Monitoring Foreign Suppliers – The Challenge of Detecting unethical practices

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Second Individual Case Analysis (Strategy)

Monitoring Foreign Suppliers: The Challenge of Detecting unethical practices.

1.Summarize and discuss the core issue in the case. Do not repeat the entire case details but only pertinent information at the heart of the case.

After reading, “Monitoring Foreign Suppliers: The Challenge of Detecting unethical practices”, I learned that companies such as Wal-Mart and Nike and should monitor the working conditions and the workforce practice of their foreign suppliers. Monitoring does take time and money, but it would give the companies a chance to detect if there is any human rights abuse or sweatshop that need to be addressed. For manufactures that are not paying minimum wages to those that work or even pay extra for the extra work they do by working long hours. Monitoring is also an innovative idea because your able to make sure there is no child labor and to make sure that the work environment is a safe workplace to work in. If companies don’t pay attention or address the issue if there is something illegal going on, then the company would end up getting into trouble. One would be their reputation, and another would be that they would lose their sales and their loyal customers.

Wal-Mart and Nike do a lot of advertising on their products, so they believe that keeping a close eye by monitoring is very important because its company’s image is very important as well as word of mouth. So, they wouldn’t like or afford a bad reputation. Bottom line is that all companies have emergent challenges within the political, economic, technological and even social fields. Economic agents assure that all products that are delivered are high quality products and that the service is excellent. Hiring staff that are well qualified for a position is what these companies look for.

2. Identify any ethical and/or moral dilemmas in the case. What is an ethical decision-making?

What ethical perspective can be used to analyze this case?

Unethical and moral dilemma that I read was that the benefits such as pension, medical, accident and unemployment insurances were not getting paid. Another unethical issue was that people that worked were not getting paid for all the hours that they worked, and they were using false books that were incomplete as well as they didn’t have enough sufficient documentation. The ethical decision making was that companies with global sourcing and strategies would improve there working conditions to help suppliers achieve the expected standards rather than abrupt and permanently cutting off purchases. By making changes this allowed for foreign manufactures to improve the human rights abuse and the substandard working conditions to improve.

Auditing offshore helped employers cover their butt because it would allow them to have a monitoring system that would explode work in other less fortunate countries. The successful pass plant audit had four chief elements that were stated in this case study:

Using these steps allowed for companies such as Wal-Mart to correct any problems that were addressed.

  • Maintaining two sets of books – Factories generated a set of bogus payroll records and time sheets to show audit teams that their workers were properly paid and received the appropriate overtime pay; the genuine records were kept secret.
  • Hiding the use of underage workers and unsafe work practices- In some instances, factories in China, parts of Africa, and select other countries in Asia, Eastern Europe, and the Middle East employed underage workers. This was disguised either by falsifying the personnel records of underage employees, by adeptly getting underage employees off the premises when audit teams arrived, or by putting underage employees in back rooms concealed from auditors.
  • Meeting requirements by secretly shifting production to subcontractors – On occasions, suppliers met the standards set by customers by secretly shifting some production to subcontractors who failed to observe pay standards, skirted worker safety procedures, or otherwise engaged in abuses of various kinds.
  • Coaching managers and employees on answering questions posed by audit team members — Both managers and workers were tutored on what to tell inspectors should they be interviewed. Scripting responses about wages and overtime pay, hours worked, safety procedures, training, and other aspects related to working conditions was a common tactic for thwarting what inspectors could learn from interviews.

3.A firm’s suppliers are one of its most important external stakeholders. In light of this case, how

do you evaluate the performance of Nike and Walmart when it comes to their relationship with foreign suppliers? Are they doing enough in ensuring compliance and supporting these suppliers’ growth? If not, what do you think is missing?

Both Nike and Walmart are two companies use the supplier code of conduct rather than extensive program to monitor whether suppliers in low wage low cost manufacturing location across the world were complying with their code of conduct. Both companies initiated such efforts in the 1900’s because they came under fire from human rights activist group for allegedly sourcing goods from sweetshop factories in china and elsewhere. I would say that both companies where ensuring and in compliance with foreign suppliers. For example, when the factory was out of compliance Nike would step in and work with the factory manager to get back on track. This would make sure that their products where being manufactured to develop a Master Action Plan (MAP)Nike. Nike also works with their key suppliers to help foreign factories develop a more efficient production and techniques so that it would help eliminate the long workweek hours and the overtime.

4.Recent research in corporate social responsibility (CSR) suggests that we evaluate the firm’s performance from three important dimensions: economic, social and environmental. These are commonly referred to as the “Triple Bottom Line”. Evaluate Walmart & Nike’s economic performance by specifically focusing on their Return on Assets (ROA), Return on Equity (ROE)

and growth of stock price from 2012-2016.

Nike and Walmart are known for using the three-bottom line; they are known for is “people, planet, profit or as others now them as the three pillars. It provides reports for all three broad areas that affect society’s economic including financial reporting, ecological including the environment, and social including social responsibility. Below are two charts that I got off of Source: base on data from Nike Inc Annual Report and for Wal-Mart.

It shows from May 31, 2012 through May 31, 2017. It allows us to see the changes through out the years. The net profit margin, the return of Equity (ROA) and the return on Equity (ROE) shows that Nike has improved from 2015 to 2016 and from 2016 to 2017. The gross profit in May of 2012 was 43.40% and in May of 2017 is 44.58% which is slightly increased. The operating profit margin in May of 2012 was 12.60% and in May of 2017 is 13.83% which is increased. Net profit margin in May of 2012 was 9.2% and in May of 2017 12.34% which is also increased. Return on equity (ROE) in May of 2012 was 21.41% and in May of 2017 it increased to 34.17%. Return on asset (ROE) in May of 2012 was 14.37% and in May of 2017 it increased by 18.23%.

Wal-Mart net profit margin, the return of Equity (ROA) and the return on Equity (ROE) shows deteriorated from 2016 to 2017 and from 2017 to 2018. The gross profit in May of 2013 was 24.38% and in May of 2018 is 24.68% which is slightly increased. The operating profit margin in May of 2013 was 5.96% and in May of 2017 is 4.12% which is decreased. Net profit margin in May of 2013 was 3.65% and in May of 2017 1.99% which is also decreased. Return on equity (ROE) in May of 2013 was 22.27% and in May of 2018 it majorly decreased to 12.66%. Return on asset (ROE) in May of 2013 was 8.37% and in May of 2018 it decreased by 4.82%.

5.Similarly, evaluate Nike’s & Walmart’s environmental (sustainable) performance. Begin by downloading these companies’ recent Sustainability Reports from their websites (or related sources). Summarize major initiatives they have that support environmental sustainability in recent years.

On Walmart’s environment performance it shows that they extend beyond there own operations to supply and deliver groceries, apparel, electronic and much more. They are one of the largest retailer stores in the world and they work to reduce environmental impacts as well as the supply chain. Below is a copy of Wal-Marts 2017 GRR Report that I found very interseting.

On the GRR Report is in the process of improving areas such as factory energy efficiency program on how they plan to reduce energy intensity by 15 percent by 2020. The refrigeration systems and fleet efficiency to purse its commitment to source half of the company’s energy’s need for renewable sources. This means that they will have more than 500 projects that would cover 16 of the United States and Puerto Rico.

Nike’s sustainability report shows that the company has reduced environment impacts but has continue to grow. In there past five years it has shown that labor and environmental goals for the company have shown increased profit growth. Reports have shown success and challenges that Nike has made a key impact on areas of climate, energy, labor, chemistry, water, waste and community. On Nike’s holistic sustainability report it also shows that throughout the 30 years 75 percent of Nike shoes and apparel contain recycle material. Mark Parker, the Nike’s company chief executive wrote on the latest sustainability report, “From an impact standpoint, materials matter the most. In fact, in one pair of Nike shoes, 60 percent of the environmental impact comes from materials.” I found that this information was very useful and an environmental friendly to our planet. Between 2011 and 2015 they have reduced its carbon emission by 18 percent for each of their units. Nike’s website also allows you to get a closer look at the way that Nike’s make their air bags which is a one of there major products.

6. Some analysts express concern that firms sometimes do not fully commit to sustainability as they claim in their official reports (“greenwashing” phenomenon). In your opinion, are these two companies fully committed to addressing environmental issues/concerns? Support your arguments with research.

In my opinion, I believe that these two companies fully committed to addressing their environmental issues and concerns. Walmart has invested over 100 million dollars in programs to assist and benefit their employees by advancing their careers. They have even provided training for those that need it. Walmart’s chief sustainability officer Kathleen McLaughlin states, “the most successful business, aims to strengthen the system on which they rely, such as retail employment or food production.” Ms. McLaughin also goes on to say “Why? Not only to build customer trust and maintain license to operate, but also to enhance supply security, manage evolution of cost structure, generate new revenue streams and attract talent. Strengthening societal systems is not only the responsible thing to do — it maximizes business value.” Below is a screenshot of what Walmart has on there website and I really like what it stated because it allows the reads to understand where and what this company represents.

Nike too is committed in addressing any issues because they once were in the hot water that now they are 100 hundred percent focused. Back in the 1990’s there was allegation about poor work conditions in their supply chain but since then they vowed that they would run by improving their supply chain and creating new and better products. Not only have they become focused, but they have even set a greater purpose for the Nike. Nike thrives to make this world a healthier planet and for a level of playing on the field with their comfortable products. Nike has measured themselves against the areas which are diverse representation and an inclusive community that embraces it; equitable pay and benefits; and employee development and wellbeing. This is who Nike is and what they are striving for.

Reference:

Stock Analysis on Net 100 U.S. Market Leaders, Walmart Inc. (WMT)

https://www.stock-analysis-on.net/NYSE/Company/Walmart-Inc/Ratios/Profitability

Stock Analysis on Net 100 U.S. Market Leaders, Nike Inc. (NKE)

https://www.stock-analysis-on.net/NYSE/Company/Nike-Inc/Ratios/Profitability

2018 Global Responsibility Report

https://corporate.walmart.com/2018grr/sustainability

2018 Nike News

https://news.nike.com/news/sustainable-innovation-air-bag-manufacture

Walmart’s improved social responsibility efforts begin with supply chain, Kate Patrick. April 25, 2018. https://www.supplychaindive.com/news/walmart-corporate-social-responsibility-efforts/521961/




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