Building for the Future

Ethical sourcing goes beyond monitoring; it is also about addressing the inherent complexities that are at the root of non-compliance and driving improvements in working conditions globally. Wal-Mart has observed changes in factory conditions and witnessed success stories as a result of the Ethical Standards Program. Regretfully, Wal-Mart has also observed that many of the same issues continue to occur.

Wal-Mart is working to increase collaboration with other stakeholders. Wal-Mart is also looking to transform its sourcing process and create a more proactive structure for tracking and giving incentives to suppliers that uphold the Standards for Suppliers. Wal-Mart is continuing to review its sourcing model to identify how it can address the barriers that may contribute to non-compliance, such as short lead time for production and last minute design changes. Wal-Mart's objective is to establish a model that is based on positive reinforcement and incentives rather than policing and punitive measures. Incentives would come in the form of longer-term supplier relationships and future business. The overarching goal is to fully integrate labor compliance and social responsibility into all purchasing decisions.

Wal-Mart is exploring a number of mechanisms that can be used to effect a positive change in factories producing imported and domestically sourced merchandise, such as:

• Enhancing training for Wal-Mart buyers, merchandisers, and sourcing managers so that they are well equipped to support and reinforce Ethical Standards vision as they interact with suppliers and make sourcing decisions.
• Pre-qualifying factories before the selected supplier factories are allowed to produce merchandise for sale by Wal-Mart. Pre-qualification of factories producing both imported and domestically sourced merchandise is scheduled to take place in phases over the next few years.
• Keeping a scorecard that includes Ethical Standards and rewarding suppliers and factories that score well with the incentive of future business.

All of the above considerations point to a need for a transformation in the Company-supplier relationship, shifting from a primarily transactional association (purchase orders) to longer-term commitments. If suppliers can depend on future business as a result of positive performance, they will have more incentive to meet or exceed the Standards for Suppliers. Wal-Mart envisions that these measures will improve factory audit results. The goal is for suppliers to deliver consistently higher-quality merchandise produced in factories that demonstrate a strong commitment to Wal-Mart's labor and environmental standards.