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Supplier management is a crucial part of companies’ operations, enabling them to achieve efficiency and innovation through third-party labor. It’s essential to emphasize that outsourcing is not exempt from labor risks, which can have serious legal and reputational implications.

Complexity of the Supply Chain and Associated Risks

The globalized supply chain has increased the complexity of labor relationships, bringing greater competition and, consequently, a greater distance between companies and their suppliers. This makes monitoring labor practices more challenging but also NECESSARY! According to the International Labour Organization (ILO), 28 million people worldwide are victims of forced labor, many of them in sectors linked to supply chains.

To illustrate, consider this example: “A clothing company faced criticism after the discovery of inhumane working conditions in its supplier factories, negatively impacting the brand’s reputation.” But continuing in this line, what might have caused such practices by outsourced companies? Pressure for lower prices can lead suppliers to employ forced labor practices to reduce costs.

Suppliers that do not adopt proper practices may offer poor working conditions, increasing the risks of accidents and worker dissatisfaction. It’s a chain reaction. A Fair Labor Association report revealed that 36% of suppliers do not fully meet minimum standards for working conditions. The Global Slavery Index estimates that over 40 million people are victims of modern slavery, with many cases occurring in supplier sectors.

From the above data, we can perceive that if a hiring company cannot monitor its suppliers, there may be a significant uncovered risk that can become a liability at any time. Thus, non-compliance with local labor standards by suppliers can lead to legal actions against hiring companies. The International Labour Organization estimates that 70% of countries have labor laws that are not properly enforced, increasing risks for companies.

Given this scenario, what needs to be done to avoid these risks with suppliers?

Strategies to mitigate labor risks in suppliers:

Audits and stringent assessments:

Regular audits and rigorous assessments can help ensure that suppliers comply with their contractual obligations. It is important to highlight that preventive work has a chain reaction as well. If a company undergoes an audit, it needs to adapt to the criteria to remain eligible for service. Consequently, the supplier strives to pay on time, provide good working conditions, and increase worker satisfaction, generating a chain of benefits. “Companies implementing audit programs are 50% less likely to face significant labor risks (Ethical Trading Initiative)”.

Promoting partnerships with Ethical Suppliers:

Promoting partnerships with suppliers committed to ethical practices can significantly reduce labor risks. This is only possible through effective management. If management is carried out, data and results are collected.

Through this data, an organization can select the best suppliers and thereby reduce the chances of facing labor actions. “Companies prioritizing ethical suppliers have a 40% lower probability of facing legal actions related to labor practices (Green America).”

Transparency in the Supply Chain through a Well-Defined Culture:

Contracting companies with a firm culture do not accept suppliers that do not adhere to their minimum standards. If a company wants to provide a service, it needs to align with the standards and culture of the hiring company.

This emphasizes the importance of transparency. If the supplier already knows everything they need to deliver and which documents they will provide to prove compliance with their obligations, they have no excuse later for non-compliance.

In conclusion, supplier risk management and HSE management require a proactive and collaborative approach. By implementing audit strategies, establishing responsible partnerships, and promoting transparency, companies can not only mitigate legal and reputational risks but also contribute to building more ethical and sustainable supply chains. These practices not only protect organizations but also promote social and environmental responsibility throughout the value chain.

How we can help you

Established in 2003, we have been in the Third-Party Risk Management market for OVER THAN 20 years, providing security for over 200 clients and monitoring around 500,000 third-party EMPLOYEES. With our proprietary system and a unique working methodology, Bernhoeft engages in receiving documentation from suppliers, analyzing it, and generating indicators for our clients. Feel free to reach out to us using the contact information below, and we’ll be happy to assist you!