Supply Chain Matters has had a number of commentaries pointing out that supply chain risk mitigation not only includes the threat of physical supply disruption, but also matters of social responsibility and fair labor practices.  The risk is fundamental, it involves the reputation of your business and your brand.

There have been a number of previous high profile past examples including Nike, who’s brand came under enormous pressures with discoveries of child labor violations involving offshore manufacturing.  Then there are top of mind examples, including Gartner’s number one ranked supply chain Apple, who continues to both react to and respondto audit findings regarding labor practices at its prime contract manufacturer as well as some of its suppliers. In our prior and other subsequent commentaries, we noted that when a company like Apple is deservedly ranked number one on nearly every researcher’s top supply chain listing, the ranking comes with a high bar of expectations.  We all expect such a company to set world class benchmarks in many supply chain capabilities including supplier and social responsibility.  We also opined that while Apple may be feeling the heat, there are many other firms dealing with the same challenges.  The “biggest dog in the pound” often gets the most visibility, scrutiny and scolding.

Today, another high profile supply chain, Nestle, is openly responding to a social responsibility finding. The Fair Labor Association, the same agency that Apple called in to audit its supply chain, discovered that child labor practices exist in the cocoa supply chain of Nestle.  For all those readers who indulge in chocolate, cocoa is the prime supply ingredient. A BBC News article related to this development runs with the headline, Nestle “failing” on child labour abuse, says FLA report. It reports that Nestle commissioned the FLA report after receiving enormous pressure, and that public awareness of the problem dates back to 2001 with a U.S. Congressional investigation and subsequent agreement to end the problem.  Reported abuses include both labor practices and rampant injuries. The FLA found that while Nestle insisted that primary suppliers, mostly multi-national in scope, had agreed to remediation practices, actions went no further to smaller entities and farms, where four-fifths of its cocoa supplies originate. The FLA report also notes that while 20 percent of cocoa can be traced under Nestlé’s Sustainable Farming Program, the rest comes from a “standard” supply chain which is not transparent.

The FLA report found that cocoa farms in Cote d’lvoire are utilizing child labor and subsequently made 11 recommendations to Nestle to mitigate this situation.  We should also point out that the FLA report also indicates that suggestions for Nestle are applicable to other chocolate producers, among them being Mondalez International (new snacks entity from Kraft Foods) and Hershey. We also reference a published Bloomberg article that provides further details to the findings.

For its part, Nestle has communicated a number of high profile actions to respond to and mitigate this situation, including a direct quote from the company’s Executive Vice President of Operations indicating that tackling child labor is a top priority. Nestle also states that while farmers need to run profitable farms, child labor cannot be a means to this objective. Nestlé’s Cocoa Plan is described as a multi-year effort of education, training and business practice actions including cocoa sourcing targets for suppliers certified by the plan. According to Nestlé’s press release, the target this year is set at 10 percent sourcing, while the 2013 target is set at 15 percent.  In our view, these numbers are either appearing too conservative or reflect a far more complex set of hurdles to overcome.  To be fair, the target Ivory Coast area in question has had a long history of political and civil unrest. In any case, we trust Nestle and its cocoa supply chain team will revisit their commitment and assumptions in the coming weeks.

Judging from the length and depth of the response, including produced video, Nestle management has had some time to respond to the FLA findings, but can be noted from just two of our referenced articles, business media is taking full advantage of public concerns, especially since many consumers can relate to their love for chocolate.

As was noted in the ongoing Apple developments, while one of the biggest supply chain dominants gets the bulk of the negative spotlight, the rest of the industry had better play close attention.  It may have been convenient to turn a blind eye and place social responsibility practices across the supply chain in neutral status, the issues of abuse now span multiple industries.

Bob Ferrari