Saul
Jamieson
is a principal research engineer in the design department of Panasonic
Mobile Communications Development Europe, based in the UK. He is responsible
for environmental supply chain management for new product designs. He also
works for the component engineering department with responsibility for
component approval.
Negative publicity has become one of the major risks to brand reputation. The global, 24-hour media has made avoiding negative publicity more important, in brand value terms, than promoting a positive image. Managing this risk has pushed corporate responsibility (CR) to the top of the agenda for many corporations.
The supply chain is one of the areas with the highest risk. Media stories about child labor, poor environmental practices and employee abuse have forced companies to rethink the way they relate to their suppliers. With this in mind, in February 2004, Panasonic Mobile Communications, the electronics manufacturer, and Vodafone, the mobile phone service provider, conducted a joint pilot CR assessment of a Panasonic Mobile factory in the Philippines that supplies mobile phones to Vodafone.
This article will describe how the two companies conducted the audit, and how its findings are helping us plan to fully integrate CR principles throughout the global supply chain (See Figure 1, below).
Why a joint assessment?
In July 2003, the Vodafone Group Policy Committee approved the company’s
Code of Ethical Purchasing (CEP). The code was developed in consultation
with employees, suppliers, investors and NGOs, including Morley Fund
Management, ISIS Asset Management, Fauna and Flora International,
Save the Children Fund and WWF.
Figure 1: The electronics supply chain
The CEP is based on Vodafone’s corporate values as well as international standards such as the Universal Declaration of Human Rights and the International Labor Organization (ILO) conventions on labor standards. It aims to ensure safe and fair working conditions and responsible management of environmental and social issues in the supply chain.
“Eighty percent of the work and cost involved in the assessment was completed before leaving the UK.”
At the end of 2003 and the beginning of 2004, Vodafone began putting the CEP in contracts with key global suppliers, including Panasonic Mobile. Vodafone also set a public goal to measure CEP implementation with three major suppliers, and the joint pilot assessment with Panasonic Mobile was a way of fulfilling that goal.
Panasonic Mobile used the exercise to get a better understanding of its corporate customers’ supply chain requirements, and to learn how best to conduct CR supply chain audits. Panasonic has had certified environmental management systems at its production plants since the mid-1990s, and has had regulations in its supply chain including the environment, quality, cost and delivery for many years. But increasingly Panasonic Mobile’s stakeholders were seeking more information on how the company’s “Basic Business Principles” relate to its CR policy.
Preparing for the visit
There was significant experience in quality and environmental auditing
among the members of the joint assessment team that went to the
Philippines, but CR assessments were new to everyone. CR assessment requires
unique skills, including:
- perceptive and diplomatic interviewing skills that can be tailored to suit different interviewees, from senior managers to factory workers;
- a thorough knowledge and understanding of local social practices, laws and issues;
- ability to win the trust and cooperation of everyone involved in the assessment;
- finely tuned observation skills.
The team took auditor training to supplement its quality and environmental
auditing skills. It had two days of training conducted by Bureau Veritas,
an independent certification company. On the first day, three people from
Panasonic Mobile and three people from Vodafone attended. On the second
day, there were three from Panasonic Mobile and 20 from Vodafone. Although
the team visiting the Philippines was smaller than the number taking the
training, Vodafone wanted to prepare a larger number of staff for future
assessments.
Additionally, before the visit the team collected relevant information
in the UK and from the factory about issues specific to the Philippines,
and narrowed the assessment’s focus. The team decided to focus on
four key areas:
- freedom of association;
- working hours;
- equal opportunities;
- remuneration.
Seven key lessons from the audit
- It’s important to gain trust from factory managers and workers. This requires honest and open communication with all parties and an emphasis on confidentiality. It’s also essential to include female assessors in the team, particularly where the majority of the workforce is female, as in the Philippines.
- Business cards were useful in providing interviewees with a confidential means to contact the assessors after the site visit. This could be for any reason related to the assessment, such as the provision of additional information about workplace practices or perhaps potential breaches of labor standards.
- An on-site audit is a very work-intensive exercise. Many departments need to be involved, including environmental, personnel, health and safety, as well as senior management and workers.
- Local and regional cultures need to be considered at all stages of the process – in this instance the team was assisted by an experienced social auditor, based in Manila. If cultural considerations are ignored, there’s a danger that the corporation will overlook local values.
- The pilot audit took three days. Formal audits however, using SA8000 guidelines, should take six working days for a factory of between 500 and 1,000 employees.
- The exercise highlighted the potential differences between relatively high-tech sites (such as semiconductor fabricators, LCD module manufacturers etc.), with well-established management structures and the potentially less developed processes of lower technology sectors (such as metal pressing, raw material processing etc.).
- Differences in the geographic location of the site are also important for focusing on different issues. Examples of regional issues would be freedom of association and forced labor in China, working hours in the Philippines and women's rights in India.
Information was gathered from international bodies and NGOs such as Amnesty International, the International Labor Organization and the Catholic Agency for Overseas Development. The UK Foreign and Commonwealth Office was also a good source of relevant information. By reviewing the documentation, the team was looking for evidence that a policy was in place, but they waited until the visit to check whether the policy was being implemented correctly. In this way, 80 percent of the work and cost involved in the assessment was completed before leaving the UK. The team wanted to avoid requesting the documents once they got to the Philippines so they wouldn’t waste valuable time on background reading, when they could do that in the UK. However, they did inspect documents on site as well.
Conducting the on-site assessment
On arrival at the factory, the team met with top management for a
brief review of the factory documentation, including the company’s
pension plan, pay slips, time sheets, employment contracts, job advertisements
and fire drill reports. They also interviewed other senior managers and
union representatives, and evaluated management’s awareness of
CR issues.
Following these initial discussions, the team inspected the factory to see Panasonic Mobile’s CR policies and procedures in practice. A tour of the site covered the following areas:
- shop floor areas
including the chip line, assembly and inspection;
- storage;
- kitchens;
- health care facilities;
- •health and safety.
The next stage was where the difference with conventional quality audits was most significant. Interviews with factory workers were used to verify the informa-tion received from management and the documentation. The assessment team interviewed more than 20 factory workers, using a mixture of interview techniques – one on one, two auditors and one interviewee, two-to-four, and one or two auditors for a larger group. The team experimented with different numbers to compare techniques.
The best way to gather information is through one-on-one interviews. But the most effective use of resources was to interview more than one person at a time – with two auditors to a group of four or more. In groups, two interviewers provided the best results. Interviews with several workers were particularly useful where some workers’ weren’t confident in speaking English. If language difficulties existed, interpreters with experience of CR issues would be required to join this type of assessment.
Evidence of compliance
The assessors used the interviews with workers to assess the awareness
of policies and standards and to determine how well those polices
were implemented in the workplace.
They team interviewed a mix of employees, with a range of experience levels, roles and salaries. With 1,000 employees on the shop floor, a random sample could have left out several key categories. And allowing management to choose wouldn’t get the range of representation that they wanted.
Panasonic Mobile’s policies and procedures were found to be consistent with the standards in Vodafone's CEP. But because of the developmental nature of the project, many factory managers and employees were not familiar with the CEP itself. However, all were familiar with Panasonic Mobile’s Code of Conduct and Basic Business Principles. As a result, Vodafone recommended that Panasonic Mobile develop senior managers’ familiarity with the Vodafone CEP.
Consolidating codes
It’s clear that many of the principles, policies and requirements
of global telecommunications organizations are the same. Many established
codes of conduct are in use throughout the electronics industry and there
is some scope for making these consistent. Significant areas of commonality
were found between codes, procedures and policies from many of the companies
involved in the telecommunications industry, especially with respect to
ethical purchasing – e.g., Vodafone, Motorola and France Telecom.
Therefore, one of the next stages in the process should be streamlining
these codes to avoid the suppliers becoming swamped with similar (but not
exactly the same) requests. Many suppliers face a bewildering array of
corporate CR policies, purchasing specifications and other criteria that
they are required to meet. Therefore, all developments will need to be
complementary to recognized industrywide initiatives.
Lessons for Vodafone
Vodafone is using the lessons from the pilot to help integrate social
and environmental criteria into its supply chain assessment process.
Vodafone has set a wide-ranging set of CR targets for the 2004/5
financial year, including:
- ensuring our top 25 global suppliers complete Vodafone’s self-assessment questionnaire to determine compliance with the CEP;
- completing assessments of five of the top 25 global suppliers against the CEP, including one or more facility audits;
- ensuring the top three suppliers to each operating company complete Vodafone’s self-assessment questionnaire to determine compliance with the CEP, an initial element of the assessment process;
- incorporating the CEP into the contracts of all of Vodafone’s top 25 global suppliers;
- developing CR training for supply chain managers.
Key points
- In February 2004 Panasonic Mobile and Vodafone conducted a joint pilot CR audit of a Panasonic Mobile phone factory in the Philippines.
- The findings are helping the two companies fully integrate CR principles throughout the global supply chain.
- The team visiting the Philippines took CR auditor training to supplement its quality and environmental auditing skills.
- The team decided focus on four key areas – freedom of association, working hours, equal opportunities and remuneration.
- We interviewed mix of employees, with a range of experience levels, roles and salaries.
- Vodafone are using the lessons from the pilot to help integrate social and environmental criteria into their supply chain assessment process.
For both companies, the audit highlighted the need to understand the activities CR companies in the supply chain, and the need to raise awareness of CR issues and compliance with international standards. On this basis, Panasonic Mobile is developing a self-assessment questionnaire that will be initially sent to all first-tier suppliers. From the experience gained from the case study, Panasonic Mobile will consider the development of a CR audit procedure. This can then be used to audit the first-tier supply chain. (It’s clear that due to the magnitude and complexity of the electronics supply chain it wouldn’t be possible for one organization to audit the complete supply chain.) The first tier can then be trained to audit their suppliers and so on. Currently perceived national standards of social responsibility will be taken into account, and sources such as Amnesty International, the International Labor Organization and NGOs will be used to provide this information.
Fulfilling the potential for sharing
It’s clear that supply chains in the telecommunications sector are
shared across the industry. Thus, it’s important to consider the
potential for sharing collecting and providing common CR data across
the industry. This will reduce the burden both on the suppliers and
the customers, harmonizing the data and avoiding potential incompatibilities.
For example, in 2003, a range of telecommunications operators and
manufacturers helped establish the GeSI (Global e-Sustainability Initiative)
Supply Chain Working Group, which is exploring ways in which information
and communication technology companies can work more closely on supply
chain issues.
An assessment of supply chain management practices within the sector has also been carried out, and Vodafone is working with other members of the GeSI Working Group to develop an industrywide standardized assessment tool for suppliers.
Finally, it’s clear that corporations or industry initiatives need to take into account local concerns and practices. Co-operation, not dogma, is required between the corporations within their supply chain. A balance must be reached between all parties if the common goal of sustainable business is to be achieved.
Raphael Hilbron, Gareth Rice, Roland Clift and Walter Wehrmeyer also contributed to this article.
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