Sustainable Supply Chain

Don't Let Your Brand Become a Headline: How to Combat Modern Slavery in Business

September 08, 2023 Tom Raftery / Ragini Bhalla / Steve Carpenter Season 1 Episode 347
Sustainable Supply Chain
Don't Let Your Brand Become a Headline: How to Combat Modern Slavery in Business
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Show Notes Transcript

๐ŸŽ™๏ธ Hey, folks! In today's episode of the Digital Supply Chain, we're diving deep into a topic that's affecting businesses and society alikeโ€”Modern Slavery. How do you know if your supply chain is clean and free from human rights violations? ๐Ÿค”

I was thrilled to be joined by Ragini Bhalla and Steve Carpenter from Creditsafe, who pull back the curtain on the shocking prevalence of modern slavery, forced labor, and child labor within today's supply chains. They also share how new legislations are making it more than just a moral issue but also a legal one. ๐Ÿ› ๏ธโš–๏ธ

๐Ÿ” Due Diligence is KEY!
Steve and Ragini emphasize that due diligence isnโ€™t a โ€œtick-boxโ€ activity. Companies that slack here are putting their reputation and bottom line at risk! Brands like Gap and H&M have faced backlash for violations in their supply chains. ๐Ÿ˜ฑ

๐Ÿ“Š Good for Business & Humanity!
Ragini eloquently points out how Corporate Social Responsibility (CSR) isn't just a humanitarian act. When done right, it positively impacts the bottom line. Win-win, right? ๐ŸŒ๐Ÿ’ผ

๐Ÿ“ˆ Where to Start?
Feel overwhelmed? Steve's got you covered! From how to monitor your supply chain, to risk profiling and even choosing secondary suppliers, they've got tips that you can start implementing right now. ๐Ÿ“‹๐Ÿ‘จโ€๐Ÿ’ป

๐ŸŒ Digital Solutions are Here!
Ragini emphasizes the role of digital and tech in this process. They both agree that you don't need to visit factories physically for audits. There's a plethora of online data to help you make better decisions. ๐ŸŒ๐Ÿ’ป

๐Ÿ“š Want to Learn More?
Head to Creditsafe for a wealth of content and resources that can help you prepare for compliance.

Don't miss this essential episode! It's time we all took part in making the world a better place, one supply chain at a time! ๐ŸŒ๐Ÿค

Thanks for tuning in - and check out the video version of this episode at https://youtu.be/HlVLHf4B4ro! ๐Ÿ‘‹๐ŸŽง

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Ragini Bhalla:

Ethical sourcing is, is it's a hundred percent of humanitarian cause but it's also it's good for business. You know, I mean like CSR is it should not be a tick box. And again, it's helping businesses understand, when you invest in this you're going to see a positive impact on your bottom line. When you don't, you're gonna have more violations. You're gonna lose customer loyalty and trust, which means you're going to lose their dollars.

Tom Raftery:

Good morning, good afternoon, or good evening, wherever you are in the world. This is the Digital Supply Chain podcast, the number one podcast focusing on the digitization of supply chain, and I'm your host, Tom Raftery. Hi everyone and welcome to episode 347 of the Digital Supply Chain Podcast. My name is Tom Raftery and I'm excited to be here with you today sharing the latest insights and trends in supply chain. Before we kick off today's show I want to take a moment to express my gratitude to all of our amazing supporters. Your support has been instrumental in keeping the podcast going and I'm really grateful for each and every one of you. If you're not already a supporter I'd like to encourage you to consider joining our community of like minded individuals who are passionate about supply chain. Supporting this podcast is easy and affordable with options starting as low as just three euros or dollars a month. That's less than the cost of a cup of coffee and your support will make a huge difference in keeping this show going strong. To become a supporter, simply click on the support link in the show notes of this or any episode, or visit tinyurl. com slash dscpod. Now, without further ado, I'd like to introduce my special guests today, Ragini and Steve.Ragini and Steve, welcome to the podcast. Would you like to introduce yourselves?

Ragini Bhalla:

Hi, I'm Ragini Bhalla. I'm Head of Content and PR for North America at CreditSafe, and I'm American, but I'm based in the UK.

Tom Raftery:

Okay, and Steve?

Steve Carpenter:

Yeah. Nice to meet you Tom. So I'm Steve Carpenter. I'm based in Toronto, so I'm actually the opposite to Ragini. I'm, I'm from the UK, but I'm based in Canada. And I'm the country manager of CreditSafe Canada. I've been with CreditSafe for over, over 20 years. So I've seen us grow from a small to a large organization in the commercial credit space.

Tom Raftery:

Okay. And you say you're in the commercial credit space. Does that mean you're giving loans to people or what is it that CreditSafe does?

Steve Carpenter:

So basically, most companies I've heard of Dun and Bradstreet, Experian, Equifax, TransUnion. Equifax, Experian, TransUnion primarily focus on consumer credit. So if you're going to get a mortgage or a car loan, for example. They're the custodians of your personal data. Can you pay back that loan? Have you defaulted on loans previously? So banks will use their services to assess are you capable of paying back this loan? Basically Creditsafe we specialize on companies not individuals so we're more about trade credit if i'm gonna if i'm gonna ship goods to a company and send them an invoice to pay me 30 days later, number one, am I going to get paid; if I am going to get paid, am I going to get paid on time? Are we going to get paid late? That's one side of our business. The other side is like supply chain management and procurement management, which is all about are the suppliers you're dealing with either domestically or globally, are they financially strong? Are they meeting all of the compliance regulations? Are there any sort of compliance related issues with those companies as well? So those are the sort of two key areas of our business.

Tom Raftery:

Okay, and are there any particular industries that you supply to, or is it across the board?

Steve Carpenter:

So I'd say it's across the board. There are obviously industries that are more sort of prominent. So I'd say things like wholesale, construction, transportation, finance are the type of industries that will primarily use our, services. But in general, it's across the board. It's any type of company, any size, anybody who takes credit and vendor management seriously would use a service like ours.

Ragini Bhalla:

And when you're thinking about the supply chain, it really does extend to your retail, your manufacturing, it could be pharmaceutical, so a lot of those types of businesses that are using international suppliers to produce their goods, so it sort of can stretch on that side, on the supply chain side.

Tom Raftery:

Okay, fantastic. And what... Is new and happening in your space right now?

Steve Carpenter:

So I'd say on our site So number one, most companies or companies of a reasonable size have always had a credit policy in place. So if you're extending credit to a company, you're going to ship goods, you're going to get paid 30 days later or 60 days later. You'll have a set of onboarding rules. Do you give credit to that company? Is it cash up front? Do you give partial credit? What thresholds does that company have to meet for them to become a customer because it's the number one rule. If you're going to be dealing with the customer, you have to get paid. Are you going to get paid on time? Now it feels like, the new hot topic in our industry is becoming ESG and compliance, which of course, you want to make sure that the companies or customers that you're dealing with are not on sanction lists or terrorist lists or OFAC related companies, that type of thing. But this is shifting more towards the supply side. So you're seeing now more and more procurement managers, vendor managers, supply chain managers, who want to start looking at this type of data to understand are the suppliers we're dealing with are they reputable companies? Do they have any compliance related issues against them? This new law in Canada that I know we're going to touch on in quite a lot of detail, Tom, is about forced and child labor. So are there any other companies in my supply chain that are using forced or child labor? Again, this is a new regulation that's been rolled out across a lot of European countries Australia, US, Canada's introduced a new legislation coming into effect on the 1st of January next year that we'll talk about. But that's definitely a shift we're seeing. This didn't really... exist for most small to medium sized companies, like five, 10 years ago. Now, everybody's talking about it and it's becoming more and more prominent.

Tom Raftery:

Sure, there's been similar legislation rolled out in Germany, January 1st of this year. But, talk to me about the Canadian legislation. Can you give me some of the details behind it? You know, what does it require of companies?

Steve Carpenter:

Yep, so this new legislation is called S211. So this is not just impacting Canadian companies. It's impacting any businesses that have a link to Canada as well, or sell goods into Canada. So it's not just Canadian companies. It feels like this is kind of trying to play catch up to those other countries who have already introduced these legislations. So as you mentioned, Germany, Australia, U. S., U. K. already have these legislations in place. This is Canada's version. It is a little bit of a naming and shaming type of policy as well, where every single company who meets the initial thresholds will have to publish a report every single year. So, the law comes into effect on the 1st of January next year. The first time the reporting requirements will come into play is the 31st of May, 2024. So, by the end of May next year, every company that meets those thresholds will have to publish a report that goes to the ministry in Canada. They'll also have to publish it in a prominent place on their website. But that report is about all of the steps they go through or have gone through as an organization to eliminate forced or child labor within their supply chains. That's the crux of it. As I say, initially, this is impacting goods, not services as companies. And it's going to be, I've got the, I can never remember these ones, but it's, they've got to meet two out of the three criteria. So basically if they've got 20 million or more in Canadian assets, if they've got 40 million Canadian dollars or more in annual sales, or 250 employees or more, two out of the three, those are the companies this is going to impact. It's also going to impact government entities in Canada and any company that's listed on the Canadian Stock Exchange. So those are the thresholds. Initially, this is what's happening on the 1st of January. Our feeling is this isn't just going to stop there. This is a new legislation that's then going to filter down to all companies and it will probably be done in stages to make it more manageable But that's going to be done and feed down to much smaller companies. Even this initial law like 250 companies, sorry 250 employees is still a small company. That's not a big company by any means, but it's already impacting the small to medium sized companies. And we think it's going to filter down over time as well.

Ragini Bhalla:

And I think one thing to add to that is if you think about the financial implications of that with this, with this act, they're saying that per violation, it could end up being a fine of 250, 000 Canadian dollars per violation. But what's also really interesting is it's not even per violation of, okay, we've, you've, we've discovered you're working with a supplier that's using forced or child labor. The violation can also be if you've used false or misleading information in the report that is required acquired to submit to the registry, to the ministry, and to put on your site. So it's really gonna be about how are, how are these companies using tech? How are they using digital to a) really run the right types of compliance checks to really vet the suppliers that they're working with and make sure that then when they're getting the results from those checks, they're actually using them for the purpose that they should, and they're not just doing it as a tick box exercise, because that's something I think we've seen and you see a lot these days is a lot of companies will do this or do something and say well we've done it. But then even if a supplier is found to be guilty of using forced or child labor if it's a factory in India or China or Bangladesh, they might think we're going to still use them because you know what, we've not been able to find a supplier that can deliver us the goods in the quality that we want, in the time that we want. And we know that our customers love these items. So it's that piece of also balancing where does ethical sourcing and profitability, which, you know, is it an either or scenario or are both possible?

Tom Raftery:

Okay. What though, to your point, Ragini, what about companies who say, It's 250, 000 Canadian dollars, I'll make 10 million profit off this, 20 million profit off this, 250 is a cost I'm willing to bear. Is that, you know, is there a chance companies see it as a cost of doing business? And if I'm asking this, it's because I know that the German legislation, for example, has a maximum fine of 5% of global sales for companies, which is quite a different way of, of, of penalizing companies who, who are in breach.

Ragini Bhalla:

Yeah. And again, I think one thing to remember is it's not going to be a singular, you wouldn't necessarily just have a singular violation. I think companies that are typically going to be at fault for this will probably be using multiple suppliers with this, but I think you're right. There are going to be some companies that think, well, you know what, if it's, if I'm balancing this between maybe 500, 000, even a million in fines versus, you know, 25 billion in, in annual sales or annual revenue. I think I'm fine with it, but I think the piece of that that doesn't actually add up is, it's not just the fine bit, but you have to understand that consumers today buy because they're, consumers are more likely to a) buy from a brand that they know is doing ethical practices, that they know isn't using child enforced labor, and there's research which shows that I think it's about 70% of consumers, 80. I think it's about 80% of consumers would actually have a zero tolerance policy for work for buying from a company that is doing unethical practices that is using forced or child labor. So it's not just that you would get those fines and that's the one bit, it's you could lose a huge, huge amount of your actual loyal customers. And it's not just one time customers. But if you've got customers that are contributing and repeat customers for years and years, and that's amounting to millions and millions of dollars of sales, and you lose those customers, that's revenue lost. And if you're a public company, and if you're a bigger company with more revenue, Yeah, you're gonna also that's gonna affect your stock price and that's gonna be another issue. So it's I think the issue here is it's not one thing. It almost has a domino effect. It's going to hit your bottom line. It's going to affect your stock price. It's going to affect your brand reputation. It's going to cost you customers. It's going to cost you sales and all of that could end up then pushing a bigger company towards bankruptcy. I mean, we keep seeing so many companies going bankrupt in the last couple of years. So it is that domino effect and yeah, it won't happen overnight, but if it all leads and it all pushes in that same direction, it's going to be bad news for any business.

Steve Carpenter:

Yeah. Okay. As well, just to add on to what Ragini said that it's like. We have categorized this. We've set for the big consumer goods companies with a big brand reputations, it's going to be brand impact that's going to have the biggest effect on them. Then we're saying for the smaller companies, of course, 250,000 dollars is still a big impact as well So, of course, you've got small companies that are primarily selling to other businesses that are not newsworthy companies. They're not going to make the headlines if they're in breach here, or if you've got a big global brand that everybody knows about it's headline news. For a smaller company Yes, it may not be headline news There's still the fines that are going to be impacted, but there's still like the convictions related to this as well. So that company is now going onto these lists. Now, if, for example, they'll be on a a forced and child labor list, if other companies are then looking to deal with them, most companies will have a due diligence practice in place when onboarding customers and suppliers. If they see these convictions against these companies. That's going to leave a doubt in their mind should they be trading with that company so or have it knock on effect as well as Rgini said it's not just a one time thing. There's a domino effect that's going to happen here as well, especially as this becomes, you know, more and more prominent with companies as well. So I think it's yeah, I don't think it's just a financial impact And

Ragini Bhalla:

there are, and there are companies, if you think about it, if you look at Patagonia, they are one of those best in class examples of they're valued at 3 billion dollars, but they are B certified corporation. They take supply chain due diligence extremely seriously and so it's not that I think the big message is also it shouldn't be one or the other, it should be due diligence is very important if you want to meet that ethical sourcing requirement and also be compliant with regulations, but you shouldn't have to sacrifice it for for profits. You really shouldn't

Tom Raftery:

Sure. Sure. And Steve, you said as well that this is not just for Canadian companies, but for companies that sell into Canada. Yeah. So, do those requirements, those 250 employees and however much in annual revenue, do those also apply to companies outside of Canada who are selling into Canada?

Steve Carpenter:

Yeah, so I'd say this is an interesting one because the law states that any companies that deal in Canada or sell in Canada, so I'd imagine an example of this as well is let's say you've got a Canadian company that's a subsidiary of a bigger company, so let's say you've got a U. S. headquarters. There's a subsidiary of that US company that's dealing in Canada, they're selling goods in Canada to Canadian consumers. That U. S. parent is also going to be responsible, because maybe things like lots of big companies... have a global supply chain, that's enforced by the parent organization and all subsidiaries will use the same supply chain. They've got economies of scale working with these suppliers then globally So that US based company or German based company with a subsidiary in Canada, It's going to have to look at their supply chain and show that they've done the due diligence here as well because those goods are ending up in Canada through a local subsidiary, so I think that's how it's going to impact not just Canadian businesses as well.

Tom Raftery:

Okay. And how are Canadian companies reacting to this? Are they, you know, digging through their supply chain frantically to find out what's going on there or are they oblivious, not realizing what's coming down the road at them or somewhere in the middle or all of the above or where, where are they?

Steve Carpenter:

Well, it's a really good point. I'd say a lot of Canadian companies were oblivious to this because it's one of those laws or legislations that just go under the radar. Now you're seeing more and more sort of media outlets picking, picking this up as well. And it's becoming like more and more headline news. And we've definitely seen a shift. So over the last two to three weeks. More and more of our larger customers have started asking us about this and do we have a product in place that they can potentially use to start going through this supply chain due diligence piece as well. So I've seen personally, the companies that I speak to this is now becoming more and more front of their mind. They know the deadline. It's January. They can't leave it until quarter four this year or the end of this year to put something in place because this is quite a significant piece of work to do this. There are obviously companies that are not going to know about this because of course, as I say, it's not, it's not been publicized that highly. But I think as we get closer to the time, more and more news outlets are picking this up. It's becoming more headline news. Companies are starting to wake up to it and starting to think. But what do I need to do? What are the steps I need to go through? As Ragini said, this isn't just a box ticking exercise. Now you actually have to show the processes you have in place. That has to be made available on your website in a prominent place by the 31st of May next year. So it can't just be, yes, we've done this. Yes, we've done this. You have to show detail as to what your policies are and how you're going about this. So I'd say it's a really, a really interesting one. And as well, it's like, one example I'd use is the Australian government introduced something I think either last year or the year before. And if you go to the Australian website, I think I've got it noted down here, it's the Australian ministry website. You can go there and you can actually look at, it's a central repository for all companies. So there's roughly 8, 000 companies so far that have published their reports. You can actually just go in there, you can Google it, you can go in and you can download those reports. Typically the ones I've looked at tend to be I don't know, six to 12 pages and it will go through the various steps. So I noted down a couple of steps. They'll put in like their policies and their corporate governance documents as links within these documents, they'll detail the due diligence processes that they go through as an organization. So they'll say, for example, when we onboard a new supplier, these are the steps we go through. We use a platform to look at the financial strength of that company. We look at the ultimate beneficial ownership of that company. Who are the owners behind that company? Are those owners linked to terrorist watch lists? Are those owners on literally exposed? So they'll do that due diligence on the owners of the company and draw back to finding out who is the ultimate owner or ultimate beneficial owner of that company. Then they'll go through, as I said, the financial risk. They'll then look at the compliance data, which isn't just forced labor and child labor. It is things like anti money laundering, fraud, sanctions, anything like that. So they'll start looking at that and they'll detail that within the report. There's a section about training. How are they implementing training within their organization to make sure that when they onboard new staff everybody's trained up on these policies, supplier controls and contracts, what do they have in place around that? And also remediation processes. So of course this isn't going to be a perfect science where this resolves everything. There's going to be instances where this still does appear in the supply chain they never knew about. What remediation do they have in process to, number one make sure this is resolved and how it doesn't happen again. So those are some of the key reports. And I think the Canadian government have detailed this in the new bill. It does give like headline headline details of what should go into this report. I'd imagine there's going to be more detail released before the end of the year because it's still a little bit vague. But when looking at it, my advice would be to go to that Australian registry. Have a look at some of the reports filed by big companies just to see what, they put into those reports.

Ragini Bhalla:

And I think, I think just speaking to one thing you were talking about, Steve, I think how prepared certain companies are part of what's going to factor into that is the fact that if you have bigger companies, they're going to typically have compliance teams and supply chain and procurement teams, and they're going to have legal teams. And so they have people that, A) they've got teams assigned to this. They've got teams with the skill sets and the knowledge of regulation. So they will be probably more aware. But when you, when you go to those smaller, mid sized companies, It's usually, you know, there might be one person who's handling four different things and they might not actually have all of that knowledge, they may not have the skill set, they might not have the sort of bandwidth to then build in what are those policies they need to have, what are the systems they need to have, what tools do they need to look at to run the right compliance checks so that then they can make sure they've done the due diligence, they can prove with the Canadian law that they've taken the specific measures to minimise the risk of forced and child labour. But they can also have an audit trail that they can then incorporate into the reporting requirements of the law. So I think, you know, this is where skill set becomes a big piece and sort of bandwidth and resources. And part of this also is about, I think it's really important that you have collaboration, cross collaboration with an organization. So this is where I think finance and supply chain and compliance and legal, they all need to be talking to each other. But I think one of the things that we'll probably see and that will be a reason for why a lot of companies will probably struggle with, with compliance with this act for, you know, probably in the first year is, is, you know, legal might be sitting over here and they're never speaking to finance about this specific aspect or this law and what's needed within the reporting requirements. Compliance may be doing its own thing, supply chain's, doing its own thing, and if the left hand is doing something and the right hand doesn't know about it, you're going to have a lot of gaps. There's probably going to, you could potentially have more of an increase of false and misleading information in the reports that have to be submitted, which that has now put you at, for every piece of misleading information, remember that's 250, 000 Canadian dollars fine. So you just have to sort of also start thinking about, I think businesses need to be thinking about how are they staffing for this, whether it's internally, whether it's using an outside resource. What tools do they need to implement and purchase now and get their teams trained on so that come the 1st of January 2024, they can really start making sure that they're in compliance.

Tom Raftery:

Okay. And how do organizations deal with this when, you know, we're in a situation with N tier suppliers? So, you know, maybe my direct suppliers are all in compliance, but one of their supplier, supplier, suppliers has got an issue with their supply chain and with, with forced labor, for example, how do you deal with that?

Ragini Bhalla:

Yeah, subcontractors are very, very common in supply chain. I used to work in a supply chain for a couple of years and that's very common, but if you're a brand and you're working and you've hired a specific supplier and that supplier is outsourced to a subcontractor, technically you're still going to be liable. So if those subcontractors are using forced and child labor, that still falls back on you as the brand and that's something that you will be held accountable for because at the end of the day you chose one supplier, that one supplier clearly didn't have their sort of ethical practices in place and really didn't take it seriously and so at the end of the day, you, it's like the sins of, of many comes back onto you.

Steve Carpenter:

Fair enough. Yeah. And I think again, I'd say to them as well, that's probably part of the onboarding process when onboarding new vendors or doing due diligence on existing vendors. It's, if you're using a supplier who's then outsourcing or or sending that to a different supplier, the supplier you're dealing with has to give you documentation proving that they've done their due diligence on their suppliers as well. So it is that chain effect where even your suppliers should be providing information on their suppliers and on their suppliers to make sure that that chain is clean. But again, it's like, as you know, the Canadian company or the company dealing in Canada is going to be the one ultimately responsible. You have to make sure that you've done enough to make sure you've, you know, you're confident that the whole chain of suppliers does meet the requirements as well? Yeah.

Tom Raftery:

Okay. Okay. This space around, you know, ethical sourcing has. sprung up really, I want to say, in the last 10, 15 years, maybe even maybe a little more. And it has changed enormously. We're seeing with this kind of legislation that's coming out now, to your point, Steve, globally. Where is it going from here? I mean, is this the end? Or is there going to be a lot more legislation come down like this and regulation come down like this? You know what, what's the kind of trend lines happening?

Steve Carpenter:

So my gut feeling is there's going to be more. So it's like if we use the example of companies reporting financials like across Europe, across most the Western world, all country, all companies have to go through financial reporting once a year. And one of the big accountancy four, typically the big four accountancy firms will come in, audit companies, sign off their financial statements that will then go to central registries and central bureaus, that will make that data available publicly. So like, for example, in the UK, there's Company's House. Every single private company has to publish financial statements, who the directors and shareholders of the company are address changes. Everything like that is documented at this central registry. My feeling is that things like ESG as a whole, not just related to supply chain and forced labour, Everything about ESG, the environmental impacts, carbon footprint, all of that sort of stuff will become part of that reporting that's done annually and held through a central repository in each company each country and then made publicly available as well. So my feeling is that's where it's going to be going and there's going to be much more reporting around this because at the moment it is still vague, everybody's talking about ESG. But if you're dealing with a small company, 20 employees, how do you understand the environmental and social governance and impact of those companies? There isn't really a way to do it unless you go in and audit those companies or commission an organization to go in and conduct an audit on those companies, which again is incredibly expensive. That can cost tens of thousands of dollars to do it. A lot of companies that are big global companies will actually self commission a report. So they'll say to somebody like a Deloitte or PwC come in and do an audit of my company for all of these different ESG factors, and then produce a report on my company. I can then make that report available to my customers and my suppliers showing that I've met all of these requirements. Again, that's incredibly expensive to do. It's something that not every company is going to be able to do. So gut feeling is that this will become a more sort of public reporting requirement over the coming, coming years. And it's going to be publicly available type of data.

Ragini Bhalla:

And I think On top of public reporting. I think there's also that sort of public disclosure. So I think when you look at especially companies in the U. S. public companies in the U. S. they put out these quarterly earnings calls and statements and they're releasing them and they have to communicate to their investors and their shareholders. I think that's where also I'd I'd like to see and I'm curious. I have a feeling we will start seeing that that could be very much a requirement there. So it's not just, you know, okay, here's how much we're spending on it. But I, I'm inclined to think that you might start seeing down the road, they would have to actually disclose how many violations they've had, which laws they've actually violated. How much has that cost them in fines? What effect has that had on their cash flow, on their annual revenue, you know, profitability. So I think making that connection again, not to, not just say, okay, this is what we've done, or this is the investment we're making in it. But what actually, what have you been found guilty of? I think that would be interesting to see if that becomes a requirement within those quarterly earning statements.

Tom Raftery:

Cool. Companies these days are having things come at them from all sides. Where in the list of a company's priorities should this lie?

Ragini Bhalla:

High, very, very high. But where is it currently? Not so much. And I can tell you, for example, we, we did a survey of, of supply chain procurement professionals a couple of months ago, and it was. I was a bit, a bit, you know, thrown aback by the fact that we asked, the supply chain procurement managers, well, how likely are you to continue working with a supplier if they're found abusing forced labor, or if they're doing unethical practices, if they're involved in money laundering, corruption, and, to our surprise 42% said yeah, we'd still work with that and that was just a bit like that was horrifying to us, but I think what was also really telling was what was interesting was about 82 83% said oh no, we're running we're doing compliance checks. We're doing these compliance checks once a quarter. We're doing them as a tick box exercise clearly, cos 42% of us even if it came back and said, yeah, they're using forced labor, or they're, they've been found to be guilty of money laundering, we will still work with them. So that again, it just speaks to why is this such a tick box exercise? That's the piece that needs to change. It needs to become a true priority. And I think right now it's more of a, a priority in the sense of let's just show people we're doing the right thing, even though we're not doing the right thing, right? Like, let's do this so we can maybe, at the end of the day, we're still going to be looking at profit. Profit's going to be our top priority. But again, both can be possible and I think that's what needs to change internally in a lot of companies.

Steve Carpenter:

Yeah, and I'd say as well like another reason this should be a top priority is I say we've talked a lot about the new Canadian legislations today because this is something that's happening at the time But this is all countries like we're using this Canadian ones as an example The government put that into into law that becomes a new reporting requirement as of next year. When they do this It's then going to be, there's going to be a lot of heat on them. Well, what, what is the outcome of this? Which companies have failed to meet this? Which companies have been fined? So they're going to have to show that this law was actually worth, because this has taken two or three years to go through the process to become, to become a proper law. So it's now, well, which companies have failed this? What's the results of this? So it's not just going to go under the radar. There's going to be all of the heat and well. You know, what is the outcome of this? Which companies have been fined? So there's going to be companies that are going to, going to have the impact from this as well. That's why I'd say it has to be at the top of everyone's list who sort of, meets these criteria and not just, as I say, companies that fall into this criteria or reporting criteria at the moment. This should be a wake up call for all companies of all sizes to do this, because if you can get a jumpstart on it now. As this becomes more and more prominent, more and more customers or suppliers are asking for this, at least you put a process in place before it became a legal requirement for your company to do it. So I'd say most companies should take this seriously and put some sort of process in place now. Of course, that's going to adapt and change over time. I'd imagine this legislation is going to change as well. It's now a starting point. There's going to be things that will change, but at least put the foundations in place. So that type of reporting becomes a part of your day to day practices. Yeah,

Ragini Bhalla:

it's a good three to six months to audit, even where you're at, right? You need to see sort of what's our current state and then look at what are the gaps? What are the weaknesses? What types of tools and technology are available that could help us with this? What types of systems and policies do we need to build internally? What teams need to be involved? Who's owning what that takes a lot of time. And so that's why we're already starting to communicate with a lot of our customers and businesses, that this this applies to because again, it's not just, okay, come November, we can do everything in a month and we'll be ready. Absolutely not. It's going to take a good amount of time to get themselves to build that foundation, like Steve said. So that's why we really want to do that.

Steve Carpenter:

So as well as this being like a new law, can companies want to avoid the reputational damage. They want to avoid the financial penalties and convictions and everything like we can't forget this is primarily a human humanitarian law that's coming into effect and I think Ragini you've seen this firsthand like one of your previous jobs was traveling the world. Doing on site audits of factories that big global organizations are using. So you've seen it with your own eyes, the impact that that this has on sort of, uh, child labor as well. So I'd say we shouldn't forget that piece here as well. Yeah,

Ragini Bhalla:

it's, you know, I spent a good, what, three, three, three and a half years traveling all over the world to countries in Asia, in the Middle East, in Africa, in Latin America. And really, we were going in on behalf of brands like Kmart or retailers like Kmart and Walmart, brands like Sachs and Kate Spade. And we were going into these factories that are producing their goods and we had to look at their financial paperwork to make sure that their employees were being paid, the local minimum wage, the correct wages. We had to do interviews with the help of translators and actually get a sense of what was the working environment like. Was there any forced labor? Was there abuse? We would have to go, we would look at the actual like identification documents for their employees and I can tell you one time I walked into a factory in Turkey, and literally just all I saw was children darting under the tables to run out and I knew instantly they were children because A), they just looked like they were seven, eight years old. And even in countries like that where the child labor law, I think it's about, was maybe about 14 years old, which is still quite young, but these were seven, eight year olds, nine year olds at the maximum. And so you look at these things and back then this was 10, 15 years ago. The only thing we could do is we would have to, we would write these really in depth reports that then were submitted to the brands. We would give recommendations of, do we think that you should stop working with them altogether completely? Do we think, this can be remediated if you do a few additional visits? Do we recommend surprise visits? So they're not prepared and you can really see what's happening. But, those were physical paper reports that we would email to, you know, these heads of supply chain, VPs of supply chain at these major brands. I think now what's great is you've got technology, you've got digital tools and you can instantly check some of these things as opposed to having to wait 3, 6 months to get these visits scheduled and get this done. But I think regardless, ethical sourcing is, is it's a hundred percent of humanitarian cause but it's also it's good for business. You know, I mean like CSR is it should not be a tick box. And again, it's helping businesses understand when you invest in this you're going to see a positive impact on your bottom line. When you don't you're gonna have more violations. You're gonna lose customer loyalty and trust which means you're going to lose their, their dollars. They're not going to buy from you and they're going to take that to a competitor. Your stock price is most definitely going to take a hit. You'll see, as you see in a lot of, you know, you've seen in the New York Times, Wall Street Journal, The Guardian, everywhere, so many, especially clothing manufacturers, apparel brands like the Gap, H& M, they have been blasted in the media with negative publicity because there's been child labor and forced labor found in their supply chains. And again, the brands haven't done the necessary due diligence and haven't taken it seriously.

Tom Raftery:

Cool. Cool. We're coming to the podcast now, folks. Is there any question I haven't asked that you wish I had or any aspect of this? We haven't touched on that you think it's important for people to think about?

Steve Carpenter:

Uh, from my side is probably. Maybe the tips for companies to go through to meet some of these practices, because obviously it can sound overwhelming. All of these new legislations, how do you do it? As I said, it's not, it's a slightly onerous process to put reports together. But in terms of like digitally, how do you go through and do this, like monitor your supply chain, look at the risk in your supply chain, that type of thing maybe tips around how to do it or how to start this. It's like, it's not overly complicated. Every company, when you're onboarding new suppliers should run some sort of financial check on their suppliers to see number one, is this company financially strong? Are they going to be able to deliver goods and also diversity supply chain diversity? How do I find other suppliers that meet the same profile that I'm dealing with currently that I can use as secondary suppliers, tertiary suppliers. Maybe backup. So if any companies in my supply chain do have any issues, convictions, financial problems, things like that, I've got lots of other backups. It's going to be more seamless to move over to other suppliers. So I say identifying those types of companies, then doing things like risk profiling. How do you risk profile your suppliers? If you've got 1000 suppliers, can you bucket those into risk brackets? Can you say these are the highest risk ones? Maybe out of 1000 suppliers there's only 50 that are deemed higher risk. So then you need to focus your attention on how do you monitor those 50? How do you do deeper due diligence there? The other ones, maybe there's 950 suppliers too. You know, you're pretty confident they fall into low risk, you still go through the initial steps, but you know, you're not going to have an issue with those ones. So I'd say that's a an initial part is how do you categorize suppliers? How do you make sure you're financially checking them running these compliance related checks against them as well? Of course, like services, there's a many, many services out there you can use to do this as Ragini said. You don't necessarily need, you know, companies don't have the money to invest in sending people to factories to actually do on site audits. Now it feels like there's way more data available online where you can actually do this do this through, through processes and platforms rather than having to go through on site visits.

Ragini Bhalla:

Well, in those onsite visits to where after they had already signed on, signed a contract with a supplier, right? So they've already already said we're going to do business with you. And this is where again, value of digital and tech is so powerful is before you make that decision and you get into bed with a supplier that could end up costing you more money because they're using force or child labor. Use digital and tech to your advantage and do that due diligence on your supply chain at the same time as you're doing that financial due diligence in the customer onboarding process. So I think don't let the supply chain due diligence piece be almost like an add-on, a tack-on, which I think a lot of the times it tends to be. And this is again, where I think this is where it's going to be really important for finance teams and supply chain teams to really be working closely together in that customer onboarding stage, particularly when it comes to their suppliers.

Tom Raftery:

Cool, cool. Folks, that's been fascinating. If people would like to know more about yourselves or any of the things we discussed in the podcast today, where would you have me direct them?

Ragini Bhalla:

Yeah, they can visit www. creditsafe/us/en and we've got a wealth of content and resources. We've got information on our compliance solutions that we have, which actually could be really helpful in preparing for compliance with this act. We've got a variety of blogs and research that we create. Quite a lot of content I think would be helpful.

Tom Raftery:

Super. I'll put that link in the show notes so everyone has access to it. Ragini and Steve, thanks a million for coming on the podcast today.

Ragini Bhalla:

Thank you so much, Tom. It was lovely.

Tom Raftery:

Okay, thank you all for tuning in to this episode of the Digital Supply Chain Podcast with me, Tom Raftery. Each week, over 3, 000 supply chain professionals listen to this show. If you or your organization want to connect with this dedicated audience, consider becoming a sponsor. You can opt for exclusive episode branding where you choose our guests or a personalized 30 second mid roll ad. It's a unique opportunity to reach industry experts and influencers. For more details, hit me up on Twitter or LinkedIn or drop me an email to tomraftery at outlook. com Together, let's shape the future of the digital supply chain. Thanks. Catch you all next time.

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