Taming the Tiger: GE Manages China Supply Chain Sustainability Issues with Education & Collaboration

Many of my prior posts have highlighted the critical needs for increased supply chain collaboration among the world’s largest manufacturers. This is especially evident for large worldwide manufacturers operating subcontractor arrangements in developing nations and “tiger economies”, such as India, Mexico and China (and the rest of Southeast Asia). I have stressed how the most successful greening efforts in supply chains are based on value creation through the sharing of intelligence and know-how about environmental and emerging regulatory issues and emerging technologies.  I’ve further stressed how suppliers and customers can collaboratively strengthen each other’s performance, share cost of ownership and social license to operate and create “reciprocal value”.  But supply chain sustainability and corporate governance must be driven by the originating manufacturers that rely on deep tiers of suppliers and vendors for their products.

Recent events concerning Apple Computers alleged lax supplier oversight and reported supplier human rights and environmental violations only shows a microcosm of the depth of the challenges that suppliers face in managing or influencing these issues on the ground.  Apple recently did the right thing by transparently releasing its Apple Supplier Responsibility 2011 Progress Report, which underscored just how challenging and difficult multi-tiered supply chain management can be.

GE’s “Bringing Good Things to…”  it’s Supply Chain

In the fall of 2010, GE conducted a Supply Chain Summit in Shanghai, China. China was selected as the first supplier summit venue outside the United States mainly because of the ‘unique set of challenges global manufacturers face in conducting overseas manufacturing’. As GE’s Supply Chain Summit site notes, “China’s manufacturing industry has grown immensely over the past decade, faster than its environmental controls and the availability of skilled managers. Thirty percent of GE’s suppliers covered by the company’s Supplier Responsibility Guidelines Program are in China, yet more than half of the environmental and labor standard findings under the Guidelines Program have been identified in the country. Many factories continue to struggle to meet standards and local laws regarding overtime, occupational health, and environmental permits.”  This suggests that the ratio of negative supplier findings to supplier location is higher in China than in other geographies where GE operates.

To meet that deficiency, a key element of GE’s supply chain management program relies on intensive supplier auditing and oversight.  GE’s comprehensive supplier assessment program evaluates suppliers in China and other developing economies for environment, health and safety, labor, security and human rights issues. GE has leaned on its thousands of suppliers to obtain the appropriate environmental and labor permits, improve their environmental compliance and overall performance. GE performs due diligence on-site inspections of many suppliers as a condition of order fulfillment and as part of its tender process.

In a two-year period from 2008 to 2010, GE’s supplier environmental and social program focused assessments were conducted in 59 countries, in addition to performing “spot checks” or investigating complaint or media initiated concerns at particular factories. Some suppliers noted “audit fatigue” which can be perfectly understandable (being an auditor myself I can appreciate the wear and tear this causes on the mind and body after a while!). Third-party firms conduct some of the inspections. However, many of those participating in the audits found that third-party firms often did not provide the critical “how to” guidance as to altering business practices to assure future compliance.

What appeared to be most beneficial to manufacturers is GE’s detailed auditor-training program, which includes instruction on local law requirements and field training followed by a supervised audit with an experienced GE auditor.   The summit findings noted that dealing with the hands on “how to” aspects of solving non-compliance issues greatly helped Chinese manufacturers to “understand the importance of treating their employees fairly and the need to systematically manage the environmental impacts of their operations”. Suppliers at the summit also highlighted the business benefits that resulted from this “maturing approach to labor and environmental standards, including improved worker efficiency and morale, an enhanced reputation, and increased customer orders”. GE’s more advanced suppliers shared that they were developing management systems or integrated processes to proactively address issues and risks.

Education First!

In addition, GE and other multi-national companies (including Wal-Mart, Honeywell, Citibank and SABIC Innovative Plastics) have partnered to create the EHS Academy in Guangdong province.  The objective of this no-profit venture is to create a more well-trained and capable workforce of environmental, health and safety professionals, and give them the management, implementation and technical knowledge to be able to proactively assure ensure “that real performance is sustainable and integrated fully into the overall business strategy and operating system” of a company.  Chinese regulatory agencies are also invited to participate as well. The model that GE is using in China offers a positive example of collaborative innovation.

As large companies like GE and Apple expand their production capabilities throughout the globe, it’s vital that they continue to seek ways to train and educate contract manufacturers on environmental and social issues.   This may be tough to do because countries like China are still in the “ramp-up” phases of economic development.  Plus it’s been evident for some years that enforcement of environmental and social laws and regulations by government agencies has not been on  par with the intent of the laws.  It’s also likely that (for the foreseeable future) Chinese political and economic systems will remain focused on rapid development at all costs. So it’s critical that local/in-country government policies be aligned as well to support capacity-building for companies to self-evaluate, learn effective auditing and root- cause evaluation,  institute effective corrective and preventive action programs and seek means to systematically achieve continuous improvement through proactive environmental  and social management systems.

The GE program offers a glimmer of hope that (in China and similar developing economies) that multi-stakeholder, collective and timely collaboration may (someday soon) tame the tiger.