Business | August 01, 2011

Sustainability should include humans

Recent C-level attention has spotlighted the bottom line benefits of measures to improve sustainability, typically defined in terms relating to environmental impact, including reducing carbon emissions, waste and the use of natural resources.
What apparently isn’t being discussed as much in the C-suite is the human impact of the exploitation of low labor cost regions, which should be more prominently included in any discussion of sustainability and corporate social responsibility. When the global manufacturing center of gravity first shifted to Asia and other low cost regions, executives may have been ignorant of the true human cost of these dirt cheap prices; now, however, after decades of journalists revealing human rights abuses, no executive can hide from these realities.

Furthermore, decision-makers in the electronics industry have an even greater duty to act responsibly, since manufacturing these types of products carries much higher risk to human health and safety than a few kids sewing soccer balls together in a distant village.

One specific electronics industry practice encourages – in fact mandates – companies to constantly push the envelope in this regard: draconian contractual terms that require continual price reductions. This practice defies logic, as costs clearly can’t go down indefinitely as they would eventually reach zero. The search to satisfy these contractual requirements leads manufacturers to find new ways to cut costs. At this point, the outsourcing dividend has been spent. The low hanging fruit is gone. Mid-market companies with lower volume requirements never enable the economies of scale the industry was designed to leverage. So where do new cost reductions come from?

The answer is not pretty. Business owners in low cost regions, where government regulations are minimal and there are still pockets of desperate poverty, are creative and resourceful when it comes to competitive bidding. You want a cheaper metal stamping? We’ll give you that price by getting the process done, not with the machines that do it safely, but by hand by older Chinese workers willing to endure flying metal fragments and horrendously unsafe working conditions .

You want cheaper plastic molding? No problem, as long as you don’t mind your parts being made from grindings from old toys, plastic pens and other refuse. Will you find out about it before it’s too late? Only if you really intend to figure out how the price can be so low before the contract is awarded.

Yes, dangerous practices in unregulated geographies are still occurring, and with even greater guile and secrecy.

We realize that with globalization comes an increasing pressure to cut costs from one end of the supply chain to another. Emerging markets represent a huge opportunity for electronics companies in all market sectors and the jobs go to the lowest bidder. Period. Yet companies still must find the will to resist the temptation to win the project at any cost because that’s where the pressure starts, and cost reduction mandates then ripple down to the last metal stamping.

During the years preceding the U.S. Civil War, there were many business reasons put forth to justify why slavery in the South was an absolute economic necessity: You can’t grow cotton without slavery. People need inexpensive clothing. Most slaves are being treated better than factory workers in the North. That all seems ridiculous and unimaginable now, but listen to some of the arguments for allowing teenagers to work 12-hour shifts without bathroom breaks.

It has to come from the top. C-level executives have to make it clear that cost reductions must come from real improvements in efficiencies arising from technology advances, not by exploiting desperate people. There is a bright line, and everyone knows the difference. It just takes leaders willing to include humans in the definition of sustainability and unwilling to turn a blind eye on the practices they now know are being used to cut costs.

Author: Jennifer Read, Principle CBA
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