A supply chain savvy professor is suggesting that clothing brands like Gap Inc can better avoid damaging child labour allegations by assigning "supply chain integrators" to shoulder the responsibility.

Many companies fail to consider the risks and benefits of outsourcing, according to Panos Kouvelis, professor of operations and manufacturing management at Washington University in St Louis.

He believes that through proper risk management a firm can avoid damaging its reputation or losing money.

Kouvelis said: "There are hidden costs to outsourcing that every company needs to consider before looking overseas to manufacture its products.

"Not only could you discover that a sub-contractor is using child labour, but you could also find that the quality is not what you expected. These factors affect the cost of outsourcing.

"You can't assume that manufacturers in emerging economies will deliver the same quality of service as domestic suppliers. Too many firms don't take the time to figure out in advance how they will handle ruptures in the supply chain; they don't manage that risk well."

The professor pointed out that supply chain integrators, like the Li & Fung Group, can link major retailers and manufacturers, because they are in a position to visit the suppliers to observe the manufacturing process.

"By going through a supply-chain integrator, it is no longer the retailer's problem if something goes wrong.

"How the order is executed wouldn't be the Gap's problem; their contract is with the facilitator, and the facilitator is the one who assumes full liability," added Kouvelis.

Gap was held accountable for child labour allegations against one of its Indian embroidery subcontractors last month, and has since taken measures to correct the issue.

The company's description of the incident was that one of its approved vendors used a small embroidery company on a GapKids product, when somehow a small portion of goods were sent to an unauthorised facility in New Delhi where at least one child was seen working on the product.

Gap took a series of actions following the allegations. These included banning the factory directly involved, holding a summit in the country, assisting the children involved, disciplining the original vendor involved by suspending 50% of orders and offering a multi-year $200,000 grant for India's industry.

The company also vowed to work with Global March Against Child Labour in convening a global forum of companies, industry representatives, government officials, NGOs and trade unions to consider industrywide solutions to child labor issues.

It was reported last week that Gap Inc is to scale back its orders from suppliers on the Indian subcontinent. Indian paper the Economic Times reported that sourcing from India, Sri Lanka and Bangladesh could fall from US$1bn to $700-750m as a consequence. Gap, meanwhile, has made no indication that it has any intention to do this, calling the report "incorrect" and "speculative".

By Joe Ayling.