It was about Mr. Sheehan’s bed time. He slipped into his 800-thread count bed sheet. Although he’s never believed it’s actually 800-thread count as advertised, it was still soft and cozy, just the way he liked it. He turned on TV to an old rerun of “I Love Lucy,” which had always helped him to sleep with a smile. Tonight’s episode was his favorite. In it, Lucy works as a factory worker on the assembly line wrapping the chocolates. It looks like an easy job, but the chocolates on the assembly line outrun Lucy’s hands as she tries to pack them. She ends up hiding all the chocolates in her mouth, hat, and blouse. He gives a good chuckle.

Suddenly, Mr. Sheehan’s phone rang. The only person that would call at this late hour would be Li-Pin, the General Manager from his company’s China office, and it’s usually not good news. Not the way he intended on ending his night – but without a choice, he answers the call.

Social Compliance Audit

“Mr. Sheehan, we have a problem…” Lin-Pin blurted. “Han’s factory is going to be shut down by Walmart due to critical violations found in a Social Compliance audit.” Li-Pin’s words tumbled out so quickly that Mr. Sheehan could barely respond.

“What?!” he exclaimed. “Did China Labor Watch publish another report on us? Was it another underage worker again? I thought we just did thorough interviews and checkups with all of them last month?”

“Or was it an over-time problem? Were there no restroom breaks given? Were there problems with the migrant workers’ documents again? Was–”

Wave after wave of painful, past violations and Social Compliance issues flashed through Mr. Sheehan’s mind.

“No sir,” Li-Pin explained. “This time, it was, umm…” He paused and carefully considered his next words.

Underage Workers Violations Discovered

“You know how we increased the production of Item #53516 because of the major TV commercial that we will be airing soon and to meet Walmart’s demand forecast for this Christmas season? The factory’s owner, Han, thought he could handle the volume. But due to a recent worker shortage, Han had to borrow some workers from his brother’s factory.”

Lin-Pin continued, “You see, we just conducted a Social Compliance audit with the Disney and passed everything. We’ve been monitoring this factory ever since China Labor Watch issued its last report on us the past few months. But Walmart came to the factory with an unannounced Audit.”

“As it turns out, two of the workers that Han borrowed from his brother’s factory were underage. That’s a zero- tolerance violation. Walmart just informed us to shut down this factory, stop all shipments from this factory and recall all impacted shipments from the last audit.”

Mr. Sheehan realized that once the damage has been done, there would be no turning back. Trembling with anger, he instructed Li-Pin, “Lets quickly move all the molds and tooling to another factory. Pay them extra to start production. I cannot allow Walmart shipments to stop. We’ve already lost millions and expect to lose more in Walmart chargeback, penalties and future sales.”

Li-Pin replies, “Mr. Sheehan, I tried. But Han is afraid that we won’t pay for the finished goods since we can’t ship them to Walmart. Therefore, he’s holding our molds and tooling for ransom. If we don’t pay him first, we won’t be able to move the molds and tools elsewhere.”

Importance of Social Compliance Requirements

As many other CPG company owners like Mr. Sheehan have come to learn, a slight oversight on a Social Compliance issue can ruin your business. You can get all the PO’s you want from Walmart and produce some great selling products, but failing to conform to Social Compliance requirements could cause irreparable damage to your company and future business with your customers.

Walmart, Sam’s Club and other retailers, as well as licensors, absolutely can NOT afford negative press from factory labor compliance issues. They demand complete factory visibility and will continue to constantly monitor and require announced & unannounced factory audits. This is non-negotiable.

A little carelessness can ruin your business. Don’t let it happen to yours. The costs of noncompliance are devastating, but the benefits of being compliant are priceless.

Paul Chen, Principal

PC Squared Consultants, LLC

Consumer Product Regulatory Compliance, Quality Assurance & Testing Consulting

Proudly serving the Walmart & Sam’s Club supplier community

PO Box 821

Bentonville, AR 72712

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