7 Tools to Manage and Mitigate Supply Chain Risk

On February 23, 2022, the European Commission finally proposed a directive on corporate due diligence. The aim: to regulate harmful activities towards workers, the population and the environment that are present in their supply chains. 

This directive is important and also necessary as nowadays workers are exposed to many risks on the production lines of companies in Europe, whether it be fire, intoxication or modern slavery. 

It is therefore urgent that these companies stop delegating their responsibility to their subcontractors and that the people affected can turn to those responsible and obtain compensation. 

While waiting for the approval of this directive, with the help of Eurofins, we have identified the key issues and 7 tools that allow companies to identify and manage the risks present on their production lines. 

The textile industry and possible risks to the supply chain

In 2016, the International Labor Organization (ILO) reported that 40.3 million people worldwide are caught up in some form of forced labor. 5 out of every 1000 people are affected by this scourge. 1 in 4 victims is a child. 71% of them are women or girls. Risks in the supply chain can result from external factors, such as political conflict or natural disasters. Unsurprisingly, the supply chain is not unrelated to the social, political and economic context that surrounds it.

But what about the fashion industry where the risks of modern slavery are high? 

To answer these questions Athiya Khatri, Compliance Audit Expert and Randy Rankin, Director of Global Client Development, North America, shared two webinars organized by Eurofins, a research laboratory that provides analytical and support services to the pharmaceutical, food, environmental, agri-science and consumer goods industries as well as to governments to facilitate the protection of people and the environment. The company has also developed two new projects entitled: ​“Combating modern slavery in European supply chains” and ​“Managing ESG-related regulatory risks in supply chains”.

Modern slavery

The clothes we wear may unfortunately be made by modern slaves. What is modern slavery? According to the Forced Labor Convention of 1930 (No. 29), modern slavery is ​“all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily”. It is therefore the obligation to work against one’s will.

Modern slavery takes many forms: 

• Child labor

• Servitude

• Coercion

Human trafficking:

• Slavery

• Forced marriage

• Debt bondage

Modern slavery is present in many industries such as mining, agriculture or electronics but the fashion industry brings all these industries together when a garment is made. In addition, the industry is historically based on slavery. It was first established through cotton farming and the slave trade and continues to rely on modern forced labor today. ​“Without slavery, today’s fashion industry would not exist,” explains Aja Barber a writer, stylist and consultant on intersectionality and eco-responsibility. This is the case for fast fashion, the system relies on free or cheap labor to produce goods at incredibly low prices. From the harvesting of raw materials to manufacturing, from packaging to delivery of goods, modern slavery can therefore occur at all stages of the supply chain.

The risks identified

In addition to modern slavery, there are many other risks that can arise in the textile industry supply chain. These risks depend on the object manufactured, the location of the factory or the state context (i.e. the willingness of the state to protect its workers and its population). Indeed, there are more human and environmental risks involved when jeans are manufactured. Non-organic cotton is treated with chemicals, indigo dyeing destroys wildlife and the sandblasting technique to achieve the gradient effect is extremely dangerous for the worker. It is also important to look at these different elements: if the employees have debts, if there is deception on their positions, if they work excessive overtime and if there is physical or mental violence. Working conditions also provide some insight. 

Women and girls are unfortunately more affected by these risks, especially by modern slavery. This is also the case for people with darker skin in some regions. Some risks may be due to government inaction: this is why European companies choose to relocate their workforce to the global South. A factory in Belgium is more likely to respect its workers than one in Bangladesh. Some countries aim for a certain protection of workers and some companies take advantage of this inequality. European companies choose to establish themselves in Asia or Africa because the rules are almost non-existent or not respected regarding labor rights. Many scandals have broken out in the global South as well as in the North. The English brand Boohoo (2 billion euros in turnover) which owns factories in Faisalabad in Pakistan has for example forced its workers to work during the lockdown even if they were positive for Covid-19. In Europe, some companies are also using migrants or waves of refugees for labor. According to the anti-slavery charity Hope of Justice, reported by Sky News again at Boohoo, an investigation showed that male and female workers in Leicester were paid €3.86 an hour, well below the minimum wage. ​“Modern slavery is not something that happens ​‘out there’ that we shouldn’t think about.” Clare Press, Vogue magazine’s sustainability editor and the host of the Wardrobe Crisis podcast.

What can companies do? How to manage supply chain risks?

How to manage supply chain risks

With the help of the two webinars given by Eurofins, companies can use 7 tools to identify and mitigate their supply chain risks.

The tools identified by Eurofins

According to Athiya Khatri and Randy Rankin, companies need to be able to take into account the technical, social, environmental and safety risks in their supply chain. 

1. Be aware of domestic and international laws
   

Both experts advise companies to learn about internal laws in order to comply with them. The opposite would risk incurring costs for non-compliance. Fortunately, many laws exist on this subject. In the United Kingdom, there is the Modern slavery act, in the United States there is the California Transparency in Supply Chains Act of 2010 and in France the French Duty of Vigilance Law. 

However, as mentioned above, some states do not have the will nor the means to protect their population and workers. Some companies take advantage of this situation in a country that has not ratified them. 

2. Have an understanding of the supply chain

It is important to find out where the product comes from, how it is manufactured, packaged and distributed. To do this, it is necessary to maintain close links with its producers, manufacturers and distributors. Transparency must be maximized. It becomes difficult to achieve when there are several subcontractors. A short supply chain promotes transparency. 

3. Adopt a code of conducts

A good idea is to adopt a code of conducts. A code of ethics is a text that states the values and principles of a company in order to judge its speed and efficiency of action. There are many codes: they set standards that are the strict minimum. It is possible to create a code of ethics for recruitment or for marketing an ethical product. You can also form an association of responsible companies. It is fundamental to know if the commitments that are formalized are followed by actions. 

4. Training employees

Companies need to educate managers and employees so that they are empowered and can identify risks themselves. For example, in the case of modern slavery, training to identify it and then knowing what actions to take would limit abuse.

5. Provide funding 

Funds should be specifically allocated towards risk identification. For example, through the creation of a position. 

6. Conduct a risk assessment

A risk assessment is a thorough inspection of a site to determine if there are elements that can cause harm to people or the environment. Once the risks have been identified, it is important to put measures in place as soon as possible to prevent them from occurring. During a risk assessment, the results are very precise. It is possible to perform an assessment on a part of your chain, for example on the part that is in China or Pakistan. This allows for effective due diligence.

7. Conducting an audit 

An audit is a review of the management and operations of a company or the services it provides. This tool was introduced thanks to the anti-sweatshop movement of the 90s. There are several kinds of audits: the social audit checks the social practices, the financial audit checks the expenses and the internal audit is a study made by the company itself on its management. 

Randy offers companies the opportunity to perform social compliance audits, safety audits, technical audits or environmental audits. 

“We identify risks such as child labor and high carbon footprint. According to Eurofins, the risk assessment will give you more information than the audit but the two complement each other. The internal audit allows you to check yourself and see what is working and what is not. It is also possible to ask a third party to perform an audit. There is a real market: SA 8000, FLA, ETI, BSCI, ICS. However, auditing is not a miracle tool: ​“The deadly Ali Enterprises fire in Pakistan is a tragic example of what is at stake: an auditing company had certified an obviously unsafe garment factory only weeks before the fire that killed more than 250 people, and the families of the victims are still fighting for justice almost ten years later,” said Neva Nahtigal of the Clean Clothes Campaign. Moreover, this tool can be a source of tension. By using this tool, a factory is ​“jeopardizing” its supply. It is difficult for companies to systematically break their relationships. Concerning the social audit: to evaluate the working conditions by an external organization does not make sense, it would be enough to question the workers. 

What’s happening in the European Union?

The Human Rights and Environmental Due Diligence Directive requires companies with more than 500 employees to prevent and mitigate harm to people, the planet and their production chain. ​“For the first time in the EU, parent companies and principal companies will be liable for damages caused by their subsidiaries as well as by their direct and indirect suppliers ”

What is the duty of vigilance?

The duty of care implies that companies must take the necessary measures to respect human, social and environmental rights. This concerns their activity but also their subsidiaries, suppliers and subcontractors. Companies therefore have two obligations: the duty to remain vigilant in the face of risks and the duty to act and remedy when the risk occurs: “: to exercise due diligence and to remedy the damage caused (duty of care)”.

The potential effects of the directive

Jill McArdle, Head of the Corporate Accountability Campaign at Friends of the Earth Europe on the effects of this directive: ​“While this proposed law finally recognizes that companies are responsible for their subsidiaries, it does not empower people who are victims of corporate abuses to try to sue the perpetrators. However, for some organizations, this directive does not go far enough. 

“The draft directive does not address the many legal obstacles that prevent victims of corporate activities from accessing legal remedies: disproportionate burden of proof, high costs of procedures, etc.” 

According to purchase estimates, which are based on an ongoing study of the Belgian textile sector: ​“only 11 Belgian companies in the sector would fall under the scope of the directive. Such a limited scope of application undermines the very objective of the proposed directive and risks not being able to prevent the occurrence of incidents in the value chains”. ​“Companies with more than 250 employees and a net turnover of more than €40 million and if at least half of their turnover comes from a high-risk sector” will also be affected and thus possibly the textile industry. 

However, according to EURACTIV this directive will only affect 1% of EU companies. It will be less effective than the French law, only companies with more than 500 employees will be: ​“small and medium-sized enterprises, which include microenterprises and overall represent about 99% of all companies in the Union and they will not be subject to due diligence.” NGOs and associations would have liked to see a broader and more effective consideration, but this is only the beginning.