Perspectives

Perspectives of an HP Auditor

View a photo essay of HP employee Lily Ouyang and two of her fellow auditors on a typical two-day supplier audit in China.

MIT Sloan School of Management study

Main findings regarding the effectiveness of HP’s supply chain social and environmental responsibility (SER) program

In 2009, an interdisciplinary team of Massachusetts Institute of Technology researchers launched a project to evaluate the effectiveness of HP's supply chain SER program. The research entails a quantitative analysis of HP's audit records and field interviews in seven countries: China, the Czech Republic, Hungary, Malaysia, Mexico, Singapore and Thailand. To date, MIT researchers have found that among electronics companies, HP has had a formative role in improving labor and environmental standards—through its own program and in conjunction with the Electronics Industry Citizenship Coalition (EICC).

HP’s collaborative approach to labor and environmental conformance has been most effective where HP auditors have developed extended relationships with specific suppliers. For example, one large supplier of hard disk drives based in Asia stated that HP auditors helped it better understand the importance of a labor management system (LMS) and how to use such a system to improve both its operations and its working conditions. HP auditors helped the supplier understand how an LMS can track hours worked by employees, allowing the company to know which workers were eligible for overtime and which had already worked their limit.

As a result, the supplier shifted to a 60-hour work week with higher wages. This brought the company into full conformance with HP’s Electronic Industry Code of Conduct, while keeping its employees happy. The supplier further stated that this was only possible with HP and not with other companies that insisted on using third-party auditors who had little interest in helping the supplier actually improve its operations.

Suppliers in China, Eastern Europe and Mexico echoed this sentiment, describing how much they learned from HP’s collaborative approach and how the interventions by HP’s auditors helped them improve their operations as well as solve difficult labor and environmental issues.

In addition to its auditing program, HP has invested in a number of capability-building/training programs for its suppliers. For example, programs in Central and Eastern Europe targeted second-tier, small- and medium-sized enterprises that generally supply HP's first-tier suppliers with packaging materials and plastic molds. These capability-building programs emphasized the importance of sustainable employment and environmental practices, and provided guidelines on how to establish their own labor, health, safety and environmental management systems.

In Asia and Mexico, HP-sponsored training programs (for first- and second-tier suppliers) focused on overcoming employment discrimination, understanding labor rights and tackling excess overtime. All participating suppliers reported that these trainings increased their awareness of various issues.

Despite HP's proactive approach, certain challenges persist in its supply chain. These appear to be byproducts of broader, structural features of the electronics industry that are not unique to HP. High demand volatility, short product life cycles and steep price competition create significant manufacturing challenges for suppliers throughout the supply chain and influence the facilities’ employment and environmental practices. Suppliers often perform better against these challenges when there is strong institutional support from robust regulatory frameworks or public institutions—for example, well-enforced labor laws—and private organizations that assist in code enforcement. Without these institutions, manufacturing challenges are often met through excessive working hours or reliance on agency workers.

In summary, the MIT research has shown that HP's commitment to its SER program and the Electronic Industry Code of Conduct has had a strong and positive impact on its suppliers and the electronics industry more generally. Yet this impact, at times, is limited by endemic features of the industry and the national settings in which a supplier is located.