What does the food industry have in common with FIFA?

FarmA Four Corners investigation that aired in early May revealed widespread exploitation of labour on Aussie farms and factories who supply some of our country’s major supermarkets.

Some labour hire contractors are playing the middle-man between vulnerable migrant workers and food producers, paying these workers below their entitlements to win lucrative contracts. In some cases, this exploitation extends to slave-like conditions, sexual harassment, and blackmail.

Despite corrupt third-party suppliers being to blame, the ramifications for food producers who were caught up in their scheme have been substantial.

Brand Damage

Many of the farms and factories implicated by these third-party labour hire contractors, will now face the wrath of bad publicity and the prospect of being blacklisted by major supermarkets.

This draws discernible parallels to the ongoing FIFA saga, whereby large corporate sponsors threatened to pull their multi-million dollar investments if CEO Sepp Blatter did not resign. No major organisation in their right mind would want to be associated with an entity with such a basic lack of corporate governance controls. The same goes for an organisation who seems to lack ethical treatment of its human labour resources.

Cost increases

All of the organisations who were employing labour through these disreputable contractors now face substantial cost increases, assuming they are now engaging a more trustworthy supplier. This unavoidable increase in wages will directly impact their ability to compete cost-effectively, and has the potential to completely alter their competitive structure, position in the market, and profitability.

It’s important to note that these consequences don’t solely align themselves with labour hire contractors. Any contractor you hire to aid your supply chain can put your profitability and reputation at risk if not managed carefully.

So, how can you avoid exposing your organisation to the consequences associated with corrupt contractors?

It is essential that you have a sound understanding of the third-party contractors that you are engaging and verify that they are complying with Fair Work obligations and employee visa requirements.

Food suppliers will be highly conversant with the onerous supplier approval and audit processes in place for some of the large supermarket and QSR chains. These supplier assessment processes vary from company to company and are largely focused on food safety exposures. However, the Four Corners program is likely to broaden the extent of these third-party checks and balances.

How well do you know your suppliers?

The processes that you have in place to assess suppliers will directly impact your aptitude for managing risk within your organisation.

To determine how detailed an assessment you need to conduct of your Suppliers, we recommend that you gain a good understanding of the level of risk they present to your organisation.

I have outlined the four basic steps you can take to ensure that you have the correct Supplier assessor processes in place to protect your organisation from unnecessary risk:

  1. Identify all your Suppliers
  2. Assess the potential exposure to risk that your organisation faces with existing suppliers

The level of exposure to risk that a supplier poses to your organisation will be influenced by the degree of interaction you have with them, as well as the nature of the goods or services that they are supplying. For example, a food supplier providing perishable raw materials will require greater scrutiny than a packaging supplier. At this point we need to think more broadly than food safety exposures and consider what other potential exposures that these third-party suppliers could present, such as labour force compliance.

  1. Consider what risk management controls your Suppliers have in place and adhere to.

The contract that is drawn up between your organisation and a third-party supplier should bind them to effective risk management processes relating to the service they offer. A key part of this contract is often the product specification or service level agreement, which generally defines the acceptable parameters for the delivery of the service or product. The necessary controls for the exposures you have identified (in Step 2) relating to the Supplier need to be captured in this process. This will ensure that your Suppliers remain accountable to the risk exposure they present your organisation.

  1. Regularly review the effectiveness of your Suppliers’ risk management controls.

In order to have confidence that your organisation is managing risk effectively, you need to have the same confidence that your supplier is upholding their end of the bargain. Regular evidence that your Supplier is implementing appropriate risk management controls is crucial. This is easier to assess if the expectation has been clearly defined in the product specification or service level agreement.

With full confidence in your supply chain and their commitment to risk management practices, you are able to compete on a stable foundation and focus your energy toward growth opportunities for your organisation.

How well do you know your Suppliers? Rather than let a Four Corners investigation uncover the wrongdoings of your contractors, contact the Victual team today to better understand how you can adequately manage the risk associated with third-party suppliers.