The pressures on global apparel supply chains lead to unregulated subcontracting to dangerous factories
The recent tragic fires in Bangladesh garment factories have left 300 dead over the past six years. Most recently the 112 fatalities at Tazreen Fashions have put the spotlight on the problem of unauthorised and unmonitored subcontracting in the global supply chain.
Wal-Mart, Sears, Disney and Li & Fung claim they had no knowledge that their goods were being manufactured at Tazreen Fashions. In the wake of this most recent fire there have been calls for a more intense focus on subcontractors: stricter government regulation and enforcement and their monitoring by retailers and preferably independent monitoring bodies.
But these calls, while well intentioned, demonstrate a lack of proper understanding of the forces that create unauthorised subcontracting and pose challenges to their effective monitoring.
Recently Wal-Mart’s vice-president for ethical standards wrote to an industry group, in response to the Tazreen fire, stating that “fire and electrical safety aspects are not currently adequately covered in ethical sourcing audits”. Fire safety must be upgraded and its monitoring improved, but a retailer cannot monitor fire safety in a factory that it doesn’t know is producing their goods.
Rapid product changes
A retailer contracts with a factory to produce its goods by a specific date to ensure the goods are in its stores on time and at a low price and good quality. Most garment retailers and agents such as Wal-Mart, Sears, C&A and Li & Fung change their product offerings seasonally – some retailers may do it as frequently as every 4 to 6 weeks – in response to consumer tastes, market trends and internal marketing strategies.
Ideally, goods must leave the local ports by tightly planned dates. The production time lines often are short and urgent. If the factory cannot meet the shipping deadline it may be forced to send the goods via air at much greater cost to itself and its thin profit margin. After the samples have been approved and sometimes even after the production has begun the retailer may change the product specifications, for example from a one button polo shirt to two buttons, but not the ship date, putting increased pressure on the factory.
The factory may take on orders from multiple retailers that exceed its production capacity or at a cost at which they cannot realistically produce – rarely do they say no to business.
Individual retailers are kept in the dark as to what other orders the factory has taken on and often retailers do not assess the real capacity of these factories when they place their orders. Without full knowledge of the factory’s production schedule, an individual retailer will overestimate factory capacity and underestimate the potential for subcontracting.
The shipping date approaches, push comes to shove and the factory subcontracts a portion of the order to another factory and the goods go out the back door and the finished goods are brought back to the primary contractor and sent out under the initial contract.
The pressures for profit by the factory (and of course the retailer) and the imposition of tight shipping dates by the retailer are pincer movements pushing the contractor to subcontract.
A retailer may require prior notification before any goods are subcontracted so that they can evaluate the subcontractor for quality and adherence to the retailer’s ethical code of conduct. But time pressures often turn this into a paper requirement: even if notified the retailer may not have the time to do the necessary monitoring.
They may threaten the contractor with future sanctions but their marketing campaigns depend on the goods being in the stores by a certain date and they must cross their fingers that all goes well at a subcontractor they have not visited. When it does not, you have the lost lives of Tazreen.
Many subcontractors are small factories and do not and may not have the capital to be capable of meeting the retailer’s code of conduct for fire safety and other issues. All of this takes place against a backdrop of inefficient if not corrupt government monitoring.
There is no silver bullet but there are practical steps that can be taken to address the pressures underlying unauthorised subcontracting.
- Longer-term trust based relationships between retailers and suppliers. Longer-term relationships send a signal to suppliers that the brand is investing in them and will be around next season, and in turn suppliers will invest in factory improvements and be open about production schedules and the need for subcontracting when it arises.
- Developing financial incentives for suppliers. These should reward them for transparency and robust health and safety systems.
- Retailer consultation and financial support. This can assist suppliers in the implementation of enhanced productivity strategies and the development of more efficient and effective means of managing production.
- Appropriate product pricing. Retailers should set product pricing that a factory can realistically meet without subcontracting and have the technical capacity to question when pricing is “too good to be true”.
- The implementation of new communications technology. LaborVoices, for example, uses mobile phone text and voice messaging to enable workers, NGOs, trade unions and communities to alert retailers and others to unauthorised subcontracting, circumstances likely to lead to potential subcontracting and unsafe working conditions.
- Greater communication between retailer compliance and design divisions to make sure the compliance consequences of design changes are understood.
- Improved protocols to monitor supplier production capacity.
- Full disclosure of supply chain production units and recalibration of buyer bonus plans. This should include labour standards and not just quality, price and speed of delivery – as Nike has already done.
- Retailer commitment not to accept any goods produced in unauthorised subcontractors regardless of impact on their seasonal product range.
Until apparel brands take responsibility for their own purchasing practices monitoring will continue to be a cat and mouse game and unauthorised subcontracting a hidden danger lurking in the shadows of their global supply chains.
Brands and suppliers need to take a hard look at current buyer purchasing models and take mutual responsibility and leadership to ensure that workers making their products in the global south for consumers in the global north work under safe and humane conditions and do not end up fatalities on the factory floor.
Sean Ansett is founder and managing partner of At Stake Advisors. He was director of corporate responsibility at Burberry and director of global partnerships at Gap. Ansett is an advisor to LaborVoices.
Jeffrey Hantover was director of global compliance for Gap International Sourcing Hong Kong.
Bangladesh disaster Rana Plaza supply chain