Improving working conditions and productivity in SMEs through supply chain interventions - Day 1 Olga Orozco Sustainable Enterprise Academy 2016 Promoting Decent Work in Sustainable Supply Chains

Session Objectives At the end of the session you will be able to: Recognize some of the challenges of working with a global supply chain Explain the concept and importance of productivity

The many expectations on enterprises  We are ALL employees  We are ALL consumers  We ALL expect a lot from enterprises

Sustainable enterprises Triple bottom line results

Society expectations Occupational Health Safety Excessive working hours

Employees´expectations

Investors´expectations Safe return of their investment and growth Safeguarding of the goodwill and brand Stable business

Reputational risk

Supply chains are long and complicated

Code of Conduct Proliferation

Platform examples

Platform Examples

Supply chain intervention with monitoring Due dilligence and code enforcement Inform the supplier about the code (make it part of the contract) Invest in capacity building Auditing to confirm conformance Report

Industry Challenges Price Competition Long supply chains create distance between buyers and suppliers Lack of national standards/ enforcement Suppliers do not easily see the business case in compliance

John Ruggie: From Auditing to Innovation Note: Professor Ruggie wrote the UN Guiding Principles on Business and Human Rights

Case Study 1) Browse the document to see the kind of issues that are reported in a social audit 2) Select one single issue think of how it affects both: workers and management 3) For the issue you selected, what could be an aceptable solution to both parties?

Productivity and Management Practices Productivity and management practices in SMEs The productivity – working conditions link Workplace cooperation SCORE as example of intervention for SMEs in supply chains

What is productivity? 19 OUTPUTS PRODUCTIVITY = INPUTS

Factors affecting productivity I nternal conditions Access to land, energy, infrastructure Capital Technologies & equipment Workforce skills Management practices External and structural conditions Conditions of an Enabling Environment for Sustainable Enterprises* EESE Competitiveness factors Support institutions Endogenous factors of productivity Exogenous factors of productivity *If you want to know more about EESE, see framework/conditions-for-eese.html

Activity! Labour Productivity: production output /total man-hours worked Propose 3 labour productivity performance indicators. Ex: absenteeism 21

Inventory of performance indicators 1. Quality  % Defects: number of defective parts detected / total number of items checked * 100  % Scrap: Number of parts scrapped/total production (good parts + scrap+ reworked parts)/ *100  % Rework: Number of parts reworked/ total production (good parts + scrap+ reworked parts)/ * Cost/Productivity  Production Output: production output per shift or per day.  Labour Productivity: production output per day/total labour man-hours worked that day.  Machine Downtime: recorded at each machine per shift or per day.  Equipment Utilization*: number of hours the equipment was utilized in a week or month/total number of hours available for production in the week or month.  Energy/water use: number of units of energy/water consumed per month/number of units of production** per month  Inventory: measured in days of consumption (raw material + work in process + finished goods)

Inventory of performance indicators 3. Delivery  % on time delivery: number of deliveries made to customers on-time, error-free, in-full (full quantities) per month/(total number of deliveries made + number of missed deliveries)*100  % customer returns/rejections: number of units rejected/returned by customer/total number of units delivered to customer *100  Customer satisfaction index: dependent on weightage assigned on customer satisfaction survey. ‘Likert scale’ (i.e. rating performance on a scale of 1-5 or 1-10) is normally used for this purpose. 4. Morale & Safety  Absenteeism: total number of work days missed/total number of work days planned *100  Labour turnover rate: number of employees to have left in a time period (a month)/number of active employees at the beginning of the time period *100  No of Accidents: Total number of lost-time accidents per week or per month

Productivity and management Some ways to measure employees´ productivity: 1) By objectives 2) Measuring quantitatively (number of items produced) 3) Measuring sales or services 4) Measuring time management productivity (how the employee uses time) 5) Measuring productivity by profit 6) Quality of task completed…

Elements of management that drive performance Operations managementMonitoring management 1. Introduction of lean manufacturing techniques 4. Performance tracking 2. Rationale for lean manufacturing techniques 5. Performance review 3. Process documentation6. Performance dialogue 7. Consequence management Targets managementHuman Capital management 8. Targets breadth13. Instilling a talent mindset 9. Targets interconnection14. Rewarding high performance 10. Targets time horizon15. Removing poor performers 11. Targets are stretching16. Promoting high performers 12. Performance clarity and comparability17. Attracting talent 18. Retaining talent

Management scores across countries Source: 22 Dec

Example of score based questions How the promotion system works? SCORE 1: People are promoted primarily upon the basis of tenure, irrespective of performance, ability or effort. SCORE 3: People are promoted primarily upon de basis of performance. SCORE 5: We actively identify, develop and promote our top performers

Activity! Define 3 questions that could be human capital management indicators 28

Productivity and management practices Productivity and management practices in SMEs The productivity – working conditions link Workplace cooperation SCORE as example of intervention for SMEs in supply chains

What happens if we improve management practices?

Why focus on management practices?  High impact on firm performance  Improves the way people are treated and managed  Empowers workers and improves working conditions  Improves the skills of the workforce  Requires little capital investment  Concern for all ILO constituents

Why focus on SMEs? definition: SMEs = enterprise that employs 50 – 250  > 95% of the world’s working population  The main source of employment in developing countries  Most new jobs  Many problems with working conditions and productivity  Increasingly present in international supply chains

Why focus on SMEs?  Higher enterprise death rate than larger enterprises  Lower wages and other conditions  Few apprenticeships/training  Poor career progression …. If you want to know more about SMEs and job creation: ILO Report IV SMEs and decent and productive employement creation pdf

It does not have to be that way: SMEs can be good places to work Before After Working on the floor No warehouse system Working table with light, provided More space and comfort area at the ware house