Wednesday 6 February 2013

Walmart: Contract Management Powers Ethical Sourcing

Authored by Claire Sexton

The intersection of sourcing and corporate social responsibility is making headlines again.
Following last November’s devastating factory fire in Bangladesh that killed 112 workers, Walmart has announced a new zero-tolerance policy, which will permanently ban suppliers that subcontract without the company's permission.

According to Supply Management, “The factory was not an authorised supplier to Walmart, but had been subcontracted by another vendor without the retailer’s knowledge.” 
The official announcement from Walmart also outlines new health, safety and environmental standards that suppliers must follow. 

Speaking about last November's fire, Walmart's Vice President of Ethical Sourcing Rajan Kamalanathan said, “The fire and tragic loss of life at the Tazreen factory in Bangladesh has brought to the forefront a number of opportunities for improving the safety standards of our global supply chains. These new policies are designed to strengthen compliance of important safety standards around the world.”

Behold the power of a proper contract. More and more companies are using contracts to define standards outside of the typical, quantitative metrics, like delivery time and price. Rather, contracts are now a key component in supporting bigger business philosophies that traditionally live outside procurement: 
  • Ethical and safety standards (in the case of Walmart) 
  • The inclusion of diversity and local suppliers 
  • In other headlines this week, US companies requiring suppliers to adhere to new government reporting standards. 
Creating a solid contract is only step one. Put yourself in Walmart’s shoes. Can you imagine the hundreds of thousands of worldwide contracts they have to track measure and enforce compliance? Even smaller enterprises are struggling with contract management.

What tools and processes do you use to manage and enforce supplier contracts?

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