Supply Chain Matters provides a follow-up to our previous posting noting that Samsung was aggressively investigating a report of the existence of child labor practices at one of its production suppliers.

Yesterday, a Reuters story syndicated through quotes a Samsung spokesperson as indicating that while no under aged workers were found at the HEG Electronics Ltd. facility in Huizhou China, as alleged by New York based China Labor Watch, ongoing monitoring will continue.  Samsung further indicates that its audit of HEG identified several instances of inadequate management and potentially unsafe practices.  The article quotes Samsung as indicating the following: “Samsung has demanded that HEG immediately improve its working conditions… If HEG fails to meet Samsung’s zero tolerance policy on child labor, the contract will be immediately severed.

As a result of these finding, Samsung has initiated an unprecedented inspection of all 250 of its China based suppliers within its supply chain. A grouping of 105 suppliers that produce products solely for Samsung are scheduled for inspections through the end of September.  Another 144 suppliers, whom Samsung shares with other electronic OEM providers, are scheduled for inspections through the end of this year. Samsung promises to terminate a supplier contract if any violations are found with the company’s supplier agreements.

Samsung is obviously playing hardball on this matter of supplier social responsibility practices.  Rival Apple has also been in the limelight for excessive work hours and child labor practices among certain of its suppliers, but has committed to work with both the independent Fair Labor Association (FLA) audit group and its respective suppliers to jointly correct any labor practice deficiencies in designated timetables. It appears that Samsung has decided to conduct its own audits without the assistance of a third party independent agency.  The company is also wielding a rather significant stick, the outright declaration of supply contract suspension if suppliers are found to be in violation and corrective actions are not taken to the satisfaction of Samsung. The company obviously feels that it can fall back on either its own component production capabilities or other suppliers to make-up for any loss of a particular supplier.

In our view, some of these actions may be indirectly related to the recent patent violation verdict between Samsung and Apple, as relations and animosity builds among each.  Samsung may be attempting to up-staging Apple in a more aggressive zero tolerance approach in supplier social responsibility conformance. Samsung is also a member of Apple’s supply chain.

In either case, both Samsung and Apple will bring more stark realities for high tech and consumer electronics supply chains to their previous assumptions around lower cost manufacturing within China. These actions point to less tolerance in supplier abuse of social responsibility labor practices leading to higher direct labor costs and/or increased calls for further automation of assembly and production practices. They also challenge other manufacturers to put more teeth into their ongoing monitoring of suppliers for labor practice violations.

Supply chain teams can no longer turn a blind eye to labor abuse among suppliers, and that may well be a desirable trend for all of us as citizens of the world. Such trends however, can trigger significant shifts in supply chain component sourcing strategy.

Bob Ferrari