As readers can note from our various past commentaries, business media has had a field day these past months commenting on the various contract manufacturing related labor practices of Apple.  Now the lighting rod focus has shifted toward online fulfillment giant Amazon, and similar to what we concluded with Apple, competitors and other industry supply chains had better pay close attention.

Over the past few weeks, Amazon has received media coverage for its temp labor practices in both Great Brittan and Germany.  Earlier this month The Financial Times ran a full page expose article, Amazon unpacked- What it’s really like to work for the online behemoth.  Amazon has invested more than €1 billion in its UK distribution center fulfillment operations with plans to add an additional two warehouses over the next two years.  While local workers were initially pleased at the arrival of Amazon, they have since been taken aback by both the high pressure labor conditions and perceived lack of permanent full-timer employment.  The article describes how Randstad, a global employment agency under contract to Amazon, handles all employee recruiting, schedules work shifts, and compensates workers, with a select few of the workers offered opportunities to be a full-time Amazon employee.  Also in the article, employees note their beliefs that working at an Amazon fulfillment center are like working in a “slave camp.”

Last week, The Wall Street Journal and other business media reported that Amazon was forced to cut its ties with a German based security firm contracted to oversee security conditions at its German based fulfillment centers during the Christmas holiday period, because of reports that this security firm intimidated and harassed temporary immigrant workers.   A German public television station aired a documentary showing security guards searching workers for pilfered food, unannounced spot-checking of living quarters, with security guards wearing black uniformed clothing associated with German neo-Nazi groups. This documentary sparked outcries for consumers to boycott Amazon in Germany.  For its part, Amazon immediately severed its relationship with the security company and indicated it would investigate claims from temporary workers.

The use of temporary labor in times of temporary surge is a common practice in the distribution and customer fulfillment sector. What has now come under the looking glass is the practices of sub-contracting with labor agencies and firms to secure the bulk of workers, with the perception that big firms are hiding from their responsibilities to be a reliable permanent employer offering competitive benefits.

Supply Chain Matters readers may recall that in late December, Wal-Mart announced that will audit subcontractor warehouses in the U.S. in the same manner that it monitors labor standards at supplier factories across the globe.  The action was a response to claims by California and other state government regulators and labor activists of poor working conditions among a network of certain subcontractor warehousing and distribution facilities scattered across the U.S. The California Labor Commission’s office issued more than $1 million in fines last year to temporary staffing agencies at warehouses operated by Schneider National Inc., a major 3PL services provider for Wal-Mart. That was followed by citing a warehouse operated by NFI Industries with a fine for existing working conditions. Wal-Mart has argued that many of the labor rights violation allegations should have been directly focused toward the 3PL logistics firms which hold existing Wal-Mart contracts. That argument was not holding water with regulators, hence this new announcement of a third-party auditing process.

Similarly, Apple, Samsung, Hewlett Packard and others have taken proactive actions to step-up auditing efforts focused on production sub-contractors who violate recognized labor practices related to pay rates, working conditions, excessive overtime and potential harassment of workers in the workplace.

Economic conditions across the globe remained challenged, especially in Europe, where some countries have experienced double-digit unemployment levels.  In these environments, media and governments pay close attention to employers who are suspected of placing too high a reliance on the subcontracting of direct labor, production, distribution or fulfillment needs.  When the likes of the global giants noted above are swept into these investigations and actions, the ripple effect can and will be enormous.

As noted in our December commentary, retail, 3PL logistics and other industry supply chain teams had better keep a close eye on ongoing developments and take actions to correct any lapse in labor practices.  The issues related to sub-contracting and management of labor practices are gaining increased scrutiny, with huge potential for significantly more impacts in the months to come.

Bob Ferrari