Changes taking place in Bangladesh are redefining the apparel supply chain

Changes taking place in Bangladesh are redefining the apparel supply chain

Far from marking the beginning of the end for Bangladesh's garment export sector, recent tragedies have set the industry on a course that could see it evolve into a world-class player, executives have told just style. And more than that, the changes underway could also redefine the apparel supply chain of the future.

Warnings of repercussions following recent industrial disasters in Bangladesh's ready-made garment industry appear to be coming true - but perhaps not in the way that many would have expected.

Instead of a widespread blacklisting by customers and a shift in orders away from the South Asian country following the collapse of the Rana Plaza factory building and the Tazreen Fashion factory fire which claimed more than 1,200 lives, recent figures show garment exports continue to soar.

Data released last month pointed to a 13% rise in Bangladesh's ready-made garment exports to US$21.51bn in the year to June - with growth accelerating to an even more dramatic 26.1% year-on-year hike in the month of July, when shipments reached $2.51bn.

Describing the tragedies as "a massive wake-up call" and "the low before the high," Ranjan Mahtani, CEO of Epic Group, one of Bangladesh's largest apparel suppliers with nine units, 20,000 workers, and a production capacity of nearly 40m units a year, told just-style the industry is "rising to the challenge."

"We are in the middle of a storm right now, but it will redefine how business will be done in the future.

"The level of seriousness from the suppliers, buyers and the government is amazing, and we firmly believe that over the next 18-24 months [the industry] will reorganise to a world class level that will be followed by other countries."

Mahtani continues: "This is all about Bangladesh now but, much more then that, it is about the buying fraternity re-evaluating and reorganising their entire buying patterns based on what happened."

He sees a sea-change taking place that will give rise to supply chain consolidation and strategic alliances between buyers and suppliers "like we've never seen before."

"Buyers recognise they need to work with world-class suppliers and factories, and that they need to consolidate their vendor base and fast. They have to know the factory they are dealing with. Transparency has to be a given if you want to be a part of this ball game - not just for customers but as a moral obligation as an employer.

"This is not something new, but is perhaps accelerating through some of the happenings in Bangladesh."

Kazi Iftaquer Hossain, president of the Bangladesh Garment Buying House Association and CEO and owner at Total Apparel, agrees: "Business is now shifting to large, more competitive companies because they have the ability to fulfil all the compliance issues."

Another knock-on effect is likely to see the new standards and audits being introduced across the Bangladeshi ready-made garment industry also rolled out to other supply countries too - setting one common benchmark for the supply chain.

Factory inspection plans
This massive shake-up is being driven by retailers and brands in Europe and North America - including Wal-Mart, Gap, VF Corp, H&M, Inditex (the owner of Zara) and Marks & Spencer - who are moving forward with two separate plans to inspect all their supplier factories in the country.

Between them, the [North American] Alliance for Bangladesh Worker Safety with its Bangladesh Worker Safety Initiative, and the [European] Accord on Fire and Building Safety in Bangladesh intend to examine around 1,500 factories. They will also offer funds and assistance with remedial action - including the relocation and rebuilding of unsafe factories - where necessary.

There is also a government-led National Tripartite Action Plan on Building and Fire Safety, which has committed to assessing the structural building safety and fire safety of all active export-oriented ready-made garment factories in Bangladesh, including hiring at least 800 inspectors.

However, a preliminary inspection report on 70 ready-made garment units found just six to be in sound condition - illustrating the unique size of the task facing Bangladesh as it tries to rebuild its reputation on the global stage.

Compliance casualties
Part of the challenge also relates to the industry's current structure, and its rapid and unregulated growth - which has given rise to a sector that veers from 400 or so top-class facilities at one end to around 2,500 small-scale "cottage" producers with anything from two to six lines at the other.

It is these small to medium sized facilities that are most vulnerable, lacking the funds to invest in fire and building safety (most rent space in buildings over which they have no direct control), or to cover the cost of relocation from unsafe urban premises to newly-built rural ones.

Many are also the invisible sub-contractors, unable to book direct business themselves and likely to be hit as customers impose a zero tolerance policy on unauthorised subcontracting.

Hossain, whose Total Apparel supplies bottoms and shirts for brands including Bench and Republic, has 340 workers and a turnover of $8.5m, estimates 10-20% of small to medium sized factories will go out of business.

The industry's problem "is that we are basically supplying all the discount stores [so] retailers are squeezing us on price. An extra 10-15 cents on a garment would make a huge difference" in helping factories upgrade their facilities, he tells just-style.

He would also like retailers to take a short-, mid- and long-term view of the repair process, "so they are committed to seeing through the changes manufacturers have to put in place" - but says discussions are underway to resolve these issues.

Transformation timeframe
The timeframe set out by the Accord and Alliance aims to see all factories inspected within a window of nine months to one-year, with Mahtani believing the industry will have completed its transformation in the next 18-24 months "if we continue at our current rate."

He also points out that the number of audits will decrease with every month that passes, and relocation of factories away from the main production bases in Dhaka and Chittagong will have the added advantages of providing access to a new pool of workers which, in turn, will help to ease pressure on labour costs.

That said, there is no doubt that the combination of higher compliance costs and reduced access to cheap sub-contracting will lead to higher prices on garments sourced from Bangladesh, which is already having to contend with currency appreciation, higher bank charges, spiralling fuel and transport prices, and a major wage increase before the end of the year.

But while costs might rise, manufacturing in Bangladesh is set to remain "more cost-effective than other countries, which will continue to make it an attractive sourcing destination," provided, of course, there are no further catastrophic accidents to contend with.