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Wal-Mart takes hard line on supply chain sourcing standards

Wal-Mart
Photo by Bloomberg

Wal-Mart Stores Inc. has stiffened its supply chain sourcing standards to include a “zero tolerance policy” for violations.

The Bentonville, Ark.-based retailer on Tuesday informed suppliers of the changes in a 10-page letter, a spokeswoman for Wal-Mart said in an email.

As part of the changes to its sourcing standards, some of which will take effect as soon as April 1, Wal-Mart warned its suppliers of a “zero tolerance policy for unauthorized subcontracting,” the retailer said in a statement.

The new policy replaces Wal-Mart's three-strikes policy where suppliers with violations were given opportunities to correct them before being terminated.

The changes come after a November fire at a Bangladesh factory that killed more than 100 garment workers, many of whom reportedly were locked in the building. The factory was making clothing for Wal-Mart, Sears Holdings Corp. and The Walt Disney Co., among others.

Such supply chain risks can inflict long-term consequences on a company's reputation.

While the factory in Bangladesh was not authorized to produce merchandise for Wal-Mart due to safety standards, a supplier reportedly continued to subcontract work with the factory.

The “zero tolerance policy” includes “any undisclosed subcontracting conducted with or without the supplier's knowledge by agents, third-party facilities or any other entity within the supplier's supply chain,” according to the statement.

Suppliers also are responsible to communicate Wal-Mart's sourcing standards to all entities within its supply chain.

“We will be compiling a list of unauthorized/red-failed factories to share with our suppliers … and publicly on our corporate website in order to better prevent these factories from entering our supply chain,” Wal-Mart said in the statement.

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Other changes to Wal-Mart's sourcing policies include:

• Suppliers will be required to have company representatives based in-country to monitor compliance.

• New facilities will be required to be prequalified during an audit rating prior to being apart of the supply chain.

• Enhanced fire safety standards will be required in all countries.

• Strengthened processes and protocols for fire safety will be required in Bangladesh.

The new policy changes were distributed to suppliers globally and aim to implement an “industry-leading standard for factory health and safety initiatives,” Wal-Mart said.

“Our objective is to work with like-minded companies to raise the bar for the entire industry,” Wal-Mart said in the statement. “These are the first steps of many as we work to create more transparent and productive supply chains.”

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