THE CASE OF JC PENNEY IN THE PHILIPPINES

OUTSOURCING OF THE OUTSOURCING PROBLEM

As companies contemplate moving to the outsourcing of a range of production activities that they carried out in-house previously, they are often faced with significant organizational, coordination and supply-chain questions. These include where to have the good or service produced, which company to use in the foreign location, and what are the specific demands of importing/exporting operations in the different countries involved.

Quality assurance is a major issue (look an the opposite side), as is timely shipping of the different parts and the final product, along with handling the bureaucracies of various countries and payment systems. Answering these questions is a demanding research exercise, particularly for companies with limited international experience.

For example, a European clothing company might be considering sourcing material from China and India, zippers from Taiwan, and having the final sewing taking place in Vietnam. Even this simplified case involves considerable demands on coordination, monitoring and general management of the subcontracting activity ultimately to fulfill the changeable tastes of European markets. Finding and locking in quality suppliers can be difficult.

It is not surprising, therefore, that intermediaries like the Hong Kong-based company Li and Fung have arisen to become specialists in handling the various steps in the international subcontracting chain, solving the outsourcing practicalities for its client firms – allowing companies to outsource the outsourcing problem. The extent of the perceived need and demand for this service is indicated by the growth and size of Li and Fung’s operation, with about 6000 staff and 65 offices in 38 countries at the beginning of 2005.

Source: Economist (2001, pp. 62–3) and company web site, accessed 12/1/2005.

RETAILERS AND SUPERVISION OF

INTERNATIONAL SUBCONTRACTORS

UNDER CODES OF CONDUCT:

THE CASE OF JC PENNEY IN THE PHILIPPINES

The ‘U.S. retailer JC Penney has “Foreign Sourcing Requirements” that apply to all of its suppliers. Among other provisions, the sourcing requirements state that “JC Penney will not knowingly allow the importation into the US of merchandise manufactured with illegal child labor.” With regard to the Philippines:

1. JC Penney purchases infant and children’s apparel from Renzo, a USbased importer. Pursuant to its sourcing requirements, JC Penney requires Renzo to certify that its imports are not made with child labor. 2. Renzo imports from its Philippines agent, Robillard Resources. Renzo communicates to Robillard the JC Penney sourcing requirements and its obligations and requires Robillard to sign a certificate that its products are not made with child labor.

3. Robillard purchases from a number of contractors in the Philippines, one of which is Castleberry. Robillard requires Castleberry to certify that its products are not made with child labor. The owner of Robillard visits Castleberry from time to time, monitoring for quality control, but also for compliance with the sourcing requirements. Occasionally, a representative of JC Penney also visits.

4. Castleberry does cutting, finishing and packing. It subcontracts sewing to about thirty plants. 5. The thirty or so subcontractors who do the sewing do not sign a certificate stating that no child labor has been used, but are supervised by Castleberry line supervisors, who are each responsible for several subcontractors. They spend almost their entire time with the subcontractors. It is apparent that their primary interest is quality control, but they also monitor compliance with other standards.

6. Homework contracts – piece work contracts are made with heads of households ... This is not monitored by any company’ (US Department of Labor, 2003, Box III – 7).

Date: 2016-01-14; view: 923