Purchasing Practices and Their Impact on Toy & Children s Juvenile Product Factories: Balancing Marketplace Realities and Social Compliance Standards

Transcription

1 Purchasing Practices and Their Impact on Toy & Children s Juvenile Product Factories: Balancing Marketplace Realities and Social Compliance Standards 1

2 Question and Answer Period Please keep all questions general details about specific issues will not be addressed. To communicate with the webinar moderator at any time during this session, please select either of the following options: Send a question using the Q&A drop down menu near the middle of the LiveMeeting navigation bar Start a private chat by double-clicking on Stacy Leistner TIA Administrator in the list of participants under the Attendees drop-down menu To submit a question for review during the open dialogue, use the Q&A drop down menu near the middle of the LiveMeeting navigation bar Download a copy of the presentation slides from the Handouts drop down menu (the graphic looks like three sheets of stacked papers) on the right-hand side of the LiveMeeting navigation bar April 24, 2013 Slide 2

3 Objective During this one-hour webinar part of an ongoing series of TIA education updates toy industry stakeholders will gain a deeper understanding of updates on recent and upcoming ICTI CARE Process activities aimed at eliminating substandard health, safety and labor practices in toy factories around the world. April 24, 2013 Slide 3

4 Today s Presenters MODERATOR Ed Desmond Executive Vice President External Affairs PRESENTER Christian Ewert CEO and President PRESENTER Mark Jones Chief Marketing and Product Officer April 24, 2013 Slide 4

5 Overview of Today s Presentation This webinar will consist of two parts: Part One 50 minutes Introductions Global Industry Observations Children s Products Industry Perspective Best Practices in the Children s Products Industry Business Case Part Two 10 minutes Question and answer period NOTE: Questions may be submitted throughout the session via the Question/Answer component of LiveMeeting April 24, 2013 Slide 5

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7 Global Industry Observations 7

8 The Uniqueness of Industry Categories Category Practice Social Issue Solution Electronics Apparel Discounters Footwear Direct importers New product launch Lead times, seasonality One off buys Lead times, multiple factories, small orders Price chase smaller factories Recruiting student workers Working hours Wages, working hours Everything Everything Longer lead time Longer lead time Consolidate purchasing Consolidate purchasing, longer lead time Pick the right factory 8

9 Sourcing Strategy Units Purchased Total Production 10,000 25,000 50,000 75, , , , , , , , , , , , , ,000 1,000,000 1,250,000 1,500,000 2,000,000 2,500,000 Total 100, , , ,000, ,500, ,000, ,500, ,000, ,500, ,000, ,000, ,000, ,000, High purchasing leverage = high influence 2. Top 3 customer = some influence 3. Consistently growing orders some influence 9

10 Selecting the Right Supplier Transactional Strategic Immature Mature Unstable Workforce Stable Workforce 10

11 The Factory Perspective Purchasing practices that contribute to CSR challenges: shorter lead times nominating suppliers late approvals smaller order quantities excessive sampling payment terms poor planning 2012 GSCP Survey and Interviews 11

12 The Reality Retailers and brands will source according to the demands of their customers. A factory is not going to be able to change a retailer who is trying to reduce the design to shelf cycle. Similarly, factories are not going to change order sizes when retailers are trying to better manage inventory. 12

13 It s About Choice Retailers/Brands Pick the right suppliers match your approach Adopt SRM - supplier relationship management Be a better buyer Suppliers Pick the right customers Align with the right agents If bad buyer practices are really an issue, document it, quantify the impact and share the findings 13

14 Children s Products Industry Perspective 14

15 About the ICTI CARE Process Who We Are ICTI CARE Foundation, chartered in the US in 2004 is an independent non-profit organization (501.c6 ) that oversees the worldwide children s product industry s ethical manufacturing program, the ICTI CARE Process. Our Commitment To improve working conditions for factory workers by eliminating substandard, health, safety and labor practices. Our Focus Factory auditing and monitoring, auditor training, worker education and training, social compliance management, capacity building and best practices sharing. 15

16 ICTI CARE Process Overview: Current Status Registered Factories Certified Factories ICP Committed Companies 2,289 1, Class C 4% On Probation 15% As of March 2013 Class B 4% Class A 77% % of Certified Factories 16

17 ICTI CARE Process Overview: Current Status Growing Acceptance of ICP Factory commitment up 5% in Toy brands signed up to ICP Committed Program (previously Date Certain) cover more than 75% of the global toy business. Five National Toy Associations have made the ICP Committed Program a firm condition for membership (Germany, Spain, Sweden and the US) special solution for UK. Recognized by a growing number of retailers and licensors

18 Growing Acceptance of ICP And 900 more 18 See full list on 18

19 Risks to ICP and Brand Reputation Macro Economic Environment in China Seasonality of the Business Sluggish Business Environment Buyer Just in Time Delivery Expectation Constant Appreciation of the RMB Increasing Raw Material Costs Complexity of new Toy Safety Requirements (EN71-3 effective July 2013) 19

20 Risks to ICP and Brand Reputation Social Environment in China Shortage of labor (PRD & YRD) Low worker return rate following CNY Raise of worker s compensation Urbanization/worker s cost of living Limited factory management knowledge of HR management and worker expectations Different expectations from Generation Y 20 20

21 4 th Annual Factory Survey: Factory Manager Views Most Significant Business Issues Increasing raw material costs % % Economic downturn % % Worker retention throughout the year % % RMB currency appreciation % % Wage and compensation increases % % Finding good workers % % Survey was conducted by ELEVATE (formerly INFACT Global Partners) on ICP s behalf

22 4 th Annual Factory Survey: Factory Manager View Things that can help business the most Better production planning (no last minute changes, realistic deadlines) % % Larger order sizes % % More long-term/strategic partnership % % More insight into your customers strategic 30.5% % 4 needs Early order placement % % Efforts to improve worker-management 27.3% % 6 communication 22 22

23 ICP Helpline: Factory Worker View Top issues cited from 1 Jan-15 March 2013 (584 total) 17.3% Dismissal 16.6% 12.7% Resignation Delayed Payment 11.1% Holiday Leave/Leave Application 23

24 Best Practices in Children s Products Industry 24

25 Studies: Three ICP Studies Conducted in 2012 Misereor/University of Mannheim: Examines ICP contribution to improving labor and social standards in the Chinese toy industry. Shift: High-level gap analysis of how ICP aligns with the UN Guiding Principles on Business and Human Rights. Oxford University: A teaching case study, ICTI CARE A Case for Change. Key Findings: The factory auditing process and worker empowerment through capacity building ( Train the Trainers, CARE Card & Helpline) has been effective. There are gaps that endanger validity and credibility of the ICP program: - No way to verify fulfillment of brand commitment and no penalties for non-fulfillment One-sided focus on factories, with little brand/retailer/licensor/national ICTI association involvement. All need to be equally committed. 25

26 Management Capacity Building Program Complaints/Grievance Procedures Worker Management Dialogue Factory Brands Workers Card Helpline Communication Social Accountability IFIS COC Awareness Wages & Working Hours Age Related Social Issues Occupational Health & Safety OHS Awareness OHS Management Fire Safety Chemical Safety Machine Safety New Staff Mentoring Training System Performance System HR Management Lean Manufacturing Production Lead Time Labor Efficiency Production Output Quality Yield & Rework Output Multi Skill Levels 26

27 Business Case 27

28 Social Performance is a Function of Business Performance KEY PERFORMANCE INDICATORS Comparative Analysis Based on January December 2012 KPI Submissions Group Average Group Leader Country Average Country Leader Turnover 4.50% 10.10% 4.50% 3.20% 0.30% New Workforce to Total Workforce 42% 116% 42% 46% 16% Maximum % annual workforce change 59% 131% 59% 41% 4% Production rate(average/month) per experienced wo Production rate(average/month) per new worker for Average Defect Rate 5.70% 7.00% 2.30% 11.80% 5.70% Worker Motivation Average % of workforce receiving incentives 88% 83% 54% Average Absenteeism 0.30% 0.80% 0.10% 0.50% 0.10% Injury Rate 0.10% 0.50% 0.10% 0.40% 0.00% Social Performance Average Working hours Average % of workers working less than or equal to 96% 76% 96% 96% 100% KEY: Leading Performance Average Performance Poor Performance Factory A Workforce Stability Production 28

29 The Cost of Turnover 1,000 worker factory replace 70 workers per month Cost type Description Cost (USD) Separation Staff time for paperwork $ 1.11 Vacancy Overtime other staff less saved worker wages $ Replacement Cost of staff to attract applicants & interview $ 4.12 Training Trainer & trainee salaries (orientation and on the job) $ Opportunity 100% lost productivity during orientation and training and increased errors in the $ costs first month. TOTAL TURNOVER & REPLACEMENT COST/EMPLOYEE: $ Total Cost Per Month - 70 replacement employees a month $ 25, Annual Cost $ 302, Savings from a 50% Reduction in New Hires $ 151, Reduce turnover by 50%: savings of USD151,203 Adapted from Corporate Social Responsibility in China s Information and Communications Technology (ICT) Sector, July 12, 2007, by Business for Social Responsibility 29

30 Investment Payback ELEVATE low ELEVATE high BSR Study Lost Workers - CNY Cost per Worker $ $ $ Cost of workers lost $ 21,741 $ 129,707 $ 167,367 Savings: retain half $ 10,870 $ 64,854 $ 83,683 Investment $ 52,227 $ 52,227 $ 52,227 Investment/Savings Payback - months

31 KPMG/IDH/INFACT Report Business case analysis for responsible electronics Lean manufacturing AC, heat shields Better recruit, training, info Improve relation workers supervisors WMD training, promote worker involve, worker-driven op efficiency 31

32 Learnings There is a business case for better social performance. Many of social compliance root causes are related to business performance issues. By fixing the business issue, can position to address the social. Better reporting can help make more informed choices. 32

33 Benefits of ICP Brand Commitment Capacity building - ICP Factory Improvement System (IFIS) Program trains factory managers and workers. Supplier transparency - Enablon software platform allows real-time visibility on supplier performance/compliance, ethical sourcing. Manage social compliance and reputation risks - Audits and Helpline protect workers, allow brands to meet ethical business standards. 33

34 Q&A 34

35 Question and Answer Period Please keep all questions general details about specific issues will not be addressed. To communicate with the webinar moderator at any time during this session, please select either of the following options: Send a question using the Q&A drop down menu near the middle of the LiveMeeting navigation bar Start a private chat by double-clicking on Ed Desmond TIA Moderator in the list of participants under the Attendees drop-down menu To submit a question for review during the open dialogue, use the Q&A drop down menu near the middle of the LiveMeeting navigation bar Download a copy of the presentation slides from the Handouts drop down menu (the graphic looks like three sheets of stacked papers) on the right-hand side of the LiveMeeting navigation bar April 24, 2013 Slide 35

36 Resources www. icti-care.org ICTI CARE Process (ICP) website Knowledge Network (education and training services) Members Only Bulletins (Legislative, Safety, etc.) Industry Facts (research, reports and statistics) Press Room (news items on standards, legislation and more) Consumer-facing website April 24, 2013 Slide 36

37 Thank you for participating! For more information in TIA s Knowledge Network, please visit: