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March 8, 2006

The Wal-Mart Blog: Is Wal-Mart's Factory Inspections Program a Fraud?

One of the areas where Wal-Mart is proudest of its own performance is in the energetic program it runs to monitor the working conditions in overseas factories that make the stuff we all buy at Wal-Mart.

The last thing Wal-Mart wants is a sweat-shop scandal -- the news that the products in the stores may be cheap, but only because the people who make those products are treated miserably.

In 2004, Wal-Mart conducted 12,500 inspections of factories that supply it with products directly -- factories that make a whole variety of house-branded products for Wal-Mart. That's 34 inspections a day, seven days a week. Indeed, Wal-Mart inspected every single factory that makes products for the company at least once -- 5,300 factories in 60 countries around the world. Wal-Mart has a staff of more than 200 fulltime global inspectors.

It's the most extensive factory inspection effort of any single company in the world -- aimed at making sure that the people who make toys or blue jeans Americans buy off the shelf at Wal-Mart are treated in a civilized fashion.

But if you look closely at Wal-Mart's own 44-page report of its performance (issued last June), Wal-Mart's factory inspection program begins to look like an energetic PR effort, more than a serious effort to protect factory workers.

Of the 12,500 inspections in 2004, only 8 percent were surprise inspections. That means 92 percent of Wal-Mart's inspections of factories in Bangladesh and Nicaragua and China were announced in advance -- the Wal-Mart inspectors made an appointment to come see how the factory was run.

Of those 11,500 pre-announced inspections, at least 8,900 resulted in violations of Wal-Mart's own policies serious enough to suspend the factory, or put it on notice. That’s a 77 percent failure rate.

The Wal-Mart supplier standards program has been in place since 1992. The standards are required to be posted on the walls in factories supplying Wal-Mart, in the local language, so workers themselves can see them. Factory managers are required to sign a copy of the standards, as part of their contract to make merchandise for Wal-Mart.

And yet... in 77 percent of those factories in 2004, with the factory managers knowing Wal-Mart inspectors were coming, Wal-Mart found violations it considered serious.

So what are those factories like on the 364 days a year when the factory managers know Wal-Mart inspectors aren't coming? And how seriously are Wal-Mart's suppliers taking the standards?

This analysis of Wal-Mart's factory inspections first appeared in my just-published book about Wal-Mart, The Wal-Mart Effect. On its website, Wal-Mart has a "statement" about "overseas factory conditions" -- but since the book was published, Wal-Mart no longer links to its own report on that program. You have to find the report buried deep inside the "suppliers" section of Wal-Mart's website, a place few curious shoppers are likely to visit.

Wal-Mart loves to tout the number of factory inspections -- on its website, in press releases -- and to point to the size of the global factory inspection staff. In fact, of course, Wal-Mart opens 5 new Supercenters in the U.S. a week -- that is, one new Supercenter every workday, with each one employing 500 or more people. In that context, the 200-plus factory inspection staff looks awfully modest -- it's less than half the staff of a single Supercenter, of which Wal-Mart opens 250 a year.

More importantly, Wal-Mart's unwillingness to take its own factory inspections program seriously after 10 years -- when the daily lives of real people are at stake -- makes it easy to wonder how seriously Wal-Mart will take its new-found sense of social responsibility in areas like shrimp-farming standards, where only the lives of shrimp are at stake.

Fast Company senior writer Charles Fishman, who has been with the magazine since Issue #1, is the author of a bestselling book about Wal-Mart, The Wal-Mart Effect, which grew out of a story he wrote for Fast Company called, "The Wal-Mart You Don't Know." (A chapter of the book was excerpted in Fast Company's January/February issue, "The Man Who Said No to Wal-Mart.")

We've asked Charles Fishman to guest-host the Fast Company blog this week, to do a series of postings on the ways Wal-Mart is talking about changing its business; to look at how seriously we should take those changes; to consider their possible wider impact, and Wal-Mart's chances for success.

Posted by Charles Fishman at March 8, 2006 1:28 PM | Category: wal-mart | 7 Comments