Manage the Suppliers That Could Harm Your Brand: Know When to Avoid, Engage, or Drop Them

The pandemic has placed a new spotlight on working conditions in factories that supply global companies. To avert problems, firms often impose codes of conduct on their suppliers and perform audits to assess compliance. Do these measures help identify unethical suppliers and lead to improvements? After an unsatisfactory audit, what are the chances the supplier will remedy matters?
To answer these questions, the authors studied code-of-conduct audits of thousands of factories around the world. They found that suppliers are more likely to improve conditions if they do one or more of five things: certify compliance with management system standards, adopt lean management, use union workers, avoid piece-rate pay, and serve once-tarnished buyers. The research also identified monitoring methods that can boost the odds of improvement and uncovered several factors that result in more-accurate audit reports.
Managing working conditions in global supply chains is an ongoing challenge. The authors’ findings can empower managers to better predict which factories are likely to improve working conditions and to design monitoring programs that will foster improvement and accurately track performance.