Domestic Labor Issues Pose Hidden Supply Chain Risks

Companies have long known that visibility into the workplace practices of far-flung offshore suppliers is an essential component of supply chain risk management. Many enterprises lack that visibility, even though it is gaining in importance across global supply chains.

The COVID-19 crisis is now making it clear that workplace conditions closer to home may need to come under similar scrutiny.

In the US, the vulnerability of employees in meatpacking plants to infection from the coronavirus is one issue that is shining a light on domestic workplace practices. The vital role these individuals – and countless others toiling in factories, plants, and farms – play in domestic supply chains has become painfully obvious.

Multi-sector stoppages underscore risks

Meat processing plants around the U.S. shut down this April when coronavirus infection rates among workers spiked in the facilities. President Trump signed an executive order to force the plants to resume production, citing the threat posed to the national meat and poultry supply chain. Such was the severity of the disruption that John Tyson, board chairman at Tyson Foods Inc. said in a full-page ad in the New York Times that “the food supply chain is breaking.”

Meat and poultry supply chains are not the only ones that have become compromised by pandemic-related workplace pressures.

“Farms and orchards across the US are scrambling to ensure a steady supply of workers – and keep them healthy – as the pandemic highlights a critical vulnerability in America's food chain: labor,” reported the Wall Street Journal on March 31, 2020. The pandemic is restricting the supply of agricultural migrant workers and threatening the health of individuals in the fields.

On May 1, 2019 – International Workers Day – workers at Amazon, Instagram, Whole Foods, Target, and Walmart staged one-day “sickout” protests to convey their concerns about working conditions and the risks associated with the coronavirus pandemic in their places of work.

Disputes of this type and related disruptions to supply chains will probably continue as long as the pandemic – and the widely-predicted recession it induces – upend the U.S. economy.

Consumers are well aware of the fallout. For instance, retailers such as Costco and Kroger have introduced restrictions on how much meat that individual shoppers can buy due to product shortages.

The social responsibility connection

As these upheavals sensitize consumers to labor issues, research suggests that the pandemic could be building support for brands perceived as socially responsible. Such support is associated with increasing investor and consumer interest in the welfare of employees as a component of sustainability.

For example, this April consulting firm Ernst & Young released the results of research on how COVID-19 is changing consumer behavior. In the E&Y consumer survey, more than one-quarter of respondents said they would try to patronize brands they can trust and another quarter indicated their willingness to pay more for ethical brands in the recovery from the pandemic. The findings suggest that current and future efforts to build a brand's social responsibility cache will influence customer loyalty and market base growth more than ever as the pandemic reshapes consumer spending.

There are indications that investors are favoring brands that score well on environmental, social, and governance (ESG) measures as the COVID-19 crisis roils markets. These brands are known for practices that support workers with better working conditions and other benefits. They recognize the sacrifice that ground floor employees make in this time of need, by prioritizing flexible working hours and higher overtime pay and enforcing critical safety precautions.

Attitudes within supply chain less clear

Within supply chain circles, concern over the lot of these workers is not clear cut.

A study by MIT CTL in collaboration with the Council of Supply Chain Management Professionals surveyed 1128 supply chain professionals at the end of 2019 about which areas they focus on to make supply chains sustainable. For firms with publicly stated goals, labor issues represented the top three areas of focus of those goals relating to fair and equitable work. However, when it came to investments in supply chain sustainability, fair pay was cited as the fifth most significant investment area. This finding suggests there is a mismatch between what is voiced as critical to equitable work practices and the reality for low-paid workers.

This ambiguity was reflected in an online poll conducted at MIT CTL's virtual conference Crossroads: Understanding Uncertain Futures, on April 28, 2020. Out of the 155 supply chain managers and executives polled, 67% said they foresee higher investing in supply chain sustainability in the post-pandemic recovery. Fifty-two percent of respondents indicated that these investments might entail a significant focus on worker health and safety. However, only 14% expressed optimism about fair pay for supply chain workers.

The picture is even murkier when undocumented immigrants are involved, as is often the case in industries such as agriculture. The uncertain status of these individuals compounds the labor problems that companies face. Some states, such as California, have launched initiatives to support immigrants during the Covid-19 disruption, including those who are undocumented. These states recognize that immigrant workers fulfill a critical role in picking, processing, and packaging a significant portion of the US food supply.

Focus on the home front

The COVID-19 crisis has exposed many weak links in U.S. supply chains, one of which is the importance of workers who do vital jobs but are low in the pecking order and are relatively anonymous.

Whether these individuals make a living in a meatpacking plant in Indiana or a textile plant in Bangladesh, companies need to address issues such as fair pay, health benefits, job security, and workplace safety or risk disruptions to their supply chains now and in the future.

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