Tuesday, April 28, 2015

Detecting and Eradicating Slavery and Other Labor Risks Across Global Supply Chains through Business Networks

Transcript of a BriefingsDirect discussion on how Ariba and Made in A Free World have joined forces to provide companies deep labor abuse insight into their worldwide supply chains.

Listen to the podcast. Find it on iTunes. Get the mobile app for iOS or Android. Download the transcript. Sponsor: Ariba, an SAP company.

Dana Gardner: Hello, and welcome to a special BriefingsDirect Podcast series, coming to you from the 2015 Ariba LIVE Conference in Las Vegas.

Gardner
We're here in the week of April 6 to explore the future of business commerce. We'll learn how innovative companies are tapping into business networks to harness the power of communities to discover, connect and collaborate with peers and partners across the street -- or around the world.

Not only are these leaders better managing their spend in buyer/seller interactions, they're also gleaning insights and intelligence to learn from the past, capitalize on the present, and chart an effective course for the future, all in real-time from a single platform.

I'm Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of Ariba-sponsored BriefingsDirect discussions.

Our next business networks best practices panel discussion focuses on the issue of unsavory and illegal labor practices that may be hidden deep inside supply chains and what companies and consumers can do about it.

We’ll hear from Made in a Free World, a nonprofit group in San Francisco. It's partnering with Ariba, an SAP company, and regulators to shine more light across the supply chain to not only stem these labor practices, but also reduce the risks that companies may unwittingly incur from within their own ecosystems.

To explain practical and effective approaches to forced-labor risk determination and mitigation, we're joined by our guests, Tim Minahan, Senior Vice President of Ariba, an SAP Company. Welcome back, Tim.

Tim Minahan: Thanks, Dana, it's great to be here.

Gardner: And we're also here with Justin Dillon, CEO and Founder at Made In A Free World in San Francisco. Welcome, Justin.

Justin Dillon: Thanks for having me, Dana.

Gardner: Our pleasure. Justin, tell me how Made In A Free World came about?

Non-profit organization

Dillon: Made In A Free World is a nonprofit organization that was started few years ago. I learned about the issue years ago, almost about 10 years ago now, just reading an article in The New York Times, and really wanted to figure out a way to get more people involved, not only in knowing about it, but in finding very practical ways to do that.

Dillon
So that started with consumers, just everyday individuals getting involved and being able to leverage their own network, their personal networks. That's now graduated into figuring out how to get businesses to leverage their own networks.

Gardner: What is the problem we are talking about? Is this slavery? Is this breaking the law in terms of labor regulations? Tell me a bit about the panoply of issues that you embrace.

Dillon: Just for definition’s sake, we define slavery as anyone who is being forced to work without pay under threat of violence, being economically exploited and unable to walk away. There are over 30 million people who fall under that definition today. In some cases, these people find themselves in the sex industry, but in most cases, they're in informal sectors, agricultural or service industries, much of which is finding its way into supply chains.

Part of what we believe is that we have to find a way to be able to connect the dots and figure out how we can use the systems that currently exist to protect the world's most vulnerable resource.

Gardner: Justin, you've been working on this for 10 years, but Tim, why is this becoming such an important issue now for businesses?

Minahan: Over the past decade, as companies begin to outsource more processes and manufacturing and assembly to low-cost regions, they've really looked to drive the cost down. Unfortunately, what they haven't done is really take a look at their sub-tier supply chain.

Minahan
So they might have outsourced a process, but they didn't outsource accountability for the fact that there may be forced labor in their suppliers' suppliers. That's a real issue, getting that transparency into that problem, understanding whether there's a potential risk for the threat of forced labor in a sub-tier supply chain.

Gardner: How big of a problem is this in terms of scope, depth and prevalence? Is this something that happens from time to time in rare instances or is this perhaps something that's quite a bit more common than most people think?

Minahan: Dana, this is far more pervasive than most people think. Slavery really has no boundaries. There are incidences of forced labor in all industries, from conflict minerals in the Congo to fishing in Malaysia to, unfortunately, migrant workers right here in the United States.

Gardner: Justin, any additional depth that you can add to how this manifests itself and how common it really is?

Palm oil problem

Dillon: It's really not a problem that “exists over there." Just one statistic alone: by 2020, half of all the products you can purchase in a grocery store will have a commodity, palm oil, which has a huge incidence of forced labor, particularly around the Malaysia region and Indonesia.

This small commodity, mostly because it's so easy to pick and harvest, is now finding its way into a myriad of products -- and that's just in agriculture.

Gardner: Why should companies be concerned? Isn’t that someone else's issue, if it’s below the level of their reach?

Minahan: You can certainly outsource process or manufacturing, but you can’t really outsource accountability. Secondly, there is a big movement afoot from regulators, both here in the United States, Federal laws, California state laws, as well as overseas in the UK to hold companies accountable, not just for their first-tier supply chain, but for their sub-tier supply chain.

Gardner: And, Justin, of course visibility being so prominent now -- a camera around every corner, social media -- people can easily react and irreparable damage to a company's reputation. Do you have any examples of where this has come to bear, where not knowing what's going on within your supply chain can be such an issue economically and otherwise?
You can certainly outsource process or manufacturing, but you can’t really outsource accountability.

Dillon: Well, people love to hate the ones they love. So everyone is complaining about Apple products, while they're using their Apple iPhone. But in a recent article in The New York Times, one of the supply-chain folks for Apple said that the days of sloppy globalization is over and they're taking this quite seriously. I would argue that some Apple's work is some of the most innovative human rights work that we've seen.

They've dug deeper down into the sub-tier suppliers and, if their reputation as innovators has anything to do with their products, it certainly has to do with their supply chain as well. They are a great example of a company who sees these challenges, sees the connection to not only their brand, but also to their products and they're taking some remediation work against it.

Gardner: Okay, we understand the depth of the issue and why it’s important. Now, now how do we do get the tools to combat this effectively? What have you done? I understand you have a database, and it’s ongoing. Tell me a little bit about the tools that you’re bringing to bear to solve this problem and to help companies take better accountability.

Dillon: The most important thing to do first is to realize where we are in history. We aren't operating in the 1990s anymore, in the sweatshop era. That was an era that where we found problems in supply chains and we started to build solutions around that, auditing, monitoring, all the rest of that. That was 25 years ago.

Era of big data

We're now in the 21st Century, in the era of big data, and we need to be able to use those tools to be able to combat 21st Century problems. For us as an organization, we've realized this was a space where we could be helpful to business. Our mission is to use the free market to free people. That’s what we do as an organization.

We've realized that there is a lot of data missing, and there is a lot of synthesis of data missing. So we, as an organization, decided to pull together the bible of databases, when it comes to supply chains, the UNSPSC. Then, we built off of that taxonomy a risk analysis on every single thing good, service, or commodity that can be bought or sold. That becomes the lingua franca, so to speak, when it comes to supply chain, risk management.

That database and analysis are now available to anyone, any size, any sector, to leverage their influence to the extent that they can. We've recognized that you can't be everywhere at all times but you’re somewhere at some times and that's the place we feel like any company can make the greatest influence.

Gardner: Now, Tim, the labor issues that we’re talking about are certainly a risk issue, but at the same time, we’re looking to find more ways to automate and make visible other types of risk, any kind of risk, in the supply chain in procurement, buy-and-sell environment.
That database and analysis are now available to anyone, any size, any sector, to leverage their influence to the extent that they can.

Tell us a little bit about how this particular risk fits into a larger risk category, and then how the databases for each of them, or many of them, come together for a whole greater than the sum of the parts.

Minahan: As Justin said, the information here is shining a light on a particular issue, being able to mass, for the very first time, data points from hundreds of different data sources around the world to predict and project the threat of forced labor.

Extending that further, that's one risk indicator that companies need to manage. Companies are managing a whole host of sustainability issues around social and eco-responsibility, but also financial risk, and threat of disruption risk.

Being able to pull all those together into a common risk factor is what we're attempting to do through the power of business networks. By connecting the world’s businesses and connecting their supply chains and automating their processes, that was phase one.

Phase two is harnessing all the information from all of those interactions to provide a better level of visibility that raises that transparency for everyone. Then, you can predict future risk. Being able to tap into what Made In A Free World has done in this particular area, pull that into the network, and expose that as another risk factor that companies can evaluate is a very powerful opportunity for us together.

Gardner: As we've seen in other aspects of the networked economy, the better the data, the more influence, the more action as a result of that data, that encourages more people to see value and add more data back into the pool and so on and so forth. Tell us a little bit about the news here at Ariba LIVE and how that works into this notion of a virtuous adoption cycle.

New partnership

Minahan: Ariba and Made In A Free World are announcing a new partnership to bring the power of the Made In A Free World database together for predictive analytics of forced labor with the power of the Ariba toolset and the Ariba Network to help the Global 2000 and beyond be able to have the transparency they need to identify potential risk, in this case, of forced labor and their supply chain, and be able to take action and rectify it.

Gardner: Justin, how do you see this announcement benefiting your cause?

Dillon: Well, it moves us past the point of saying there is nothing that you can do as a company. That is no longer an option on the table. What you're going to do is the next question. We have removed the word "if" in this conversation -- and we couldn’t have done that without Ariba.

Gardner: Is the awareness that you are creating from such announcements also impacting what happens in the public sector and in the regulation field?

Dillon: It truly is a virtuous tsunami of activity that’s happening in government. We've been doing this for a while, and we've realized that it requires the public, the non-governmental organization, and the media. We all create this ecology of movement around this, but we're seeing this happen in the federal government as well, particularly for our country’s supply chain, the biggest buyer in the world.
That’s exactly what Ariba and Made In A Free World are trying to do --  provide the tools necessary for companies to get started.

There are now standards that are not suggestions. And being able to step up to those standards and exceed in those standards is going to become the new normal. We're a part of that database as well, if you will, that network. And we can see how the Ariba Network is going to be helpful in that, because companies are coming to us and coming at the federal government saying, "What are we supposed to do? How do we move forward? This seems like a huge problem." They're right, and the solution is right in front of them.

Gardner: Tim, for organizations that are now more aware of this problem, and of the general risk issue across supply chains, how do they start? Where do they go to begin the process for getting better control that allows them to have better accountability?

Minahan: That’s exactly what Ariba and Made In A Free World are trying to do --  provide the tools necessary for companies to get started. We mentioned together the technical solution that we 're bringing to bear to allow folks within the Ariba community to be able to access the Made In A Free World input and be able to project potential issues of forced labor in their supply chain.

We've been working together as organizations for a number of years now and we've been working collectively with the Ariba customer community to help understand this issue, to help dig into this issue, and begin to share best practices on how to get started. Together, through that effort, we've developed a playbook that provides suggested guidelines for folks to get started.

In addition, there is a whole ecosystem of companies that are really looking at this issue hard. The thing that’s most exciting about it is that everyone is very transparent and they're willing to share. So you have companies from Patagonia to Apple and the like that are sharing their practices freely, because this is an issue that we want to address. The business world has the opportunity to address probably the most serious issue facing us today, and that is modern slavery.

Learning more

Gardner: Justin, any suggestions for resources that companies and individuals can go to, to learn more about this to take a start themselves?

Minahan: Well, you can’t fix what you don’t know about. You can’t improve without having some understanding of where you fit in the mix. We believe that data and doing an analysis on the freedom platform is the best way for a company to get started.

We think it’s the best synthesis of practices, data, influence, and the network effect that anyone can begin to take. We suggest that they start to look at their own risk based on what they are buying and based on their own exposure. Every company that comes to us, we're able to do this risk analysis with them, and they're are getting new insights.

What’s great about being at this point in the story is that we're already getting from our partner companies ideas about how to improve and what to do better. We have every expectation that our partnership with Ariba is going to improve this tool, not just for us, but for the planet.
We have every expectation that our partnership with Ariba is going to improve this tool, not just for us, but for the planet.

Gardner: Just quickly, Justin, how does it work? When a company comes in and gives you information about who their suppliers are, how do you come up with inference, insight and some sort of a predictive capability that identifies the risk or the probability that they could be in trouble?

Dillon: We are using all the best databases that currently exist on the issue. Everything from forced-labor databases to child-labor databases to rule-of-law, governance, migration, trade flows. All of that is synthesized into an algorithm that can be applied to any individual’s spend data. You're able to get a dashboard on all that spend, which gives you some optics into your sub-tier suppliers, which is where we need the optics. It’s not a crystal ball, but it’s the next best thing.

Gardner: It strikes me that this is a game of numbers. If enough companies examine their supply chain sufficiently and then eradicate the areas where there is trouble, the almighty Dollar, Peso, or what currency it may be, comes to bear, and things like corruption don’t work and bad labor practices don’t get supported. Is this a rolling-thunder sort of thing. If so, what’s the timeframe? Is this something that can be solved in a fairly short amount of time if people actually come together and work on it?

Dillon: To me, it’s the greatest story ever told. This is the thing that we all appreciate, and frankly we all benefit from it. We're all benefiting from a free market and the way that we look at change in our organization is that we say that change is more about judo than karate. How can we use the force against itself to actually change it, and the marketplace is the way to do that.

So yes, this can move quite quickly. In my opinion, it's much quicker than governments can move. We think that they're going to be followers in this case and we highly expect them to be followers.

Gardner: Tim, if companies do this right, if they leverage data, if they examine risk properly, what do they get, other than of course the direct reduction of that particular risk? It strikes me that we are not just tackling risk, but we're putting into place systematic ability to manage risk over time, which is way more powerful. Is that what we're going to get?

Looking at risk

Minahan: Absolutely. Companies are looking at risk holistically, and this is one key vital input into that. As they continue to address that and, as Justin said, we're using free markets as a powerful lever to free people. They can, through their buying patterns and their buying policies, begin to adjust the market, shine a light not just on their own supply chain but change the sub-tier supply chain practices to make sure that there is fair labor. It becomes unappealing to have forced labor and it becomes a detriment to their ability to win new business by doing that.

That's really what the power of data and the power of business networks can deliver in this scenario.

Gardner: Last word to you, Justin. What’s missing here? What did we not talk about that a company should be aware of in order to get a better handle on this to benefit themselves, the ecosystem,, and ultimately workers in a far-off land perhaps.

Dillon: Businesses are the heroes in the story. It's not the non-profit, and it’s not government. Anytime you associate business with human rights, businesses are often qualified as Darth Vader who actually think that they are Luke Skywalker in the story. And for us an Ariba, I don’t need to put that on them, but we are just Yoda.
We're giving them the tools that they need to fight the evil empire and we are going to do it together and celebrate it together.

We're giving them the tools that they need to fight the evil empire and we are going to do it together and celebrate it together. But this is one thing that we'll have to do in concert. We all have individual roles to play, and business has a very clear, distinct role to play.

Gardner: Very good, I am afraid we will have to leave it there. We've been exploring the issue unsavory and illegal labor practices that may be hidden deep inside supply chains and what companies and consumers can do about it.

So a big thanks to our guests, Tim Minahan, the Senior Vice President of Ariba, an SAP Company. Thank you, Tim.

Minahan: Thanks, Dana.

Gardner: And we've also been joined by Justin Dillon, CEO and Founder at Made In A Free World in San Francisco. Thanks, Justin.

Dillon: Thanks so much.

Gardner: And thank you to our audience for joining this special Podcast coming to you from the 2015 Ariba LIVE Conference in Las Vegas. I'm Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of Ariba-sponsored BriefingsDirect discussions. Thanks again for listening and come back next time.

Listen to the podcast. Find it on iTunes. Get the mobile app for iOS or Android. Download the transcript. Sponsor: Ariba, an SAP company.

Transcript of a BriefingsDirect discussion on how Ariba and Made in A Free World have joined forces to provide companies deep labor abuse insight into their worldwide supply chains. Copyright Interarbor Solutions, LLC, 2005-2015. All rights reserved.

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