SUPPLIER PERFORMANCE.

 

OUR AUDIT PROGRAM AND SUPPLIER PERFORMANCE.

Having audited our suppliers over several years, we are now of the view that a “beyond audit “approach needs be applied if we are to increase the momentum of positive change as well as ensure a more sustainable result.

Our accreditation with child labor free increased our knowledge around risks and remediation and was positively received by our customers. However, we believe any certification needs to be more extensive than this and to be inclusive of all our Codes of Conduct. For this reason in 2018 we took the view to participate in another global programme - The Amfori Business Social Compliance Initiative (BSCI) - which closely aligns to our principles and we believe will support us in this next stage of our ethical strategy.

With over 2000 members from 40 countries the Amfori mission is :


"To enable each of our members to enhance human prosperity, use natural resources responsibly and drive open trade globally. These are significant challenges, and we need to work collaboratively to tackle them. Together we can influence and drive positive change at scale”.


Their holistic approach to human rights issues and environmental sustainability will enable us to build on the work we have already started and importantly will offer greater learning opportunities for both suppliers and ourselves.

We believe a more collaborative approach is needed to increase our leverage with suppliers as well as to tackle the more complex issues, which most brands struggle to resolve on their own. Through the Amfori membership network and the Amfori support teams, we believe we will have more significant exposure to best practices, increased local knowledge and guidance, which will ultimately deliver better solutions for us all.

 

13 AREAS ASSESSED IN THE AMFORI BSCI AUDIT:

1. Social Management System and Cascade Effect

2. Workers Involvement and Protection

3. The Rights of Freedom of Association and Collective Bargaining

4. No Discrimination

5. Fair Remuneration

6. Decent Working Hours

7. Occupational Health and Safety (OHS)

8. No Child Labour

9. Special Protection for Young Workers

10. No Precarious Employment

11. No Bonded Labour

12. Protection of the Environments

13. Ethical Business Behaviour

 

OUR AUDIT CYCLE AND RATINGS.

The overall rating of a BSCI audit reflects the extent to which the factory has integrated the BSCI Code of Conduct into its daily business culture and operations. It is not calculated by the auditor, but generated automatically by the BSCI IT system based on the combination of ratings across the 13 Performance Areas (PAs). Auditors do not know the final rating until they have submitted their audit into the Amfori BSCI platform. As a consequence, at the audit’s closing meeting, the auditor focuses on the good practices and the findings but does not present a rating.

The final rating ranges from A to E:

A to B being a very good / good  level of maturity that allows the factory to maintain its continuous improvement process without a professional follow-up audit.

C to E being acceptable/ insufficient or unacceptable level of maturity which requires the factory to develop a related remediation plan within 60 days of the audit date. A professional follow-up audit is envisaged to assess continuous improvement.

The Amfori BSCI audit cycle is a two-year period for producers that obtain an A or B rating. For producers that receive an overall grade of ‘C’, ‘D’, or ‘E’, a follow-up audit, which will address not all PAs but only those with findings, is required between 2 and 12 months after another audit. They then return to the 2-year cycle from the date of the initial audit.

Further information is available on the Amfori site here.

 

OUR SUPPLIER PERFOMANCE.

The average rating of our factories is a C rating, which is defined as an acceptable level of maturity. The majority are on a 12-month audit cycle.

However, an average A rating is been achieved for :


I. The Rights of Freedom of Association and Collective Bargaining

II. No Child Labour

III. Special Protection for Young Workers

IV. No Precarious Employment

V. No Bonded labour.

VI. Ethical Business Behaviour

VII. Protection of the Environment

Despite these A ratings, there remain many areas for improvement which are clearly documented in our detailed audit reports. E.g., Whilst, 100% of our factories have worker committees, these all operate to varying degrees of effectiveness, and therefore we need to continue to monitor and drive further improvements which are a particular goal of our responsible sourcing strategy.

Protection of the environment is another area where their performance is highly rated particularly in China where the government is being extremely active in enforcing positive change. However, the BSCI approach is one of continuous improvement, and therefore the momentum will need to continue if these scores are to be retained.

  1. A priority for us has been Health and Safety, and the average score now stands at a B rating.
  2. Remediation topics are vast with no underlying trends, and most are easily to resolve, eg missing certifications for generators and boilers and Inconsistent use of protective clothes and machine guards.
  3. Seven out of eight of our Bangladesh factories are participants of the Bangladesh Accord Initiative. Two have completed all remediation, one is close to completing, and the balance four are in progress and being monitored.
  4. Decent Working Hours – continues to be a low performing area for the industry as a whole, and applicable to both China and Bangladesh - with an average score of D.
  5. Capacity planning for 10 hours rather than 8 is a common root cause, which although legal, does mean that there are incidences when workers have to stay beyond the legal 2 hours. All evidence would indicate that the overtime is voluntary, and there is no evidence of registered complaints. However, the view is that this needs to be further investigated.
  6. It is widely known within the industry that a significant driver of Over Time is the buying practice of many fashion brands, who push hard for fast delivery. Whilst we at AS Colour can take accountability for the working hours of our own designated lines, we cannot for those of their other customers. This is, therefore, an example of where a collaborative approach could be more effective.
  7. Social Management Systems and Cascade Effect is another area needing improvement, where the average score is D.
  8. The most common issue is here that whilst suppliers may have policies in place around our Code of Conduct, they are either not fully executing (for example they have issues around overtime) or are not communicating them throughout their supply chain. This is a key performance area we will be focusing on and links into our transparency program.
  9. Workers Involvement and Protection – is another critical area we intend to drive. Currently, the average rating is a C.
  10. Whilst 100% of our factories do have grievance mechanisms the lower rating is a result of the varying degrees of effectiveness. Additionally, some suppliers are not engaging workers when developing occupational health and safety policies. In many cases, the workers will be more knowledgeable than management of any risks in their working environment, and therefore it is essential their voices are heard.
  11. Decent Wage – here the suppliers have been scoring C and upwards with some A ratings.

The key objective of the audit questions is to verify that the legal minimum wage, (or industry standard wage approved through collective bargaining), is respected by our factories. The debate over the minimum wage versus a living wage is a global and political issue as relevant in NZ as in developing countries, and one that AS Colour unilaterally will not be able to resolve. For this reason, we continue to review and develop our strategy and goals around Fair Remuneration and are taking the following courses of action :

I. PROMOTING EFFECTIVE WORKER PARTICIPATION GROUPS.

We believe the ultimate goal must be to ensure freedom of association and effective worker participation groups to enable their own collaborative bargaining. Our strategy is therefore to provide continuous improvement across these platforms. Currently, 100% of our first tier factories have some form of worker participation group with grievance mechanisms. Our focus is on making these groups more effective.


II. GATHERING INFORMATION ON REGIONAL SPECIFIC LIVING WAGES.

Whilst there is no universal guidance on how to calculate a living wage, our research has lead us to the Anker Methodology as recommended by a number of advocacy groups including Amfori . We are now requesting all our factories calculate their workforces’ decent standard of living. To date, 50% of our factories have submitted this information as part of their continuous improvement program. Our goal for 2019 is to achieve 100%.

This information is then used to understand current efforts to provide workers with a fair remuneration and the gaps that need to be overcome in order to do so. The information is also used to identify any significant risks in the supply chain which will then be used to shape our ongoing order placement and sourcing strategy.


III. OPENING SUPPLIER DIALOGUE.


Through encouraging an open dialogue with our producers we have been able to have our first discussions around open book costings and root cause analysis If we understanding factory cost breakdowns we can Firstly ensure that price negotiations do not negatively impact labour costs, but Secondly it raises awareness of the impact of increased labour costs on final costings.

These discussions have also brought us to a collaborative assessment of the root causes of costs and blockers to increasing salaries. We have asked our suppliers to evaluate our working practices to ensure we are operating as a responsible business enterprise.


IV. COLLABORATING WITH INDUSTRY AND ADVOCACY GROUPS.

AS Colour has recently joined the global Amfori organization which we believe will assist in guiding us through such complex issues as living wage as well as allow us the opportunity to connect and collaborate with other international brands working with our supply base.


V. DEVEOPLING INTERNAL TRAINING.

In September we had our first internal training around the significance of understanding Living Wage and the risks to our business if suppliers systematically fail to provide fair remuneration to their workforce.

Following the suppliers review of our business practices, we will be further developing our training programs.