couldn’t deliver, the supplier took the risk of contracting with an unauthorized supplier instead of risking losing its contract with Walmart. With this type of pressure, ethics codes violations and continued sub-tier risk are a given.

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