Sourcing squeeze continues for global garment suppliers - Just Style
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Sourcing squeeze continues for global garment suppliers

By admin-demo 26 Oct 2020

Fashion brands and retailers are continuing to undermine their garment suppliers by driving down prices and imposing onerous payment schedules on new orders, new research suggests.

Sourcing squeeze continues for global garment suppliers

Fashion brands and retailers are continuing to undermine their garment suppliers by driving down prices and imposing onerous payment schedules on new orders, new research suggests.

A survey of 75 garment factory owners from 15 countries appears to indicate that far from treating factories with more compassion since the widely criticised order cancellations or suspensions at the start of the Covid-19 pandemic, little has changed when it comes to their purchasing practices.

The survey also shows these financial pressures threaten the viability of many apparel suppliers and are likely to lead to large-scale dismissals of workers 

The research by the Center for Global Workers’ Rights (CGWR) at Penn State University includes feedback from respondents in Bangladesh, Cambodia, Egypt, El Salvador, Ethiopia, Guatemala, India, Indonesia, Kenya, Mexico, Myanmar, Nicaragua, Pakistan, Peru and Vietnam. 

The results describe how brands are using suppliers’ pandemic-driven desperation as leverage on new orders they are placing, with many suppliers forced to accept orders below cost, potentially forcing them out of business. 

Suppliers also reported that many customers have imposed payment schedules that will require them to wait additional weeks or months to be paid for their work.

“It is of vital importance the brands rethink and revise such adverse pandemic purchasing practices,” explains Mark Anner, report author and director of the CGWR. “Otherwise, the current short-term gains for brands of such practices will turn to long-term costs. This is because the supply chains needed to sustain the industry will face such exorbitant stress that they may never fully recover.” 

The findings from the report ‘Leveraging Desperation: Apparel Brands’ Purchasing Practices during Covid-19‘ include:

  • 65% of suppliers reported that buyers have demanded price cuts on new orders that are bigger than the year-over-year reductions buyers usually ask for. 
  • On average, buyers have told suppliers they must cut prices by 12%, relative to last year’s price for the same product. 
  • As a result, 56% of suppliers have been forced to accept some orders below cost, and the majority anticipate having to continue to do so. 
  • On average, suppliers surveyed will have to wait 77 days after they complete and ship customers’ new orders, to receive payment. Before the pandemic, the average was 43 days. 
  • A majority of suppliers said they have less than half the order volume now relative to the same period last year.
  • As a result of lost volume and more onerous prices and payment terms, 57% of suppliers reported that, if current patterns continue, it is extremely likely or somewhat likely that they will be forced out of business. 
  • 75% of suppliers reported that they have had to cut workers’ hours as a result of buyer purchasing practices during the pandemic, with approximately one quarter of suppliers cutting working time by over 25%. 
  • On average, suppliers have dismissed 10% of their workers. They anticipate dismissing another 35% of their workers if current trends (order volume and price reductions; delayed payments) continue. With an estimated 35m workers in the global garment export sector at the start of the year, the potential implication of this finding could be enormous.

Recommendations 

The research report says it is imperative that brands and retailers improve their behaviour and act responsibly toward suppliers and workers. 

It notes that timely payment for completed orders is paramount for the health of the industry and the wellbeing of workers who rely on the timely payment of their wages – and that brands must cease using their supply chain power to further delay payment terms. 

While speed-to-market has long been a mantra of global garment supply chains, currently many suppliers need extra time to meet shipment deadlines as they make adjustments for social distancing and other pandemic-related workplace changes. 

“The Covid-19 pandemic is not the time to strictly apply late shipment fees on suppliers. Worker health must be given priority over speed-to-market considerations,” the report says.

It also notes that many brands have long boasted that outsourcing to developing countries creates jobs for low-income workers, especially young women. 

“Many of these workers are now facing the prospect of economic destitution. Brands should ensure that all workers who were making goods in their supply chains at the outset of the pandemic receive their full regular income throughout the pandemic and that workers losing their jobs receive their full legally-mandated severance.”