Blog: Leonie BarrieBuyers build stronger sourcing bonds

Leonie Barrie | 29 August 2013

There's no doubt that recent factory disasters in Bangladesh have been a wake-up call for garment makers and buyers. But instead of a widespread blacklisting by customers and a shift in orders away from the South Asian country, the tragedies are starting to reshape and redefine the apparel supply chain of the future.

The reorganisation is likely to centre on consolidation of Bangladesh's garment industry and its 5,000 or so factories, as safety inspections instigated by brands and retailers in Europe and North America force smaller, non-compliant businesses to move to new premises or even close.

Conversely, however, as buyers select their suppliers more carefully, there is a trend to build stronger and more strategic relationships with a smaller number of big players, which in turn means new expansion opportunities.

Already one of the largest garment makers in Bangladesh, Epic Group is embarking on an expansion drive that will see it double its production capacity in the country over the next two years.

The move coincides with the company being recognised for its "Exceptional gains in productivity and improvement in efficiency" at the annual Wal-Mart Vendor Summit in Shenzen, China - the only apparel manufacturer from Bangladesh to receive an award this year.

Inspections are due to begin next month on at least 2,000 garment factories in Bangladesh that are not already part of two initiatives by retailers and brands in Europe and North America. The government-led National Tripartite Action Plan on Building and Fire Safety also plans to set out a national standard for fire safety and structural assessments.

And the North American-led Alliance for Bangladesh Worker Safety is moving forward with its plans after naming Ellen O'Kane Tauscher as the independent chair of its board of directors. The Alliance has been joined by three more companies.

US retail giant Wal-Mart is also building on its goal of buying more American-made goods, with a manufacturing summit last week that brought together more than 1,500 suppliers and government officials to promote domestic production opportunities. In January, the retailer committed to buying an additional US$50bn in US products over the next 10 years.

And stellar second quarter results from Gap Inc combined with an upbeat outlook to form a rare bright spot in a sector that has already seen a succession of major US retailers lower their forecasts for the rest of the year. A 25% hike in second quarter profit may at last show changes put in place to breathe new life into the business are paying off.

Intriguingly, though, its sales have risen in line with the decline at JC Penney, which has lost customers in droves thanks to changes introduced by former CEO Ron Johnson. Most recent results have seen second-quarter losses widen at the department store retailer to US$588m, as sales fell 11.9%.

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