Case Study: Forced Labor in the Pig Iron Supply Chain in Brazil

In 2006, Ford discovered that charcoal produced in Brazil with the use of slave labor had found its way into our supply chain. Pig iron is a key ingredient in steel production, and in Brazil, charcoal is often used as fuel in the production of pig iron (see the Pig Iron Producers graphic below). The charcoal is made from wood harvested in remote areas of Brazil where instances of forced labor have been found to occur. At the time this issue was brought to our attention in 2006, pig iron was purchased directly by Ford and used at our Cleveland Casting Plant.

When we learned of the situation, we immediately stopped sourcing from the site that was identified in the investigation, but continued dialogue and assisted in management systems development with the supplier until such time as the supplier could ensure it was not supporting forced labor in the supply chain for pig iron. We then identified all potential points of entry for pig iron in the Ford value chain and engaged with all relevant suppliers, seeking assurances from them that forced labor was not employed anywhere in their value chain. This included an intensive mapping of five to six tiers of suppliers (including importers, exporters and trading companies). We also requested additional detail regarding our Tier 1 suppliers’ systems for safeguarding human rights throughout their operations, including procurement.

The Cleveland Casting Plant was closed in 2010, and Ford no longer directly purchases pig iron. Regardless, we have continued, through integrated supplier development programs to convey our prohibition of forced labor and validate, where possible, supplier compliance. Validation continues to be challenging given the number of supply chain actors between Ford and the charcoal camps in Brazil. For this reason, in 2011 we renewed our inquiry into the potential points of entry for Brazilian pig iron to our supply chain and are evaluating specific supplier progress on management systems to ensure responsible procurement of this material. We also are working with the U.S. State Department, the International Labor Organization and the governing committee of the Brazilian National Pact to Eradicate Forced Labor to seek multilateral solutions that will help to validate information and improve transparency. Ultimately, we hope to enable responsible purchasing decisions throughout the supply chain.

California’s New Transparency in Supply Chains Law

Beginning in 2012, many companies manufacturing or selling products in the state of California will be required to disclose their efforts (if any) to address the issue of forced labor and human trafficking, per the California Transparency in Supply Chains Act of 2010 (SB 657). This law was designed to increase the amount of information made available by companies with regard to efforts to eradicate forced labor and human trafficking, thereby allowing consumers to make better, more informed choices regarding the products they buy and the companies they choose to support.

Forced labor and human trafficking can take many forms, including child labor. Ford has a zero-tolerance policy for both forced labor and child labor. As evidenced through our work with charcoal/pig iron in Brazil, we immediately took the opportunity to address the threat of this issue deep within our supply chain and have instituted a number of actions to safeguard against the use of forced labor. For example:

• We regularly assess risk related to our supply base. Preliminary assessment is based upon geography, the commodity purchased, the level of manual labor required for part/assembly production, the supplier’s ownership structure, supplier quality performance and the nature of the business transaction. This risk assessment is performed by Ford with input from external stakeholders. In-depth supplier self-assessments are conducted biannually with our strategic suppliers as a part of the development program.
• Our Code of Basic Working Conditions forbids the use of forced labor, child labor and physically abusive disciplinary practices. Our definition of forced labor is inclusive of trafficking, and this is being made explicit in 2011 revisions to our Code.
• Ford purchase orders require the certification of compliance with our prohibition of forced labor, child labor and physical disciplinary abuse as part of our Standard Terms and Conditions in supply arrangements. Included also in this certification is compliance with international standards and applicable laws and regulations regarding forced labor and child labor. We reserve the right to terminate our relationship with a supplier if issues of noncompliance with our policies are discovered and/or noncompliance is not addressed in a timely manner.

• Training and Capability Building

  • We regularly conduct internal training on our Code of Basic Working Conditions with all of our purchasing staff, including management. Additional training is conducted regarding our Supply Chain Sustainability Program, including coverage of the Code and our Global Working Conditions Program, emphasizing the role of our buyers in responsible decision making.
  • Ford requires suppliers in high-risk markets to attend training that increases awareness of Ford and legal requirements, including those related to forced labor and child labor, and enables management systems that will ensure compliance over time. We conduct this training as Ford and as an industry effort through the AIAG.
  • Ford and five other automakers at the AIAG have created training for buyers and supply chain managers on Supply Chain Sustainability. This training addresses issues including supply chain risk assessments, policy and supplier contract development and other actions that can be taken to ensure that forced labor and child labor do not enter the automotive supply chain.

• Ford regularly conducts audits of at-risk Tier 1 supplier factories to monitor compliance with Ford expectations and legal requirements. Following audits, suppliers are required to complete corrective action plans, which Ford reviews and approves. The corrective action plans outline how a supplier will resolve issues uncovered in audits and include clear responsibility and timelines for completion. We return to the facility within 6–12 months as required to confirm resolution of the issues. As mentioned, Ford has a zero-tolerance policy for the presence of forced and child labor. Forced labor has never been identified by third-party assessments of our supply chain, although lack of a forced labor policy at the supplier level is common and is always an element addressed in the Corrective Action Plan when identified.

  • These audits are independent and announced. We choose which facilities to audit based upon our risk assessment as described above. Our supply chain work has demonstrated to us that the risk for issues such as forced labor and child labor (as well as other human rights and working conditions issues) are relatively low for Tier 1 suppliers. The risk increases, however, the further down the Tiers of suppliers toward the source of the raw materials. Ford does not have visibility or direct access to these suppliers for the purpose of verification, and thus we work with our Tier 1 suppliers as well as other industries, NGOs and governments to explore the options for appropriate validation systems.