The Wall Street Journal and other business media reported today that global retailer Wal-Mart will audit subcontractor warehouses in the U.S. in the same manner that it monitors labor standards at supplier factories across the globe.

In the view of Supply Chain Matters, this development has huge implications on third-party (3PL) warehousing and logistics firms for many months to come.

This action is a response to recent claims by 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 issues are more complex, since as retail supply chain logistics teams are aware, these subcontractor warehouses also incorporate the use of other third part labor hiring firms to staff warehouse operational needs. The WSJ article (paid subscription of free metered view) quotes a California labor commissioner indicating that: “… retailers are trying to abdicate responsibility for their supply chains by hiding behind subcontractors. It’s not an accident that the more levels of subcontracting, the worst the violations we find.” According to WSJ article, 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.

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. It would now appear that this argument is not holding water with regulators, hence this new announcement of a third-party auditing process. The auditing process is characterized as including unannounced auditor visits to all third-party warehousing and distribution facilities.

The WSJ further notes that state regulators are not all that appeased with Wal-Mart’s auditing process response, citing the recent labor abuses that occurred in third-party contracting factories in China and Bangladesh as evidence of the need for the retail industry to reform its practices of turning a blind eye to the actions of sub-contractors.

Obviously, there is more to come regarding this breaking news.  However, retail, 3PL logistics and other industry supply chain teams had better keep a close eye on ongoing developments.  The issues related to sub-contracting and management of labor practices are about to gain increased scrutiny, with the potential for significant impacts.

Bob Ferrari