Increasingly moving away from vertical integration, global buyers from large garment companies exert intense competitive pressure on suppliers from low-cost countries.
As M.I.T. professor Richard M. Locke puts it, “Global brands and buyers pressure their suppliers to reduce costs, manufacture on shorter deadlines, and produce a greater variety of products in smaller batches”. In this context, workers on the front line are dangerously exposed to degrading working conditions. One consequence of squeezed budgets is the lack of health and safety oversight, which coupled with lax regulatory compliance practices have led to horrific incidents such as last November 2012 Tazreen fire, and the recent Rana Plaza building collapse that killed more than 1,000 factory workers in Bangladesh. And this is ongoing.
With the aim to prevent such highly complex risk in multilayered supply chains, several responses have followed. Firstly, transparency efforts from first movers like H&M are aimed at improving stakeholder dialogue through public scrutiny. The company decided to disclose its list of 785 strategic suppliers from 23 countries. In the wake of the Bangladesh accident, Wal-Mart made public a blacklist of more than 240 suppliers. But blacklisting is an extreme solution and can have dire consequences on already impoverished local economies.
Another response is sector collaboration. After the Rana Plaza incident, 24 garment companies decided to sign an agreement to improve safety conditions in garment and textile factories in Bangladesh. In some instance, initiatives such as the Joint Audit Cooperation in the telco industry have helped to mitigate auditing costs.
A more costly, but constructive approach is of course supplier engagement and capacity building. Training, supplier commitment following factory audits, with associated funding can help improve supplier performance. Interestingly, a recent project from eight leading retailers led by a U.K. consultancy, Impactt, has modeled an interesting business case by linking better working conditions to higher ROI (factory efficiency increased by 30%).
This article was written by EcoVadis Senior CSR Analyst Simon Gargonne.
Top picture: Wikimedia Commons Forgeresearch 2009