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Unformatted text preview: shut-down of their suppliers in the field, “we did
not have any of our production capacity cut with this vendor,” said Brandner.
Working in Parallel: Walmart’s Ethical Standards and Compliance Team
Walmart had an organization that monitored supplier compliance with local labor and
environmental laws and the company’s own code of conduct in China and other countries around Walmart’s Sustainability Strategy (A) OIT-71A p. 8 the world. According to Ruben, this organization generally did not participate in sustainability
initiatives, but had recently started collaborating with the China network to more closely align
their efforts. The compliance team, which was led by Rajan Kamalanathan, Walmart’s vice
president of ethical standards and director of compliance, was made up of roughly 200 full-time
associates in 2006 (and had doubled in size since 2002). It conducted approximately 10,600
supplier audits in 2005, with three third-party auditors performing another 3,000 inspections for
the company across a total of 7,200 factories.
The results of audits by the compliance organization directly affected the company’s buying
behavior. Following each audit, suppliers were given a green, yellow, orange, or red rating,
along with an assessment of any necessary corrective actions. These ratings not only determined
how soon another inspection would be conducted, but also were communicated to Walmart’s
buyers. If a supplier received a red rating, Walmart’s buyers were instructed to stop purchasing
from it. In the case of an orange rating and failure to correct the problem within two years, the
same thing happened. In 2005, Walmart terminated relationships with 141 companies as a result
of multiple instances of non-compliance.
One problem with the audit process was the potential for corruption. A Stanford MBA who
served as a supplier to Walmart in China in 2006 noted that, “Corruption is widespread. The
audit companies have the power to hurt the factories, so lots of bribery goes on. Using an internal
audit team might be better, but often these people are hired from the local community so...
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This note was uploaded on 01/14/2014 for the course LGST 210 taught by Professor Sep during the Winter '10 term at UPenn.
- Winter '10