The Wall Street Journal and other business media are reporting that Wal-Mart will adopt a “zero tolerance policy” for suppliers who subcontract Wal-Mart orders to outside factories without that retailer’s knowledge. This new policy change, which is being communicated to suppliers in a 10 page letter, is expected to take effect on March 1.

The new policy supersedes the previous “three strikes” approach, which allowed Wal-Mart suppliers the time to address sub-contract sourcing issues discovered, and comes in the wake of the tragic fire within a sub-contracting clothing factory located in Bangladesh, which was working on Wal-Mart branded apparel.  Wal-Mart further indicates that it will require suppliers to pass preapproval audits before suppliers are allowed to do business with the retailer, and specifically that all factories located in Bangladesh must undergo additional safety standard checks in electrical and building safety.

Suppliers have been invited to Wal-Mart Bentonville corporate headquarters on Thursday for a briefing on required safety changes.  The retailer further indicates that in order to alleviate any future confusion, it will publish on its web site the names of any suppliers that are not authorized to do business with Wal-Mart suppliers.

Global based labor rights activists are reported to be negatively reacting this latest announcement because it does not specifically address financial incentives to suppliers to institute required wage and safety standards at sub-contracted factories. Wal-Mart on the other hand, indicates that it will investigate the creation of a fund or revolving line of credit those supplier factories can tap to make improvements.

From our viewpoint, Wal-Mart is once again leveraging its massive purchasing power and tendencies to “mandate” supplier requirements.  A more two-way dialogue with the retailer’s primary and secondary suppliers, certain labor rights groups and other industry action groups would provide a more constructive set of actions that could address the broader industry problem of financial resources to institute labor and safety standards among primary and secondary suppliers.   We trust that the upcoming briefings regarding the new policy would allow for more two-way interaction that would address the broader problems identified by industry participants.

Bob Ferrari