The Digital Supply Chain podcast

Ensuring workers' rights in your supply chain - a chat with Diginex Solutions' Leanne Melnyk

April 19, 2021 Tom Raftery / Leanne Melnyk Season 1 Episode 123
The Digital Supply Chain podcast
Ensuring workers' rights in your supply chain - a chat with Diginex Solutions' Leanne Melnyk
Show Notes Transcript

Supply chains are coming under increasing scrutiny and with the advent of social media, any issues can quickly very quickly go viral affecting a company's reputation, and share price.

Diginex Solutions is one organisation using technology to help companies ensure that workers rights are not impinged in their supply chains. I invited Leanne Melnyk, Diginex' Global Head of Supply Chains to come on the podcast and tell me more.

We had an excellent conversation and, as always, I learned loads, I hope you do too...

If you have any comments/suggestions or questions for the podcast - feel free to leave me a voice message over on my SpeakPipe page or just send it to me as a direct message on Twitter/LinkedIn. Audio messages will get played (unless you specifically ask me not to).

To learn more about how Industry 4.0 technologies can help your organisation read the 2020 global research study 'The Power of change from Industry 4.0 in manufacturing' (https://www.sap.com/cmp/dg/industry4-manufacturing/index.html)

And if you want to know more about any of SAP's Digital Supply Chain solutions, head on over to www.sap.com/digitalsupplychain and if you liked this show, please don't forget to rate and/or review it. It makes a big difference to help new people discover it. Thanks.

And remember, stay healthy, stay safe, stay sane!

Leanne Melnyk:

It's a super diverse issue modern slavery, it spans the globe from sexual exploitation, forced labor, forced marriage, you know, there's so many different faces to it. And I think that's why digitex has really focused on this. And also also why I find it just a super intriguing topic.

Tom Raftery:

Good morning, good afternoon or good evening wherever you are in the world. This is the digital supply chain podcast, the number one podcast focusing on the digitization of supply chain. And I'm your host, global vice president of SAP. Tom Raftery. Hi, everyone. Welcome to the digital supply chain podcast. My name is Tom Raftery with SAP and with me on the show today I have my special guest, Leanne, then would you like to introduce yourself? Sure.

Leanne Melnyk:

Hi, Tom. It's great to be here on the show. So my name is Leanne Melnyk, I lead the work around global supply chains at digitech solutions. So we're a technology company that has a focus on responsible supply chains. So I work a lot with new technology that tries to tries to drive transparency and trust in global supply chains.

Tom Raftery:

Okay, now, the term responsible supply chain can mean lots of things to lots of people. So what does it you mean by a responsible supply chain?

Leanne Melnyk:

That's a big question. But I'd say we, we focus mainly on the social sides. But I do feel like responsible supply chains, obviously has connotations, also to to environmental responsibility. But aren't most of our work is really around? How do you collect and surface data related to compliance around labor standards and human rights. So an example of that would really be making sure that workers have contracts, making sure that there's no child labor in your supply chain? So I'd say that we focus primarily around the four fundamental principles, which are no child labor, no forced labor, non discrimination and freedom of association.

Tom Raftery:

Okay, the first two, I get to give me give me a little background on the second two, because I'm not quite sure

Leanne Melnyk:

what the last two are. So freedom of association is the right to join a trade union or not joining training should be your choice. And then non discrimination is diversity and inclusion or equality.

Tom Raftery:

Okay. Okay, super. So, if I, a an organization, who wants to make sure that I don't have any of these things in my supply chain? How do I do that?

Leanne Melnyk:

Well, there's there's different things that you can do, we we primarily operate around the idea of looking first at things like risk assessment. So a lot of our tools have to do with collecting and surfacing data around where some of your risks might be. So that for an example of that would be better understanding where in your supply chain, you might have vulnerable workers of particular demographics, combined with an employment situation where the employer has extraordinarily large amounts of power. So we see, for example, a lot more cases of forced labor, in situations where you have migrant workers living in dormitories, maybe making below minimum wage, or where you have ethnic minority groups. So actually, these two issues of forced labor and discrimination often go hand in hand. So what we try to do is to try to dig out to data, that melt might help you to better understand where those risk areas are. But it really goes beyond that. You want to you want to have ongoing monitoring, like proactive monitoring, you want to have remediation, you want to have grievance. So there's there's pretty good guidance out there. OECD has their due diligence guidance, and a lot of people define responsible sourcing according to that, that due diligence guidance, or the revenue principles. those are those are two really big frameworks that are very much interlinked. Okay. And apart from,

Tom Raftery:

you know, the obvious moral issues around this, why is it important for organizations to make sure that they don't have any of these things in their supply chain?

Leanne Melnyk:

Well, I think there's a lot more pressure out there on companies. So just today, for example, there is a lot in the media about certain brands coming under pressure for certain issues. You know, there's been a lot in the news about areas where brands maybe haven't paid so much Attention, like cotton sourcing or anything at the raw material. It's really, really interesting. If you look back over the whole history of responsible sourcing, and it kind of goes back to like, the 1990s and Nike and how there is this, like realization that like, brands are responsible for, you know, their supply chain, and not just their own operations. But for, you know, 2025 years that's really focused on tier one and the cutting so level, if you're taking a pair of supply chain, for instance, it's really focused on where you have the most leverage, which was always one level down. And we've seen that there's been an extraordinary amount of pressure that's been put on the private sector recently, because of a lot of these, these issues that are coming out about state imposed forced labor, other sorts of forced labor. So I'd say first and foremost, it's really a reputational issue. Secondly, there's a lot more legislation coming out. So there's a lot more human rights, due diligence laws, modern slavery reports, and frankly, it's just no longer possible, or it's no longer, let's say, condone for a brand to come out with a one page statement saying, I don't believe in forced labor, it's in our code of conduct, period, you know, brands are being asked to do a lot more than they were in the past. But I think, you know, thirdly, it's really comes down to also impacts on quality. And the fact that, you know, study after study comes out that if you do treat people, well, if you do have these respects for labor standards, it is going to come back to you in the way of productivity. So we see reports coming out, for example, and there's a program called better work. And their impact studies show I think it was around a 16%, productivity gain in in factories where you do have respective core labor standards.

Tom Raftery:

Okay. And taking a slightly different approach, as a consumer, how do I know whether the goods I'm buying or not have any of these things in their supply chains?

Leanne Melnyk:

Yeah, I think it's really, you know, it's really hard for consumers. And on the flip side, you know, I don't think consumers want to know, everything. So what we've seen in studies coming out on how much consumers want to know, or how much they can absorb, is that they want to trust the brand, they just want to feel like the brand is kind of taking care of it for them. And so I think, like, I, when I go out, and I shop for clothes, or things like that, I do take a look at what the modern slavery statements of these brands are. And I do think about their reputation. But it's also the price point, it's a really big one that, you know, as a consumer, it's, you know, it's, it's really hard to, it's hard to ignore the big like, flash sale, like 99 cents, but definitely, when I walked down the streets of Hong Kong here, I, you know, I often come across these little stalls that are selling, you know, these clothes out of the back of a truck somewhere and, you know, you're tempted because it's, it's cheap, but then I, you know, I think back to my days in compliance, and just think, you know, chances are, is it's cheap for a reason. And you really have to ask yourself, where those cost savings are coming from. And I don't want to drive a world where where people are exploited. So I think at the end of the day, I try to factor in, am I paying a reasonable cost for a T shirt or a pair of jeans?

Tom Raftery:

Okay. And and you're talking very much about the the apparel industry. But if I think about food as well, you know, I know that, for example, here in the south of Spain, there are a lot of migrant workers used for picking fruit and vegetables. Is that an industry you're looking into as well? Or is that one that you work in? Or is that one that, you know, we can do anything about?

Leanne Melnyk:

Absolutely, we work in a lot of different sectors and food and agriculture is probably the most important sector when it comes to issues related to modern slavery and, and child labor. Particularly when it comes to, you know, to things like plantations. It really depends on a the country, the level of labor governance that exists in that country, whether there's labor inspectors, whether there's not But yeah, I think anything that is sort of labor intensive, is really, really challenging. And then the other big kind of factor in it that you need to look at is is it a direct product to market example like, like a banana where it doesn't change or is it something like sugar where it goes through multiple stages of the supply chain. And what we see is that when there's those those goods that are mixed or refined, or there's multiple actors in it, that really increases the risk of something like modern slavery, because it decreases the visibility of what's happening on that product or to that product, who's touched it kind of all along that that chain?

Tom Raftery:

So this is traditionally been done, you know, by sending inspectors into plants and things like that. Why is that? No longer sufficient?

Leanne Melnyk:

Well, I think it's, um, you know, it's twofold. It's no longer sufficient, and it's no longer feasible. And the reason why is that if we look at a lot of the legislation that's coming out, and a lot of the the demands that are being put on brands, they're asking for due diligence along the whole supply chain, no longer just the first tier. And, you know, I think brands managed their compliance programs for so many years by, by having these social audits, factory after factory on an annual basis. But now that they're being asked to go all the way down to like the raw material level, like the cotton farms, or, you know, the banana plantation, or wherever it is, you're talking about hundreds and 1000s of actors and sites and facilities that they would have to audit. And, you know, each one of the social audits costs somewhere between like two to 3000. US dollars. So doing that on mass is just not feasible. And so I think that's why as, as companies are being asked to go deeper into their supply chains, they need to turn to technology, as a way of having some way to manage all of this. Secondly, I think we've seen that social auditing has some, like, a lot of upsides. You know, I think at the end of the day, there is still no better way to judge labor standards, then by actually going there in person and, and, you know, touching and feeling and speaking to everyone around you. And, and yet, at the same time, there's this, there's these issues of brands sending in third parties. And it's always been this intermediated process, whereby the brand is relying on somebody else to do this sort of work. And so within that, we see that there's, you know, issues related to, to bribery, we see that, maybe not auditors may not be trained on every single issue. So there could be things that are mixed mist, sometimes you have issues where you have multiple languages spoken in the factory, and sometimes it's impossible for the auditor to speak all of them. And that's where technology has really helped to, I'd say facilitate social auditing, and providing a direct window into the workplace. So there's been a lot of, you know, worker voice technology that has developed so that brands can now speak directly with workers in the factories, without necessarily having to have somebody intermediates that process. Same thing, a lot of work that's been that we're doing actually around documenting what contracts have been given to the workers. What are those working hours that we can collect directly, and actually managing that data in a way where it can be later analyzed and better tracked over time?

Tom Raftery:

Okay, and what kind of technologies that you're talking about?

Leanne Melnyk:

So we really started using, what our roots are really in blockchain technology. And and what we found, I guess, fascinating, or the most promising about blockchain technology was this idea of creating an immutable ledger. And and so we started working around the issue of employment contracts, because we saw that there were a lot of migrant workers that would be given one contract in the origin country, and then asked to sign a second one shortly after arrival in the destination country. And they weren't the same contract. But the migrant workers often wouldn't understand that because it wasn't in their language. So we came up with this idea of can we use blockchain technology to upload one version of the contract that gets verified before the worker migrates, and that that is the version of the contract, and if there's any changes to it, then that gets recorded. So that's really where we started. But I think we've branched off a lot since then, into into different types of technology, such as well, it really depends on who we're working with. So that's what we've realized over time is that workers usually prefer mobile apps, but it varies depending on location. We've done A lot of work around like elearning, worker worker education. We've been working a lot with remote auditing and self assessment questionnaires video chat, that can kind of have this window, as I said, into the workplace, we been working with an organization called me Khan club, who have a really amazing worker voice tool, where the factory can actually print off a unique QR code, and then the worker scans it. And they're able to ask standardized questions that are aligned with the ilos forced labor indicators, to see if there's any situations of labor exploitation. And that actually really took off in COVID-19, because we saw that there was this pause when actually no one could go to the factories. And so those sorts of technologies that allowed us to connect directly with the the, those workers and employers in the factory really helps to create this extra level of due diligence that was able to be maintained throughout the entire pandemic.

Tom Raftery:

Okay, and I mean, it's one thing to have a contract in place that lays out work conditions, it's quite another to see that contract is actually adhered to, let's say the contract says that you work 40 hour a week. But you know, what, if the worker ends up working 60 hours a week or an 80 hour a week? How do you manage that.

Leanne Melnyk:

So that's really where the worker voice technology comes in. So, for example, the remote auditing platform that we've been working on, it's a combination of different checkpoints. And the idea is to collect information from as many actors as you can in that factory, and then cross reference them. So if, for example, you have a worker, an employer that says, Oh, yes, I, you know, I have this contract with my worker, and it's 40 hours per week, and they are not working 40, over 40 hours per week, but then you send a worker, you know, a worker survey, and it comes back that everyone is working 60 hours per week, well, then that's a bit of a, you know, a conflict of input, well, the information doesn't match. Same way, you can start to collect those worker, our records directly. And if those are not, in line with what the employer has said, then it's another red flag for you that you need to look into it. So it's collecting records to support it using worker voice technology to support the claims being made. And then and then really, to have a record of what's being said, by all these different parties.

Tom Raftery:

Okay, and why? Why did you get into the issue of modern slavery in the first place?

Leanne Melnyk:

Well, interestingly enough, it was it was actually accidental. I was in my first year of law school, and I probably really just wanted to travel somewhere and spend a summer abroad. And so I had applied for an international internship. And I was really, really interested in criminal law. At the time, I wanted, I wanted to be a prosecutor. And I had applied for the International Criminal Courts in Sierra Leone. I did not get that one. But they offered me my third choice, which was to go work at the International Labor Organization in Geneva, Switzerland, and spend the summer working on issues related to freedom of association. So it was actually a trade union in Canada that had supported this, this internship program. So I went to the ILO and I started learning a lot about freedom of association, which was extremely interesting. But then one day, they needed help in the department on the on the forced labor side. And I really loved the issue right from day one, because it was this crossover between labor law and criminal law. So sometimes forced labor is an issue that will fall under as a labor violation. Sometimes it will fall under under the Criminal Code. It really depends on how it's classified. And the interesting thing is, you'll actually see lots and lots of forced labor cases that get classified as a labor violation, because the burden of proof is often easier, or it's an easier sort of legislative process to go through if you use the labor law rule. So it kind of straddled both worlds that I was that

Tom Raftery:

I was really interested in. Okay. And, you know, wait, why is digitex involved in that space?

Leanne Melnyk:

Well, DeGeneres got interested in issues related to modern slavery when they were trying to find a good use case for blockchain technology. And it was through this, this collaboration with me Kong Club, which is a NGO focused on helping the private sector navigate issues related to modern slavery and global supply chains. There was a partnership formed between digitech solutions and Mikael club, and together they wrote this white paper on how blockchain technology could be used to address issues of contract substitution of migrant workers. And then from there, really, it really took off. So we've, you know, the company is still since branched into other areas like ESG. But a new platform that we're coming out with is actually going to focus on this issue of labor recruiters, and how do we how do we actually create a tool just to collect and surface data related to fair hiring in, in global supply chains? So it's, it's really, it's it's a super diverse issue, modern slavery, it spans the globe from sexual exploitation, forced labor, forced marriage, you know, there's so many different faces to it. And I think that's why digitex has has really focused on this. And also, also I find it a just a super intriguing topic.

Tom Raftery:

Okay. Okay. Now, you mentioned earlier, you're based in Hong Kong, a is Regenexx. Local to that market only? Is it into the Asian market? Is it global? What markets are you addressing?

Leanne Melnyk:

So we do work all over the world. So our most a bulk of our staff is here in Hong Kong. But we also have staff in, in Switzerland, in the UK, in the US. So we really have stuff in kind of all over the globe. And we also have projects in different locations in, in Asia, also in Middle East, Europe. So we we work with a lot of different stakeholders. So we work a lot with different UN agencies work a lot with international organizations, and foundations, like the Global Fund to end modern slavery, work a lot with government entity funding entities like US Department of Labor, and we also work with, with different members of the private sector as well.

Tom Raftery:

Okay. And you know where to from here? I mean, you've gotten to where you are, no, but what what happens in this space, and what happens for Digi next in the next three to five years? Well, I

Leanne Melnyk:

think big picture is we're going to grow, as we've already grown exponentially over the past year, the company is taking a dual focus both on ESG. So we're just about to launch our new ESG platform, which is really geared towards helping small and medium sized enterprises enter into the ESG world. So it's a products that we're offering at a lower price point so that even those first time ESG people can start to get into it. It's we're calling it the Turbo Tax of ESG. Something that is extremely intuitive, and easy to use. So that is one side of the business. And then on the supply chain side, we'll continue to work with our public sector entities and then also look to develop our own SAS model, again, focused around how do we help brands and retailers really collect and surface data on these modern slavery risks with a focus on responsible recruitment? Because we do feel like, you know, I think the pandemic has really opened up people's eyes, or let's say, their, their willingness to try technology. And I think it's a really exciting moment. So I would love to use this, this disruption points to, to challenge the way that brands are doing social auditing and the way that they're managing compliance in supply chains to really start to have more impact, both for suppliers, but also for workers. Okay, super.

Tom Raftery:

Okay, Leon, we're coming towards the end of the podcast. Now, is there any question I have not asked you that, you know, you wish I had any topic we've not touched on that you think it's important for people to be aware of?

Leanne Melnyk:

I mean, I think one of the things that I did want to say is that I think that there is a real sort of opportunity in terms of eating equipping other parts of the supply chain ecosystem with technology that have maybe not been equipped in the same way as let's say the brands or retailers have been. So if we look at the technology ecosystem in this space, we see that a lot of the technology is built for brands and retailers like helping them to manage their supply chains. And I think that is really important, and we're definitely working in that space. But at the same time, I think there needs to be more of a focus on things like helping workers to address the digital divide. So for International Women's Day, I had done some research around usage of women in mobile phone usage and coverage and rural communities in Bangladesh. And it was really interesting how you saw this is massive difference a between males and females. So the women just didn't have access to a mobile phone in the same way that the men did. So I think there's a lot that needs to be addressed by technology companies, but also by governments in terms of really trying to address that, that digital divide between rural and urban, but also between between the genders to make sure that everyone has access to technology. Because I do think that, you know, increasingly in the future, that is going to be the way that opportunities are going to open up for people. And it's also really important for us to be able to communicate messages directly to people who may need them. And I think secondly, just to say that people like trade unions, you know, there's been a lot of discussion around worker organizations, and how do we really even have that power imbalance between workers and employers. And I think there needs to be much more of a focus on empowering some of those individuals on the other side of the equation, to make sure that they equally have enough technology to monitor the conditions and the supply chain, because as I said, it's all about the trend triangulation of that data. So the more sources we have, the more accurate data we

Tom Raftery:

have. Super, super great day. And that's been fantastic. Thanks so much for coming on the podcast. If people want to know more about yourself or about Digi necks or any of the topics we talked about today. Where would you have me direct them

Leanne Melnyk:

so they can check out our website. It's www dot digitex di g i n e x dash solutions, s o l u t i o n s.com.

Tom Raftery:

super great day. And that's been fantastic. Thanks again for coming on the podcast today.

Leanne Melnyk:

Thanks, Tom. It was great speaking with you. Okay, we've

Tom Raftery:

come to the end of the show. Thanks, everyone for listening. If you'd like to know more about digital supply chains, head on over to sap.com slash digital supply chain or, or simply drop me an email to Tom raftery@sap.com. If you'd like to show, please don't forget to subscribe to it and your podcast application of choice to get new episodes as soon as they're published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks. Catch you all next time.