Supply Chain Solutions No.16 – Social Compliance Vs Commercial Reality

Social Compliance is an important reality in assessing and continuous maintenance, to maintaining a vendor matrix which matches today’s global retail brand’s corporate governance mandate.  It sets a framework in which the factory environment is safe, minimum standards for basics rights are enforced and maintained.

But there are situations where social compliance is not necessarily commercial for both buyer, seller and the employee which requires the need for a level of commercial acceptance.

One of the main reasons compliance inspections fail and corrective action requirements develop is due to working hours which inevitably can be a conundrum.  This challenge can be seen in both unprincipled and highly compliant vendors due to the following reasons;

  • Workforce labour availability
  • Local labour cost and retaining competitive advantage regionally
  • Labour cost versus product cost need
  • Capital expense of automation
  • Delivery deadlines
  • Meeting workers need

Besides cost and delivery needs, meeting employee needs can be one of the biggest challenges in even the most advanced manufacturers. If the employees don’t get the hours they want to meet their salary expectation, they will relocate to another manufacturing facility down the road who will respond to their expectations; leading to high staff turnover affecting efficiency, cost, quality and delivery.  Automation may be the answer or worse case; the business downsizes as the manufacturer can’t offer the value necessary to maintain existing or win new business, ultimately needing to downsize affecting employee’s ability to work.

The need for maintaining compliance working hours leads to vendors having dual employment contracts, one that meets the minimum salary and employee contractual obligation of the region and customer social compliance governance; and another contract that satisfies the business and employees need for working hours above the minimum acceptable. Unprincipled vendors will further use this to reduce taxation, social insurance, reducing overtime payments and making the employees work extended periods with no days off.

Further some employees do not want a legal employment contract as the employee want to reduce their personal liability against taxation and personal contribution to social insurance due to reduced income or to their belief they will never see the benefit from the government.

Balancing corporate governance needs for social compliance can be a challenge when facing commercial reality, and both vendor and employee need for extended working hours.

Finding the right supplier that meets pricing and quality needs versus working hours can be a challenge, through continual regional sourcing development and approaching problems with corrective action, hurdles can be overcome.  Don’t make it a cut and dry process, as by protecting workers rights it might indirectly reduce their rights or earning ability.

ID Global Concepts are experts in supply chain management. We add value to your supply chain through consultancy or management contract to ensure the business has the best practice systems that are the right fit for your business, customer and meet your value expectations.

If you would like to learn, please email us at or visit our website

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