Walmart Cracks down on Supplier Tolerance

1120 walmart 630x420 Walmart Cracks down on Supplier ToleranceRecently, Arkansas based retail giant, Walmart, has cracked down on its global suppliers warning them that they could be “permanently barred” if they subcontract their work to factories not authorized by Walmart themselves.

Walmart is the world’s biggest retailer and has sent out a letter to its plethora of suppliers informing them of the new policy.

“We are distributing this letter to all suppliers globally to inform them of a new zero-tolerance policy for unauthorized subcontracting, as well as related ethical sourcing program enhancements. These new policies are designed to strengthen compliance of important safety standards. These are the first steps of many as we work to create more transparent and productive supply chains that increase opportunity for those who work in them. We believe that higher standards will result in stronger manufacturing industries”

The retail giant was prompted to make these changes after the tragic fire Dhaka fire on November 24th, 2012 which broke out in the Tazreen Fashion factory in the Ashulia district on the outskirts of Dhaka, Bangladesh. The fire killed at least 117 people and over 200 people were injured, making it the most deadly factory fire to ever occur in Bangladesh.

Walmart never officially authorized the Tazreen factory to supply for them, but an authorized Walmart vendor without the company’s knowledge subcontracted the factory. In addition to the tragic losses of the fire, it is also upsetting that it takes events such as worker deaths for companies to realize the importance of knowing their suppliers, and watching their every moves. Obviously it becomes increasingly difficult to do this as the supply chain grows, but companies NEED to start adding the necessary additional positions and supplier relationship management software as their supplier base increases.

Another perfect example of how not knowing your supplier’s is the recent Burger King scandal in which claims were made that a Burger King supplier made burgers with horse meat. It is these errors that can destroy a company’s reputation within hours.

A recent article put out by Supply Management Daily describes in detail how Walmart is now monitoring their suppliers “New facilities will be required to prequalify with a ‘green’ or ‘yellow’ ethical sourcing audit rating (the two best ratings) prior to being approved. Facilities that rate either ‘orange’ or ‘red’, indicating poor ethical standards, will not be added into a supplier’s network. These factories will be listed on Walmart’s corporate website. Further, by June 2013, all suppliers will be required to have a company representative responsible for ensuring compliance with Walmart’s ethical sourcing requirements. Frequent monitoring of the supplier’s facilities will also be essential to continuing to do business with the firm.”

On the company’s blog Rajan Kamalanathan, vice president of ethical sourcing at Walmart, wrote, “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.”

If Walmart had been using an effective, pro-active supplier onboarding an maintenance policy, something that should have been a component of the company’s SRM system, they may have saved themselves all of the negative publicity.

What are your thoughts on this issue? Let us know in the comment section below.

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