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How to build a compliant, sustainable supply chain

28 Feb 2018 (Last Updated April 12th, 2021 14:25)

As world production capacity decreases, and competition for workers increases, the pressure is ramping up on brands to become a customer of choice – and to start thinking much more sustainably about their supply chains.

How to build a compliant, sustainable supply chain

As world production capacity decreases, and competition for workers increases, the pressure is ramping up on brands to become a customer of choice – and to start thinking much more sustainably about their supply chains.

If it was an economy, the global garment industry would be the seventh-largest economy in the world. It employs more than 30m people and produces more than 100bn garments per year.

The garment supply chain, however, tends to be located in areas of the world suffering from conflict or poverty – which means the problems found in the supply chain tend to reflect what is happening in terms of social, economic, and environmental issues in those countries. And as those issues change, so do those of a brand’s supply chain.

“You might think our supply chains are intrinsically strong and stable and sustainable, but they’re not. Our supply chains are fragile, and intrinsically unstable and unsustainable,” Malcolm Guy, managing director of The Reassurance Network, a global team of corporate responsibility professionals, told attendees at the recent Pure Origin conference in London.

“It’s not something you can put in the ledger, fix and move on. It’s something you need to understand and constantly keep refreshing and live with. The mindset is not an easy one.”

Traditionally, the fashion industry has chased the minimum wage. And as wages increase, so too do prices for brands and retailers. Consequently, as Guy explains, the industry has moved towards new sources that have lower levels of wages, and then even newer sources that have even lower wages.

“We’re constantly finding that there’s sort-of shifting sands in terms of where we’re sourcing from, because we’re quite often working on very low margins and high volumes.”

While this is not necessarily a bad thing as it can provide large amounts of employment, it places a huge amount of pressure on the industry to manage this responsibly.

“We have a collective responsibility for 30m people working in these countries, and a collective responsibility for the economies of those countries”

“We have a collective responsibility for 30m people working in these countries, and a collective responsibility for the economies of those countries,” Guy says.

Whether it’s low wages, chemical use, environmental impact, modern slavery or migrants, it is important to understand these issues and how to address them.

“Quite often there are some very difficult ethical questions to be raised. And as a general rule, if you find a problem in your supply chain, you have to live with it. Don’t run away. The ethical thing to do in all those cases is to stick with the problem and try and sort it out.”

Shift in balance of power

There is also the relationship between the brand and the supplier to consider. While a crucial one in any business, it is becoming increasingly clear that the balance of power is slowly shifting as world production space decreases, and demand and competition for workers increases.

Traditionally brands have held the power and influence over their suppliers, and in turn, suppliers have held a lot of power over their factories: they get the orders, they decide who’s producing, they dish out the orders. And in turn the factories have held substantial power over the workers: deciding on working conditions and how much people get paid.

That is no longer the case, as Guy explains: “If you talk to factory managers in China, they’re getting [up to] 70% worker turnover; 70% of the workers in some Chinese factories do not come back after Chinese New Year. And virtually every factory is affected by that. Workers are having a lot more influence over where they work. They don’t want to work in factories. They want to work in call centres, they want to work in finance. So factories are having to become importers of choice.”

The impact of this is a decline in the garment industry workforce – a challenge that is not exclusive to any one country, according to Guy. And the fix? Migrant workers. Temporarily.

“You can get over the problem for a few weeks or years, but it’s not a permanent fix. You have to make factories more attractive.”

And suppliers are not necessarily focusing on western markets anymore. Instead they are turning to the big consumer markets of Beijing, Shanghai, Jakarta, Bombay and Mumbai. Which puts even more pressure on brands to compete with these markets for limited production space.

“Production space in the world is decreasing, demand is increasing”

“Production space in the world is decreasing, demand is increasing. There’s now competition for workers. There’s competition for production line capacity. So actually, this balance of power, as nice as it might be if you’re a brand or a supplier, if you don’t wake up to that, the brands actually sort of narrow towards the bottom.”

Consequently, the people with the influence are now the workers. “They decide where they work. What this means if you’re a factory is that you’ll have to become an employer of choice. But it means if you’re a brand that you’ll have to become a customer of choice [to the supplier]. You have to start thinking much more sustainably about your supply chain. You have to understand it; you have to understand why people want to do business with you.”

So what can you do?

Understand: Know what your supply chain looks like. Go to where your goods are actually being made; where somebody is sitting down at a machine, making your goods. Try to understand why they’re there, why they aren’t working at a call centre, how they’re being treated. Until you understand that, you don’t know your supply chain and how stable it is. You have to know that to understand the effects and opportunities.

Commitment: Quite often this involves the personal relationship between you and your board, or you and senior management. For example, how good are you at convincing people in your organisation to do this? You need some purchase and you need to develop a statement; it’s good to know what you’re aiming for. How high are you going to set the bar?

Engagement: Don’t dismiss or belittle the importance of conversation. To make a difference you don’t need to have a huge ethical trade programme, a huge budget, or a huge amount of policies. You just need to have a convincing conversation with somebody; ideally a factory owner. Engage in the agenda. Ask questions. Be curious. You can do it from an emotional point of view – you might care about this personally – or you can do it from a business point of view. Don’t avoid opportunities to influence people. Ask: What makes the workers good in this factory? What’s good about working in this factory? What could you do better? What problems can you fix?

Get started: If you’re a small brand, you’re not going to have a big ethical trade budget. Don’t worry. Talk to people; see if you can do something. It doesn’t need to be formal. Form a group and state what you’re going to do, even if it’s small. You don’t need to pay for an auditor – there are free audit reports out there. Develop checklists; things you want to have conversations about. Give your checklists to the technologists, the buyers, the people who are actually visiting your factories. Look for initiatives like ZDHC and the Ethical Trading Initiative.