The Atlantic

Over the three years of a cow’s lifetime, an animal might move among as many different owners, since it can be cost-effective for farms to specialize in a particular phase of life. This makes it difficult for beef buyers such as Campbell Soup Company to say with certainty where a cow was raised—never mind what it’s been fed and how it’s been treated, explains John Tran, who works in procurement at Campbell’s.

The people who manage a company’s supply chain determine what a company is made of—or at least what its stuff is made of. It’s hard to imagine a more important role. And it’s a difficult one: Supply chains are increasingly fragmented and tough to manage, as specialization and outsourcing have become standard practice.  That experience isn’t limited to sourcing food. Today most brands are logos with wallets, outsourcing their manufacturing and production—in the case of the apparel, footwear, and electronics industries, to countries where labor protections are weak and enforcement weaker. Tragedies such as the 2013 Rana Plaza factory collapse in Bangladesh show the risks of a far-flung supply chain.

Dan Viederman is CEO of Verité, a nonprofit that works with companies including Warby Parker, HP, and Disney to improve working conditions in their supply chains. He calls today’s infinite fragmentation the “Humpty Dumpty economy,” saying that the “dynamism of the outsourcing economy is faster and better compensated than those of us who are trying to put the pieces back together.”

The companies that have benefited from the growth in outsourcing over the past few decades now dwarf their buyers, and have suppliers and sub-suppliers themselves. Foxconn, which makes some 40 percent of the world’s electronics, has hundreds of thousands of employees at sites around the world.

Even the biggest buyers comprise only a tiny percentage of these companies’ business, which means individual companies have little leverage to enforce labor standards or environmental controls, violations of which are rarely visible in the final product. It’s much easier to hold a supplier to account for using the wrong kind of paint than for cheating workers out of overtime.

Since the 1990s many companies have hired staff to focus on improving labor conditions in supply chains. But tragedies like Rana Plaza show that they’re not even close to fixing the problem.

Part of the challenge is that the people managing these issues in the supply chain report to the people managing, well, the supply chain. If a corporate-responsibility specialist writes an email to the production manager eight weeks before Christmas flagging the fact that an underage worker was found in a factory, that email is likely to get ignored until (at least) after the holiday rush. Occasionally, the staff who focus on labor rights have the power to cut off a supplier, but that is the exception rather than the rule.

Some companies have realized that one effective tool is the incorporation of human rights and environmental protections into contracts. Disney does this. As Laura Rubbo of Disney’s international-labor-standards team told me: “If you don't put an obligation to adhere to certain requirements in your contracts with suppliers, then there's not a whole lot to hang your hat on when you’re talking to them about what they have to undertake and demonstrate.”

Once vendors are selected, though, there is still too much emphasis on audits. Walking through factories with checklists is a good idea but has become the end rather than the means: As the saying goes, you don’t fatten the pig by weighing it. Companies aim to maximize the number of audits without assessing whether any of the underlying root causes have been addressed—for example, repeated excessive overtime violations could be due to faulty or outdated equipment, or to buyers placing orders with unrealistic deadlines.

Verité’s Viederman thinks that the focus has wrongly been on activity rather than outcomes, whereas companies should be setting goals and working backwards from there. He cites Apple’s securing the return of nearly $21 million in recruitment fees to factory workers since 2008 as a good example (which Verité worked with them on):

Had they taken the usual approach, they would have conducted some social audits, identified the problem of debt bondage, ordered the suppliers to fix it, and waited for the next audit to demonstrate that the problem hadn’t been solved.

Instead they set out a clear vision of success: the elimination of fees paid by workers to labor recruiters. Then they didn’t simply pay the fees or address the symptoms, but worked to address the root of the problem, which is an over-reliance on unregulated and unexamined recruiters.

They spent money and staff time working with suppliers to help them understand the issue and develop a timeline and plan for them to comply. Then Apple held everyone accountable to the new standard, and continues to do so.

It is worth noting that “suppliers” are companies in their own right, and cannot be allowed to violate human rights because they don’t have a brand that’s a household name, or because they’re small, or because they’re in a country where the government is failing to enact and enforce laws that protect its people.

But even so, the onus falls to the big brands whose reputations are at stake and who have the cash to care. Those brands must collaborate with each other, given that many of them share suppliers. Doing so would avoid redundancies that waste time and money: In 2006 I visited a factory in Bangkok that had three fire extinguishers on a wall at different heights to conform to different brands’ codes. Consolidating codes, sharing audits, and splitting the costs of upgrades are among the aims of two initiatives that arose in the wake of Rana Plaza, the Alliance for Bangladesh Worker Safety and the Bangladesh Accord on Fire and Building Safety. And yet, there are two of them, which suggests that not everyone is ready to work together.

Understanding root causes and working with other companies and experts is much harder than walking around with a clipboard and breezing through checklists. But it is the only way that supply-chain managers can effectively help the workers that make their business possible.

In our next and penultimate installment of this series, we’ll take a tour through a handful of other corporate roles and functions and explore how they can drive change.

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