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* Head of ethical sourcing says there are system gaps
* Wants to integrate closely with end of supply chain
* Burned-out factory made clothes without permission
By Jessica Wohl
Dec 11 A factory fire that killed more than 100
garment workers in Bangladesh has led the world's largest
retailer, Wal-Mart Stores Inc, to concede that it needs
to do more to control its supply chain and keep unauthorized
In an interview with Reuters, his first since the Nov. 24
Tazreen Fashions fire, Wal-Mart Vice President of Ethical
Sourcing Rajan Kamalanathan said the company's current controls
could only go so far in preventing a factory Wal-Mart did not
approve of from making its clothes, as was the case here.
"If a supplier or an agent chooses to subcontract without
informing us, then that is a problem," Kamalanathan said. "We
can put all kinds of controls in place, but if they don't tell
us where they're putting our order, then that is a problem."
Wal-Mart has said repeatedly that its Faded Glory clothing
should not have been in production at the Tazreen factory, a
facility Bangladeshi authorities said was not safe for use. The
building was not cleared to be used by any party manufacturing
garments for the world's largest retailer.
Wal-Mart says that in 2011 alone it audited over 9,000
factories globally to check whether its standards were being
met. But still, Wal-Mart acknowledges it only controls its
supply chain up to a certain point. If suppliers hired by
Wal-Mart in turn hire agents who then line up production, the
seemingly tight controls Wal-Mart has put in place can fail.
"We have a contract with the supplier and that's where our
control is and where our relationship is," Kamalanathan said.
The lack of control down the supply chain represents a
challenge not just for Wal-Mart, but for the industry overall,
Companies such as Bentonville, Arkansas based Wal-Mart must
figure out how get more involved in the operations of factories
in countries such as Bangladesh, rather than hoping that contact
with suppliers and factory audits will suffice.
"We are actively thinking about how to better work with
suppliers who work with agents," he said. "This is something we
are talking about internally and across the industry."
Among other things, retailers and clothing designers have
been talking about the possibility of fire safety codes that
would be written into contracts with suppliers, although those
efforts are still at the early stages.
MORE INDUSTRY WORK NEEDED
Wal-Mart established a factory certification program in
1992, focused on Bangladesh and China, currently the top two
garment exporters in the world. Wal-Mart says the program, which
was established amid pressure on the company over worker rights,
is dedicated to improving standards for foreign labor.
Since then, Wal-Mart has taken measures such as increasing
factory audits, expanding the program to other countries,
setting stricter standards for suppliers and lengthening the
penalty period for disapproved factories to one year from 90
Kamalanathan's team now includes more than 120 employees,
plus third-party audit firms, with people based in Bangladesh,
China, India and elsewhere. Kamalanathan says he visits
factories "quite often."
Still, such efforts matter little when companies push their
Wal-Mart manufacturing off to agents who then link up with
factory owners and choose not to fill Wal-Mart in on which
factory is being used - a key part of the agreements Wal-Mart
has with its suppliers.
"It is a must that they disclose factories they use for our
production. Once we know who these factories are, then we
initiate the process for an audit to occur," he said.
Factories must address problems highlighted in Wal-Mart
audits, which assign a rating of green for minor to no
violations; yellow for medium risk, orange for higher risk and
red for the most serious violations, which lead the company to
sever ties with the factory.
Factories with orange ratings can go through an "Orange
School" program for Wal-Mart to show them how to fix high-risk
violations and get at the cause of the problem.
Wal-Mart said a May 2011 audit found violations at Tazreen,
which led to the factory getting Wal-Mart's "orange" rating, and
a subsequent audit in December 2011 again found violations that
led to an "orange" rating. Tazreen did not participate in the
Orange School, Wal-Mart said.
Tazreen was no longer authorized before the fire. Wal-Mart
said that was for a variety of reasons, including poor audit
ratings. Tazreen owner Tuba Group has said it was not aware it
was making clothes for Wal-Mart at the time of the fire.
PUSH TO CUT COSTS
Kamalanathan has been Wal-Mart's vice president of ethical
sourcing since 2002. He sits on the board of the Global Social
Compliance Program, which was formed in 2006 and now includes
more than 30 companies that work on measures such as developing
a clear and consistent message for suppliers.
Some industry groups claim the push from Wal-Mart and other
retailers for low-cost merchandise pressures factory owners to
pay workers little and to cut corners on fire safety training
and proper exits that would cost them too much.
At a meeting held in Dhaka in April 2011, participants
including government representatives, trade union leaders, the
Bangladesh Garment Manufacturers and Exporters Association and
buyers discussed rules that would require factories to be paid
prices high enough to cover the cost of safety improvements.
Amirul Huque Amin, president of National Garment Workers
Federation, was at the meeting and said that, when the question
of financing was raised, Sridevi Kalavakolanu, a Wal-Mart
director of ethical sourcing, strongly opposed the move, saying
it was not possible for "us" due to the high cost.
Wal-Mart vehemently denies such charges and said her remarks
were taken out of context. It points to efforts such as its
audit program, rating system and work with the Bangladeshi
government, industry groups and suppliers as proof that it has
been proactive in raising fire safety awareness and increasing
Wal-Mart operates on the premise that running its business
on a low-cost basis leads to low prices for its 200 million
weekly customers. The 50-year-old chain, founded by Sam Walton,
now has more than 10,000 stores and its annual sales rose nearly
6 percent to $443.85 billion last year.
Still, it contends that making factory improvements should
not lead to sky-rocketing prices.
"Our policy is designed to create a supply chain that meets
our standards and at the same time delivers high quality
products at low prices. It is clearly possible to do both,"
(Reporting by Jessica Wohl in Chicago. Additional reporting by
Serajul Quadir and John Chalmers in Dhaka. Editing by Ben
Berkowitz and Andre Grenon)