Ethical Sourcing

Just as the global economy has transformed the way we think about and conduct business, it also presents us with the challenge to lead in implementing and influencing ethically sound policies and practices – not just in our own stores, but throughout our supply chain. Taking a leadership role in the sourcing of the goods and products that end up in the homes of the 176 million customers that shop our stores and Clubs every week is not just something we can change, it’s something we must change. Ultimately, it is our responsibility to ensure that the products we sell in our stores are not only safe for our customers, but that they are produced in an environmentally and socially responsible manner. Each year, Wal-Mart’s Ethical Standards team produces a report on our supply chain programs and the results of our factory audits. As Lee Scott writes in his introduction to this year’s Ethical Sourcing Report:

Wal-Mart has achieved its growth through supply chain excellence, delivering the products our customers want and need. When we buy those products from suppliers, we touch individuals, families and communities in remote regions around the globe. As we reflect on this, we recognize that success goes beyond financial results alone. This report spells out the issues we face and our strategy to meet those challenges. At Wal-Mart, we are committed to behaving in an ethical, socially responsible manner; using our resources and energy to create positive change.
Lee Scott

Click here to read our 2007 Ethical Sourcing Report.

Our Ethical Standards team of more than 200 Associates puts this commitment into action around the globe, and it stands as one of the most active programs in the retail industry. The team monitors factories, educates suppliers and our buyers and works with others in our industry to implement effective ethical sourcing programs.

It is important to note that Wal-Mart does not own, operate or manage any factories. Instead, our business relationship is with suppliers who contract with factories. Our Ethical Standards team is dedicated to verifying that these supplier factories are in compliance with our “Standards for Suppliers” and local law. These standards cover: compliance with local and national laws and regulations; compensation; hours of labor; forced/prison labor; underage labor; discrimination; freedom of association and collective bargaining; health and safety; environment; and the right of audit by Wal-Mart. Direct import factories are audited at 100 percent for all retail markets.

Domestic import factories are currently only included in the audit scope for Wal-Mart U.S., Wal-Mart Canada and ASDA in the United Kingdom. Wal-Mart U.S. and Wal-Mart Canada audit factories producing proprietary brands and five high-risk categories including: accessories, apparel, footwear, toys and sporting goods. ASDA audits factories producing the domestic categories of George – a popular clothing line sold at ASDA – Home and Leisure, and Health and Beauty.

Our annual ethics report provides a complete analysis of the 16,700 audits that our team conducted in 2006 in 8,873 factories – and details the results here.

Recent accomplishments in ethical sourcing include:

  • In 2006, we added environmental criteria covering waste identification, handling and disposal; wastewater treatment and discharge; air emissions and banned substances to our Ethical Standards.
  • In 2006, we made the change to re-audit factories that received a “Green” rating (indicating no violations or a low-risk violation) every two years instead of annually. This provides factories with a greater incentive to earn a Green rating.
  • In 2006, we increased unannounced audits to 26 percent up from 20 percent in 2005 and 8 percent in 2004. Initially, our target goal was 30 percent (which we set in 2005), but experience has shown us that 25 percent is the ideal balance for unannounced audits.
  • In 2005, we strengthened our Standards for Suppliers by adding new criteria for health and safety, the right to freedom of association and collective bargaining consistent with local laws, and additional rights for foreign contract workers.

Despite our efforts, we still have far to go. For instance, while we introduced environmental criteria and audited for them, they did not factor in to factory ratings. Moreover, the fact that human rights violations persist across the industry signals that we need to find new and better ways to address violations. The circumstances that contribute to these abuses are complex, and addressing them effectively will require that we collaborate with suppliers, non-governmental organizations (NGOs) and governments. Though we don’t disclose the numbers of factories we source from – in aggregate or in specific countries – we recognize that despite the complexity of the situation, we need to be ever-committed to ensuring that the thousands of factories and suppliers we source from meet the highest ethical standards.

One of the challenges that we are working to overcome today is “audit fatigue.” Factory monitoring is standard for many retailers and brand owners. Yet, it’s not uncommon for a factory to be audited upwards of 10 times a month by different companies, leading to a duplication of efforts, as well as audit fatigue for factory management and workers. The way companies define their standards and request factories to implement them vary, and multiple audits are confusing and frustrating to factory management. Beginning in 2006, Wal-Mart, Tesco, Carrefour, Metro and Migros were the initial drivers in drafting a code of standards called the “Global Social Compliance Program.” The goal is to create a unified set of international labor standards aimed at eliminating problems such as child labor and unpaid wages. The common code of conduct covers issues, such as health and safety, fair pay and racial and sexual discrimination, in an effort to harmonize best practices amongst suppliers.

Understanding the impact of every decision that is made within the supply chain is also a key element to success. Occasionally, the lead time we give suppliers for production of merchandise is short, and last-minute changes are sometimes made to product specifications. Factory managers often cite this as a reason they feel compelled to convince workers to work hours that are too long. The Ethical Standards team is beginning the process of educating supply chain decision makers on both sides about these issues and engaging in dialogue about how to minimize negative impact on compliance and social responsibility.

Perhaps the greatest opportunity we have to ensure standards are met is to reduce the total amount of suppliers and factories from which we source, which will allow us to gain a greater adherence to our ethical sourcing standards. This will also allow longer-term relationships, deeper collaboration and capacity building.

To reach our full potential in ethical sourcing, we must continue to collaborate with suppliers, NGOs and governments, and we must also look for new opportunities to promote ethical practices. For instance, it is increasingly clear that ethical sourcing is not only about promoting a culture of respect for the individual – it is about promoting respect for the environment as well. In China, especially, we have a tremendous amount of work to do to realize our goals for environmentally responsible sourcing. We are working to achieve this, but still have very far to go.

Measuring Progress

Metrics

Related Metrics

While it is our policy to work with suppliers to overcome labor conditions that do not meet our standards, we simply will not engage with suppliers who exhibit certain violations. Among those that are not tolerated are: forced or prison labor, transshipment, physical abuse of workers, extremely unsafe working conditions and underage labor. See a full discussion of our standards here and here.

Wal-Mart’s Standards for Suppliers cover the topics of health and safety, environment, compensation, working hours, forced labor, underage labor, discrimination, compliance with applicable national laws and regulations, freedom of association and collective bargaining, rights concerning foreign contract workers and the right of audit by Wal-Mart.