Why is Wal-Mart Cracking Down on Suppliers?

Wal-Mart (NYSE:WMT) once had a “three strikes” policy for policing its suppliers, but after it became public knowledge that some of its clothing items were made at a Bangladesh factory where a fire killed 112 people in November, a facility the company was no longer supposed to use, the retailer changed its position. Now, Wal-Mart is telling suppliers that it may adopt a “zero tolerance policy” for violations of its global sourcing standards, reported The Wall Street Journal on Sunday.

In a 10-page letter seen by the WSJ, the company informed its partners that it will end business relationships with suppliers that subcontract manufacturing to factories without its permission.

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“Obviously our three-strike policy wasn’t working as well as it could have,” Rajan Kamalanathan, the company’s vice president of ethical sourcing, said in an interview with the publication. “Our message of zero tolerance is meant to get people’s attention.” He added that Wal-Mart will begin listing the names of factories on its corporate website that are not authorized to conduct business with its suppliers for more “accountability and transparency.”

To ensure that safety standards are met, all factories will be required to pass pre-approval audits before beginning partnerships with suppliers.

But labor activists think that the new policies do not address the most concerning problem: the fact that Wal-Mart pays its suppliers fees too low to cover fair wages and safe working conditions at factories. They also find the new fire-safety guidelines at Bangladeshi factories to be inadequate. Instead, the activists, including the non-profit Worker Rights Consortium, have called for factories to be monitored independently to keep Wal-Mart accountable.

Wal-Mart suppliers will meet at the company’s headquarters on Thursday for a meeting on the safety changes. The retailer told the WSJ that the new standards and its continuing efforts to strengthen its monitoring program will improve safety conditions at the end of its supply chain.

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