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Why Sprint, H&M, Mars see supply chain visibility as crucial

<p>How do companies learn whether suppliers are meeting their sustainability standards -- and act quickly when they aren&#39;t?</p>

When poisoning from lead-acid batteries killed several workers at a Chinese cell phone supplier that sells to the U.S. market, Sprint Nextel Corp. got worried.

After a Chinese nonprofit alerted the cellular service provider that its name was on a website listing companies that purchased from the supplier, the company leapt into action.

"We immediately researched it and, luckily, we found we weren't buying from them," said Amy Hargroves, Sprint's director of corporate responsibility. "We did send a legal letter to them making sure they took our name off that website."

While the Overland Park, Ks.-based company avoided a possible public relations disaster in this case, the incident highlights the necessity for corporations to have visibility into their supply chains so they can know whether suppliers are meeting their sustainability standards -- and act quickly when they aren't.

"Through that dialogue we really understood what that risk was," said Hargroves, as she related the story of the incident at the BSR Conference in New York City last week. She was one of a number of corporate sustainability executives who spoke about the need for major corporations to work with suppliers to identify and mitigate risks.

The message from those executives: Being clear about your standards, making sure suppliers aren't punished for transparency, establishing partnerships to help suppliers meet your standards, and rewarding those who succeed are the keys to ensuring that sustainability permeates your supply chain.

"Our suppliers know that sustainability is part of making a deal -- that's really important to us," said Helena Helmersson, head of sustainability for H&M Hennes & Mauritz AB, the world's second-largest clothing retailer, behind Spain's Inditex SA. "We say to stakeholders that whatever you find in our stores you should be able to feel good about."

One important step toward that goal is transparency from suppliers, something the Stockholm, Sweden-based company insists on. "That's really important," said Helmersson. "You will not be punished for being transparent as long as you have a good action plan."

In Bangladesh, where H&M sources 25 percent of its products, the retailer has been confronted with political unrest and violent strikes after 21 workers were killed in 2010 at a factory making products for H&M and other retailers.

Instead of withdrawing from the country, H&M has set a sustainability agenda and engaged both its suppliers and their workers in a dialogue, according to Helmersson. "We do a lot of what we call as capacity building to be able to help the suppliers be compliant," she said.

The company also came under fire last year after several hundred Cambodian workers at garment factories operated by its suppliers passed out in what have been dubbed "mass faintings" that were attributed to poor working conditions.

"That was definitely a surprise where we had asked ourselves, 'Could we have acted even quicker?'" said Helmersson. In the aftermath, H&M concluded that the best way forward was collaboration with suppliers, she said.

The retailer practices what it calls "supplier relationship management" where it not only demands transparency from its partners but it also offers them rewards in return. Those that meet its standards and that are secure, stable, and have the capacity H&M needs are rewarded with stable, long-term business, said Helmersson.

"Today we can clearly see that we book more orders with the suppliers that do the best," she said. "They can see that we stick to what we say."

Privately held Mars Inc., one of the world's biggest chocolate makers, takes the concept of supplier collaboration even further, as it works with cocoa farmers to help improve their yields, a move Global Commercial Vice President for Mars Chocolate Barry Parkin said is key to curbing exploitative child labor practices in the industry.

Another big motivator for the company is the 1 million ton shortage of cocoa that's projected to occur a decade from now. That would erase a quarter of the amount of cocoa produced today.

On both fronts, improving farm productivity is crucial, said Parkin: "If the farmer is struggling, ultimately we are going to struggle." More successful farmers can not only deliver more crops, they can also afford to employ other workers instead of relying on child labor, he said. While he said Mars condemns the worst forms of child labor, he argued that those abuses are rooted in poverty, so helping farmers succeed economically is the solution.

Still, there's only so much one company can do, said Parkin, who called for an even more expansive kind of collaboration to help avert the cocoa supply shortage the industry is projected to confront: partnerships between direct competitors.

"We believe you've got to get more scale to get more impact," he said, "and the way you get more scale is you've got to partner across the value chain."

In the case of Mars, he meant with competitors, but for Sprint, that's meant a variety of partners, including the NGO that brought the lead-poisoning deaths to its attention.

We partner now with that NGO to find out what knowledge do they have of suppliers we do use in China, because they actually have a database that turned out to be a tremendous tool for us on what environmental violations were occurring in China," said Hargroves. "We would not have had access to that on our own."

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