From the TUC

The benefits of decent work in global supply chains

30 Jun 2017, by in International

The importance of decent work in global supply chains continues to be reiterated by the International Labour Organisation (ILO), the UN’s agency on labour standards. At this year’s 106th Session of the International Labour Conference (ILC), discussions took place around the need to “further assess shortfalls in working conditions as well as governance issues that may delay the achievement of decent work in global supply chains”. The ILC asked the ILO to “take a proactive role in generating and making accessible reliable data on decent work in GSCs” and to “carry out research … to better understand how supply chains work in practice … and what their impact is on decent work and fundamental rights”.

Action from the ILO

To achieve this task, the ILO commissioned the Inclusive Labour Markets, Labour Relations and Working Conditions branch (INWORK) to conduct a Global Survey on purchasing practices and working conditions, in collaboration with the joint Ethical Trading Initiatives (ETI). The survey was sent out between July and October of 2016 to 41,387 suppliers, around the world. In total 1,454 suppliers from 87 countries responded to the survey, which covers 1.5 million workers.

Women’s representation in supply chains

The survey shows diversity in women’s participation among the companies surveyed. For example, suppliers in the TCLF (Textile, Clothing, Leather and Footwear) industries employs the highest share of women, they are also the industries with proportionately less women in middle managerial and top executive positions, indicating the existence of higher barriers toward promotions.

Impact of business practices hindering decent work in supply chains

The survey identified 5 major business practices between the buyers and the suppliers that could influence wages and working conditions:

  • Contracts clauses

The survey showed there is a lack of systematic written contracts signed between the buyer and the suppliers. The more comprehensive the contract, the more stable and reliable the suppliers operate. Unwritten contracts are usually more difficult to enforce, lack important information and may lead to serious consequences such as, financial losses, performance issues and lack of job security for the workers themselves.

  • Technical specifications and product development

The Global Survey showed that there is room for buyers to improve the accuracy in product development and technical specifications given to the suppliers, any inaccuracies can lead to excessive sampling and extra costs. Further hindering the development of effective decent work strategies by suppliers.

  • Order placement (and lead times)

The majority of suppliers in the survey reported that more than 30 to 50 per cent of their orders had insufficient lead times. Clearly, lead times are getting shorter and suppliers must produce more rapidly, which they increasingly do by resorting to overtime, casual labour or even outsourcing of production in order to meet their deadlines.

  • Market power and prices 

The survey reveals that many suppliers are dependent on a very limited number of buyers, something that reduces their negotiating power and their ability to achieve higher prices. Buyers impose extreme pressure on suppliers’ price quotes with suppliers reported having accepted orders for prices that did not allow them to cover their production costs. Suppliers reported selling below cost to keep their competitive advantage over their competitors, a practice that generally benefits buyers in terms of price.

  • Demands for social standards 

The survey revealed tensions on the part of both suppliers and buyers between enforcing social standards and prevailing purchasing practices. It showed that price is the main benchmark for buyers – twice as important as working conditions – when deciding on a supplier. Nearly half of the surveyed suppliers were expected by their buyers to follow a code of conduct and received no help in achieving the demanded social standards. The rest were found to receive some assistance such as staff training. However, very few enjoy shared audit costs or received financial assistance.

What does this mean for workers in supply chains?

The survey emphasised that the impact of the above purchasing practices adversely affects workers terms and conditions. Suppliers who set prices below the costs of production would likely lead management to reduce labour costs by cutting wages or by evading social security contributions and labour tax in order to remain in business. The results showed that buyers don’t feel compelled to incorporate legal minimum wage increases immediately into their prices.  Also, the presence of social dialogue, collective agreements and trade unions are often missing and workers’ representatives are rarely involved in discussions about wages and working conditions.

What can international brands learn?

The survey demonstrates that even well-meaning companies can create pressure on suppliers that is, inevitably, passed on to workers. Price negotiations, turnaround times and even adoption of supposedly better workplace practices can leave buyers under resourced and squeezing workers’ wages to compensate. However, the survey did find that where real trade unions – not just inadequate worker committees – were present, wages were boosted by 15%. Our brands should read this research and learn from it, but also start more conversations with workers, via global unions or on the ground in supplier countries, to better understand how they can avoid making their purchasing practices part of the problem.