Inspectors visited a Wal-Mart-certified factory in Guangdong province in China and left, approving its production of more than $2 million in specialty items that would land on Wal-Mart’s shelves in time for Christmas.
But unknown to the inspectors, none of the playful items, including reindeer suits and Mrs. Claus dresses for dogs, that were supplied to Wal-Mart had been manufactured at the factory. Instead, Chinese workers sewed the goods - which had been ordered by the Quaker Pet Group, a company based in New Jersey - at a factory that had not gone through the certification process set by Wal-Mart for labor, worker safety or quality, according to documents and interviews with officials involved.
To receive approval for shipment to Wal-Mart, a Quaker subcontractor just moved the items over to the approved factory, where they were presented to inspectors as though they had been stitched together there and never left the premises.
Soon after the merchandise reached Wal-Mart stores, it began falling apart.
Fifteen hundred miles to the west, the Rosita Knitwear factory in northwestern Bangladesh - which made sweaters for companies across Europe - passed an inspection audit with high grades. A team of four monitors gave the factory hundreds of approving check marks. In all 12 major categories, including working hours, compensation, management practices and health and safety, the factory received the top grade of “good.” “Working Conditions - No complaints from the workers,” the auditors wrote.
Ten months after that inspection, Rosita’s workers rampaged through the factory in February 2012, vandalizing its machinery and accusing management of reneging on promised raises, bonuses and overtime pay. Some claimed that they had been sexually harassed or beaten by guards. None of those grievances were reported in the audit.
As Western companies overwhelmingly turn to low wage countries far away from corporate headquarters to produce cheap apparel, electronics and other goods, factory inspections have become a vital link in the supply chain of overseas production.
However, Dara O’Rourke, a global supply-chain expert at the University of California, Berkeley, said little had improved in 20 years of factory monitoring, especially with increased use of the cheaper, check-the-box inspections at thousands of factories. “The auditors are put under greater pressure on speed, and they’re not able to keep up with what’s really going on in the apparel industry,” he said. “We see factories and brands passing audits but failing the factories’ workers.”
The Rana Plaza factory collapse in Bangladesh, which killed 1,129 workers in April, intensified international scrutiny on factory monitoring, and pressured the world’s biggest retailers to sign onto agreements to tighten inspection standards and upgrade safety measures.
While many groups consider the accords a significant advance, some longtime auditors and labor groups voice skepticism that inspection systems alone can ensure a safe workplace. After all, they say, the number of audits at Bangladesh factories has steadily increased as the country has become one of the world’s largest garment exporters, and still 1,800 workers there have died in workplace disasters in the past 10 years.
“We’ve been auditing factories in Bangladesh for 20 years, and I wonder, ‘Why aren’t these things changing? Why aren’t things getting better?’” said Rachelle Jackson, the director of sustainability and innovation at Arche Advisors, a monitoring group based in California.
FLAWS IN AUDITS
Factory-monitoring companies have established a booming business in the two decades since Gap, Nike, Wal-Mart and others were tarnished by disclosures that their overseas factories employed underage workers and engaged in other abusive workplace practices.
Each year, these monitoring companies assess more than 50,000 factories worldwide that employ millions of workers. Wal-Mart alone commissioned more than 11,500 inspections last year. Spurred by heightened demand for monitoring, the share prices of three of the biggest publicly traded monitoring companies - SGS, Intertek and Bureau Veritas - have all increased about 50 percent from two years ago.
The inspections carry enormous weight with factory owners, who stand to win or lose millions of dollars in orders depending on their ratings. With stakes so high, factory managers have been known to try to trick or cheat the auditors, sometimes offering bribes. Often notified beforehand about an inspector’s visit, factory managers will unlock fire exit doors, unblock cluttered stairwells or tell underage laborers not to show up at work that week.
Greg Gardner, the chief executive of Arche Advisors, said Western retailers and brands often seek different levels of audits. Some, such as Levi’s and Patagonia, want rigorous - and costly - audits, while others prefer limited, inexpensive audits that will not jeopardize relationships with favored suppliers.
Audits can be very brief. A single inspector might visit a 1,000-employee factory for six to eight hours to review all types of manufacturing concerns, such as wages, child labor or toxic chemicals. Some auditors receive only five days of training, whereas the U.S. Occupational Safety and Health Administration requires three years of training and experience assisting inspectors before employees can lead an inspection of a sizable factory in the United States.
BYPASSING INSPECTION RULES
In mid-2011, the Quaker Pet Group, whose biggest customer was Wal-Mart, began looking for cheaper factories where its trendy dog clothes could be made, according to a former Quaker employee who requested anonymity for fear of reprisal. The company has also sold its goods to Petco, PetSmart and smaller retailers.
Quaker settled on a plant called Jiutai Bag and Gift Factory in Dongguan, Guangdong. After visiting the site, Quaker’s president, Neil Werde, sent a note to a Jiutai representative in June 2011. “I was pleased with your factory,” Werde wrote, according to an email shared by the former employee. “Good luck on the Walmart inspection.”
That inspection did not occur. Quaker officials became concerned that Jiutai would not be able to pass an inspection, the former employee said.
But there was a workaround. While Jiutai would make the garments, Quaker would fill out order forms to say that the items had been made by Ease Clever Plastic Manufactory, then an approved Wal-Mart supplier. Ease Clever is an established manufacturer that ships products to Target and other large companies, according to the global trade database Panjiva. Jiutai, by contrast, had only one recent listing in the database, for a small shipment to Puerto Rico in 2011.
Contacted by telephone last month about the inspection and shipment, Jay Xie, a sales manager for Ease Clever, said the company had allowed the use of its Wal-Mart certification.
“His factory had not yet been audited - he used my factory because it was already audited,” Xie said of the Jiutai factory manager. Xie said this had happened only once, as a friendly act to help a fellow manufacturer.
The shipment, though, was late, according to the former employee. And soon after Wal-Mart started selling the items, Quaker began receiving complaints, according to the former employee. When Wal-Mart conducted a quality test on the Mrs. Claus dress, it found holes, and the outfit failed.
Wal-Mart executives then summoned Quaker employees to its sourcing office in Shanghai for an explanation, but Quaker did not disclose the subcontracting to Wal-Mart at that time, the former employee said.
In March 2013, Wal-Mart received a tip, through its global ethics hotline, about the unauthorized subcontracting and looked into it.
Kevin Gardner, a spokesman for the company, confirmed that subcontracting in this case occurred in 2011 and that Wal-Mart officials “met with the supplier after the investigation to go through the findings and reinforce what our expectations are pursuant to subcontracting.”
Even though Wal-Mart was alerted to the case nearly two years after the products were made and only after a hotline tip, the retailer pointed to the episode as an example of how its investigation and compliance system was working, not faltering.
“We investigated. We talked with the supplier. We think this does show the processes were in place,” Gardner said.
CAT-AND-MOUSE GAMES
Supply-chain experts and monitors say that far too often, factory managers play cat-andmouse games with inspectors because they are desperate to avoid a failing grade and the loss of a lucrative stream of orders.
The experts provided real-life examples: To avoid appearing illegally overcrowded, one factory moved many machines into trucks parked outside during an inspection, a monitor said.
Whenever inspectors showed up at certain plants in China, the loudspeakers began playing a certain song to signal that underage workers should run out the back door, according to several monitors.
During inspections in India, some factories displayed elaborate charts detailing health and safety procedures that, like stage props, were transferred from one factory to another, another monitor said.
For monitoring companies with major retailing clients, the auditing regimen can be nonstop. The territory itself is daunting - 5,000 factories produce garments in Bangladesh alone.
A retailer that uses 1,000 factories worldwide might want to pay no more than $1,000 an inspection - that could mean a one-day, check-the-box audit - instead of $5,000 for thorough, five-day inspections. That would cost $1 million instead of $5 million.
“You have this intense price pressure downward on these inspection firms, turning them into a commodity business,” said O’Rourke of UC, Berkeley.
Auret van Heerden, president and chief executive of the Fair Labor Association, a nonprofit group that Apple uses to monitor its Foxconn factories in China, said many inspectors were too rushed.
“Many are doing a factory a day, and many auditors, more than one factory a day,” he said. “They’re on a plane and going to a new city the next day. They don’t have much time to think about it or dwell on it.” Information for this article was contributed by Keith Bradsher of The New York Times.
Front Section, Pages 1 on 09/03/2013