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

While suppliers and customers can collaboratively strengthen each other’s performance, and successful supply chain greening efforts will create value through environmental know-how and adoption of emerging technologies, true supply chain sustainability and corporate governance must be driven by the originating manufacturers.

These manufacturers rely on deep tiers of suppliers and vendors for their products; the need for increased supply chain collaboration among the world’s largest manufacturers is critical. This is especially evident for large worldwide manufacturers operating subcontracting arrangements in developing nations and “tiger economies”, such as India, Mexico and China (and the rest of Southeast Asia).

Recent events concerning Apple Computers alleged lax supplier oversight and other reported supplier human rights and environmental violations only show a microcosm of the depth of the challenges that suppliers face in managing or influencing their supply chain.  Apple recently did the right thing by 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…” its 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.

Despite audits that can even become so frequent that some suppliers note “audit fatigue” many of those participating in the audits found that the third party audit 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 a positive example of collaborative innovation, 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 trained and capable workforce of environmental, health and safety professionals with the management, implementation and technical knowledge needed to proactively 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 companies like GE and Apple expand their global production capabilities, 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 in countries like China that are still in the “ramp-up” phases of economic development and where 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.

It’s critical that local government policies be aligned 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 multi-stakeholder, collective and timely collaboration in developing economies may (someday soon) tame the tiger.

Dave R. Meyer is VP of Sustainable Economic and Environmental Development Solutions (SEEDS) Global Alliance. You can view his blog related to sustainability best practices, green supply chain, public policy, the environment and business competitiveness at valuestream2009.wordpress.com