I credit my children for convincing me to use the “Gram” (Instagram) and to watch the occasional TikTok video. You can’t scroll through a feed on any social media platform without coming across an influencer of some kind talking about their latest “collab” (collaboration) with a famous brand.
Take, for example, the professional European football player with more than half a billion followers who has collaborations with multiple clothing, shoe, watch, and nutrition companies. He uses his considerable influence to promote his partners’ products to his hundreds of millions of followers. It’s a mutually beneficial relationship: The influencer gets the additional exposure and caché of partnering with an international brand, and the companies get more exposure and access to new potential customers for their goods or services. A true “win-win.”
You might be thinking: What does this have to do with ensuring an ethical supply chain? I suggest both supply chain and ethics and compliance professionals could take a page out of the social media influencer playbook and look to collaborate with suppliers more to create their own win-win scenarios.
The old way
About the author
Gwen Hassan currently serves as the deputy chief compliance officer leading the compliance program globally for Unisys Corp., a digital workplace, cloud, enterprise computing, and business process solution company. She previously served as global director of compliance for CNH Industrial, the world’ third largest capital goods maker and second largest manufacturer of farming equipment, where she also led the compliance program globally.
Prior to CNH, she held legal and compliance roles of increasing responsibility with Navistar and Federal Signal Corp., among other manufacturing and logistics companies.
She is the founder and host of the “Hidden Traffic” podcast designed to keep corporate compliance professionals updated about new developments in human trafficking and forced labor prevention and regulation.
Historically, buyers have held all the power when it comes to supply chain relationships.
A large multinational company issues a purchase order with nonnegotiable terms to a supplier that is most often smaller and less resourced. The buyer dictates the terms under which it will purchase from the supplier. These terms often include requirements around quality and detailed product specifications. They usually include rules around the quantity to be delivered and deadlines for delivery, as well as steep penalties for failure to deliver on time.
Most of these older, “traditional” supply contracts also include indemnification language where the supplier agrees to hold the buyer harmless and make them financially “whole” in the event the buyer suffers any sort of damages because of the supplier failing in its obligations.
This usually extends to obligations around supply chain integrity. I have seen countless agreements where the under-resourced and under-powered supplier is asked to agree it will not only prohibit all forms of forced, child, and trafficked labor in its workplaces but will also fully indemnify the buyer should it fail to prevent these things.
Imagine how this combination of contractual clauses might work in a real-life scenario. A manufacturer of personal protective equipment has a contract with a reseller who has a contract with a distributor who has a contract to supply a large medical system with face masks. The contracts throughout this multilayer chain have language in them that allows for the buyer to “flex” its ordering volume up or down as needed, with the buyer being rewarded for higher volume orders by paying a lower price per item.
Assume these contracts also have financial penalties for failure to meet demand in a timely fashion.
Now, let’s say a pandemic hits. The medical system needs hundreds of thousands of masks immediately.
The price per item immediately drops. Each cog in the supply chain is facing the possibility of fines for failure to deliver and pressuring the sub-supplier below it to deliver ASAP so it can keep as much margin as possible.
How is the actual mask manufacturer going to be able to flex its workforce to run around the clock to meet the huge demand without drastically increasing its cost basis and losing money? We know from experience one way this is done is by quickly sourcing the cheapest labor the supplier can find, often labor that has been trafficked, unethically recruited, or that uses low-wage-earning children.
The terms of the contracts in the chain have created a “perverse incentive” for the manufacturer to use forced and trafficked labor to meet demand while keeping costs down. There’s also an incentive for those higher up in the supply chain to turn a blind eye to unethical labor practices at the sub-supplier level—a situation that is more than hypothetical, as it unfortunately happens every day.
The new way
The old, traditional, typically lop-sided purchasing terms are now starting to give way to what has been called a “shared responsibility” model. It is, in short, a collaborative model where power and responsibility are shared.
In this model, buyers and sellers throughout the supply chain take on joint responsibility for ensuring an ethical supply chain and share both the mitigation and liabilities of unethical labor practices should they be discovered.
The American Bar Association created model contract clauses for human rights. These clauses support a collaborative model between buyers and sellers throughout the chain that addresses and mitigates the risks of human rights abuses, including human trafficking, forced, and child labor.
The clauses create a win-win for all parties involved as they reduce the risk of unethical labor practices for everyone and ensure all cogs in the supply chain are aligned behind positive incentives for partnership, collaboration, compliance, and transparent sharing of information without contractual penalties.
This allows for early intervention, collective problem-solving, and shared responsibility. Instead of pushing down liability to the lowest level of the supply chain to those who typically have the least amount of bargaining power, this collaborative model suggests the entire chain is better served by sharing knowledge, resources, and liability.
How to translate into action
Am I suggesting you should immediately scrap all your existing purchasing contracts and start over with these model contract clauses? Definitely not. Imagine the reaction of your procurement team if you advised them to throw out all their agreements!
What I am suggesting, however, is that you consider taking a risk-based approach.
Have you mapped out the supply chain for your top 10 products or services? Do you know where there might be touchpoints of elevated risk when it comes to unethical labor practices? Have you read through the U.S. Department of Labor report on human trafficking risk, which provides data for 130 categories of goods and 71 different countries?
Read the U.S. State Department’s “Trafficking in Persons Report,” which ranks different countries based on how well—or poorly—they are addressing human trafficking. Figure out where in your specific supply chain the greatest risk of human trafficking, forced, and child labor are and start there. Consider using your influence to adopt a risk-based approach you can phase in slowly, migrating to use the model contract clauses with your riskiest suppliers over time.
Every incremental improvement, no matter how small or gradual, decreases the risk of someone being victimized in furtherance of your supply chain—a collab far more valuable than any shoe deal.