Has your company published a supplier code of conduct? Most likely it has. Is it conducting supplier audits to ensure that the code of conduct is being followed? Maybe. Does it have a plan in place if you turn up something truly ugly? Doubtful. Would you publish those results if they were bad? Yeah . . . probably not.

Enter Apple, which recently released its latest Supplier Responsibility 2011 Progress Report, which outlines the specific findings of its own supplier audits. The results?

“In 2010, our audits of 127 facilities revealed 37 core violations: 18 facilities where workers had paid excessive recruitment fees, which we consider to be involuntary labor; ten facilities where underage workers had been hired; two instances of worker endangerment; four facilities where records were falsified; one case of bribery; and one case of coaching workers on how to answer auditors’ questions.” (Source: Apple Supplier Responsibility, 2011 Progress Report)

 I give Apple high praise for making this information public. Hopefully, it has a ripple effect in the industry and we’ll see more transparency. Public sentiment does not separate the company that assembles an iPad from the Apple brand. Even if you’ve outsourced the supply chain, there’s still a corporate responsibility to ensure that socially and environmentally sound business practices are taking place. And this goes for subcontractor relationships too — yes, in the eyes of the consumer, you are responsible for your supplier’s supplier’s actions. Apple gets this.

 What else can other companies learn here? I encourage all vendor management organization (VMO) and governance, risk, and compliance (GRC) practitioners to read Apple’s report. It’s relatively high level but can still serve as a good foundation to cross-check again your own supplier auditing practices (see Figure 1). Here are a couple of key recommendations:

  1. Create a back-up plan when it comes to mission-critical suppliers.The types of issues that Apple has turned up are more common than most people think. Once you really ramp up an auditing program, your company is bound to unearth labor and human rights, health and safety, and environmental issues with suppliers. What’s the plan when that happens? Companies have to be ready to pull the plug on a supplier as soon as a major violation surfaces. Key takeaway: Do some deep thinking as to what constitutes a “core violation” and come up with a redundancy plan.
  2. For noncore issues, set remediation in place.Once you start terminating contracts, your other suppliers will perk up and pay more attention to their own practices and will be a lot more receptive to any remediation plans put in place. Terminating a relationship with a critical supplier is tough and can disrupt the business. Companies can get ahead of these issues by putting processes and tools in place.

What do you think? Should Apple be congratulated for its openness, or are they just trying to get ahead of the ever-pervasive media by releasing this information themselves?