Supply Chain weekly wrap-up: 7/24/15 – 7/30/15

Report finds China´s debt troubles could threaten supply chains

A recent report by the Chartered Institute of Procurement and Supply (CIPS) has indicated that China´s troubled debt market is a growing threat to international supply chains. The CIPS Risk Index report states that China was downgraded to DB4b in April, due to the credit risk for its manufacturing and upstream heavy-industry sectors. CIPS Economist John Glen indicates that suppliers may lose confidence overnight, if the People´s Bank of China moves to restrain the debt market via either allowing more borrowers to default or by a change in monetary policy.

Firms should examine all the small manufacturers imbedded deep in their supply chains and assess the level of risk they face as credit tightens, Mr. Glen explained. The CIPS report encouraged companies to line up alternatives at every tier of their supply chains as a precaution. Being properly insured against default is highly advised, especially for commodity producers who often deal with debt-laden Chinese buyers.

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Human Trafficking in the supply chain

The 2015 Trafficking in Persons Report was released on July 27 by the U.S. State Department as a way to rank countries based on their efforts to comply with the standards in the Trafficking Victims Protection Act of 2000. Risks are believed to be high in 5 main cases. The first risk comes about while trying to fill labor shortages along the supply chain, such as mining workers who provide the minerals at the beginning of a supply chain for the electronics sectors. The second hazard is in industries relying on low-skilled workers, as these jobs are perceived to be dangerous and thus filled by socially marginalized groups, including both migrants and those with disabilities. Third, is the seasonal nature of some industries such as farming, whereby the demand for labor during a harvest increases, which leads to the fourth risk, namely employers depending on labor recruiters at peak labor demand times. This creates a layer between the employer and the worker resulting in a disconnect between the two sides, to the extent that employers could be in the dark when it comes to bad hiring practices committed on their behalf. Finally, the fifth issue is that industries with fierce competition suffer from constant downward pressure resulting in employers cutting wages as well as ignoring safety protocols in order to be commercially viable.

The report places emphasis on the need for both governments and businesses to closely collaborate in order to mitigate trafficking by creating and implementing anti-trafficking policies. The Governance and Accountability Institute stated that 72 percent of the companies in the S&P 500 Index publish corporate social responsibility (CSR) reports aiming to address these shortcomings. Private companies should examine the U.S. State Departments´ “country analysis” section in the report and do their due diligence prior to working with suppliers overseas.

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Tiffany & Co.´s new CSO speaks on refining the jewelry supply chain

Anisa Kamadoli Costa, the former Vice President of Global Sustainability and Corporate Responsibility at Tiffany & Co. has been promoted to the Chief Sustainability Officer (CSO). The new CSO role was created by CEO Frédéric Cumenal in a bid to tie social responsibility and the environment to the firm’s bottom line, while also indirectly mitigating costs resulting from their environmental impact. By focusing on the traceability of raw materials, Tiffany & Co. are able to implement stricter industry-wide standards. The company set out to find a way to gain visibility of their distant raw material mines and labor force and improve their local conditions. The Responsible Jewelry Coalition (RJC), which was created in 2005, helped them accomplish this. Members of the coalition include Tiffany, Cartier and Rio and focus on certifying companies holistically rather than individual facilities. Anisa Kamadilo Costa believes this collaborative approach works well and has the potential to move markets. However, advocacy groups say that the RJC is more shine than tangible substance.

Due to the fragmented nature of the jewelry industry, it is difficult to trace the path of diamonds and precious metals, as there are too many middle men, smelters and brokers. To combat these negative variables, Tiffany produces more that 50 percent of its jewelry at their company owned manufacturing sites. Nonetheless, the company does not own their own mines. To counter this, the majority of its diamonds and precious metals come from suppliers with third-party verification via the Kimberly Process. The Kimberly Process is a joint effort that resulted out of the war in Sierra Leone to unite businesses, governments and NGO´s in stemming the flow of conflict diamonds. Anisa Kamadoli Costa concludes that due to Tiffany´s massive purchasing power, they are also able to make positive demands that can be carried out throughout the supply chain.

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