IS CHINA A SUPPLY CHAIN RISK? LEARNINGS FROM THE JIANGSU EXPLOSION

IS CHINA A SUPPLY CHAIN RISK? LEARNINGS FROM THE JIANGSU EXPLOSION

On March 21, a devastating explosion occurred in a chemical plant in Xiangshui, Jiangsu, China. 78 people lost their lives, over 617 persons were injured. Sadly, the explosion is not an isolated occurrence, but one in a long series of deadly accidents. If your company has high-risk suppliers in China, we encourage you to make sure your due diligence processes are watertight.

The blast in Jiangsu is the latest in a long series of deadly explosions in chemical plants. A blast in Tianjin in 2015 killed 173 people (source), another one in Dongying, China killed 13 in the same year (source), and 23 people left their lives in Hebei Province in 2017 (source). Not only the chemical sector is affected though: an explosion in a factory that manufactures automotive parts killed 146 workers and injured 114 others (source) in Kunshan, Jiangsu, in 2014.

The ones most affected in catastrophes like these are without any doubt the workers: many of them lose their lives, and many more lose their jobs. On a quite different level, however, there can be a significant impact on the customers:

  • Supply chain disruption can lead to scarcity of (raw) materials
    • The failure to ensure safe working conditions at the supplier reflects negatively upon the sustainability performance of the buyer
    • As shown in the case of Pakistani workers against the German textile discount store KiK, buyers can face lawsuits if they fail to ensure safe working conditions in the supply chain
    • Accidents and incidents in the supply chain reflect negatively upon the reputation and image of the buyer

All of these aspects point to one conclusion: a risk in your supply chain is a risk to you.

Managing Supply Chain Risks: Due Diligence on Workplace Safety & Human Rights

If the safety of workers is at risk in your supply chain, you are expected to manage that risk – even if you have no immediate control over it. Due diligence is the risk management process to identify, prevent and mitigate negative impacts on the rights of workers in your operations and supply chain.

Let’s link that back to the Jiangsu explosion and how to avoid such accidents in your supply chain:

  1. Determine the level of risk: The risk assessment usually considers factors like location, nature of the operations, track record of the region/country, availability of audit results, certificates, results of self-assessments and surveys, etc. In the case of the Jiangsu explosion, the fact that they work with hazardous and highly explosive chemicals, combined with the poor track record of the region, should have been sufficient to classify the supplier as high risk.
  2. Identify specific risks: once a supplier has been categorized as high-risk, it is necessary to get a better understanding of the situation on the ground. This can be achieved through site visits, workplace inspections and social audits.
  3. Taking measures to mitigate the risk: If step 2 confirms that the supplier presents risks that you are unwilling to support, you need to take measures to reduce that risk to acceptable proportions. This typically involves a combination of working with the supplier to improve workplace safety, closing gaps and nonconformities, and audits to track and verify progress. However, it can also entail ending the relationship with the supplier.

Could the Jiangsu disaster have been avoided this way? We will never know for sure. What is certain, however, is that companies will increasingly be held accountable for the working conditions in their supply chain. While nobody expects companies to be able to exclude accidents entirely, there is the expectation to make every reasonable effort. That is exactly what due diligence is.

How DQS can help

DQS has highly qualified personnel across the globe, and China is no exception. With 12 offices in mainland China, we have local auditors and assessors who are familiar with the local and regional situation. All services are brought to you under the technical supervision of DQS Group.

We can support your responsible sourcing and due diligence processes with:

 

Source: DQS CFS website (https://dqs-cfs.com/2019/05/is-china-a-supply-chain-risk-learnings-from-the-jiangsu-explosion/). For more information, please send email to info@dqs.com.my.