One of the most common discussion topics among factory general managers in China is compliance to standards and regulations. It is a complex issue, and there is no one-size-fits-all solution...
Environmental Compliance & Social Compliance. What do manufacturers need to focus on?
Factory general managers generally wonder:
- What is really important? (i.e. what can get them thrown in jail, or can get their company in serious trouble)
- Where the limit between ‘tolerable’ and ‘unacceptable’ lies, and whether this will change soon?
- What they can do on a low budget?
- Can they ‘take the high road’ and implement changes that improve competitiveness in the marketplace AND compliance at the same time?
Our COO, David Collins, published an article entitled ‘Building a Better Tomorrow’ about Social and Environmental Compliance in the manufacturing industry in Eurobiz (the magazine published by the European Union Chamber of Commerce in China). He drew on his 30+ years of manufacturing experience to clarify these issues and their impact on the bottom line.
Is there a good way of dealing with social compliance?
This might seem like an odd question. But in China, most factory managers would admit it is not easy.
David stresses that a strong management system (‘do what you say and say what you do’) is an excellent first step. It helps with non-discrimination, it limits corruption, it motivates people, and it improves quality.
Ensuring proper safety is also a no-brainer. Accidental injuries or deaths have become quite expensive to companies – not to mention the threat of serving time in jail.
Treating workers well with nicer food, a basketball court, or special training, is also relatively easy to justify. A high turnover rate is extremely expensive – new employees have to be searched for, vetted, hired, trained, and they cause lower productivity and worse quality for some time. Replacing a production operator usually costs around 3 months of that operator’s salary!
Complying with the labor law, though, is not simple. Nearly all migrant workers believe in the idea of working longer hours than are permitted in order to earn more money. They decide to “eat the bitterness,” as the saying goes, before going back to their hometown and enjoying their savings.
Some manufacturing WFOEs have reduced the number of worked hours. That did not go well for all of them, based on what we saw in our clients’ factories. Changes to the pay scheme are always very sensitive, and fighting the ingrained concept of “working more to earn more” is hard.
Environmental compliance is much more straightforward
Many studies have shown that higher air and water pollution in China leads to a very high cost for society overall. But does it make sense at the level of your company? Yes, it often does.
In a previous article (Lean and Green Manufacturing), David listed numerous ways a factory can save money AND protect the environment at the same time:
- Returnable containers
- Using excess heat from certain equipment to heat other parts of the facility
- Reducing the energy consumption of oversized equipment
- Better application and recovery of powder coating paint
- Using or selling dried liquid paint
- Recuperating dye wash and selling it
- Fixing compressed air leaks
- Placing solar panels on the roof, wind turbines, and so forth
- Last but not least, improving quality in order to reduce re-processing and scrap
There are cases where an investment is necessary to become more environmentally friendly. A case can be made for making that investment now rather than later (once it is compulsory) – you can often get subsidies from the government, and the equipment might get more expensive if demand suddenly surges. Remember, pollution is a political issue in China. Regulations and enforcement are getting stronger and stronger.
What about you? What challenges do you, or your suppliers, face in China? Is social compliance harder to achieve than environmental compliance? Which one is more expensive?