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Supply Chain Transparency, Vendor Compliance and Factory Safety: What You Need to Know

Supply Chain Transparency, Vendor Compliance and Factory Safety: What You Need to Know

February 26, 2013

PART ONE

This is the first in a three-part series about one of today's top supply chain issues: ensuring factory safety through improved supply chain transparency. In this series, NGC provides an overview as well as practical information on the steps you can take to ensure vendor compliance and supply chain visibility.

Supply Chain Transparency, Vendor Compliance and Factory Safety: What You Need to Know

Worker safety in supplier factories has never been more critical. After a fire killed 112 workers at the Tazreen Fashions Ltd. factory in Bangladesh in November 2012, fashion supply chains are under intense scrutiny to provide better supply chain transparency and worker safety.

The tragic loss of life has raised concerns about the Bangladesh garment industry, which is the world's second largest apparel exporter. It has also generated unwelcome publicity for the retailers and brands that produced garments at Tazreen, whether through direct sourcing or subcontractors. Industry giants such as Wal-Mart, Li & Fung, Delta Apparel and many others have been linked to Tazreen — in many cases because their factories were farming out work to subcontractors (such as Tazreen) without approval. [[more]]

Following the Tazreen tragedy, Wal-Mart recently announced a zero-tolerance policy for unauthorized subcontracting, "alerting its global suppliers that it will immediately drop them if they subcontract their work to factories that haven't been authorized by the discounter." Wal-Mart has also mandated that suppliers must have an employee stationed in countries where they subcontract to ensure compliance, rather than relying on third-party agents. 1

In addition, U.S. lawmakers have called for new legislation to help ensure that apparel imports are produced in factories that protect their workers.2

A complex problem
Ensuring safe working conditions, however, is notoriously difficult. As an Associated Press article pointed out, "Big retailers buy clothes directly from scores of factories, searching for the production capacity to meet the demands of the coming season's fast fashions. Others work through supply chain managers, independent suppliers or in-country agents. Still other so-called 'vertical manufacturers' produce much of their product line in-house, but turn to a factory like Tazreen to handle specialty items that fall outside their line of expertise."

"This is why it gets so complex and there's so much misinformation. The apparel industry is a very big, complex marketplace."2

Even the largest companies wrestle with factory safety and transparency. In an interview with Reuters following the Tazreen disaster, "Wal-Mart Vice President of Ethical Sourcing Rajan Kamalanathan admitted that the world's largest retailer must do more to monitor its supply chain and ensure that it is not using unauthorized manufacturers. The company's current controls were not sufficient, he conceded."3

Beyond price: evaluating vendors grows more complex
The Tazreen fire has served as a wake-up call to the fashion industry. While brands and retailers have historically based their sourcing decisions on a combination of price, quality and on-time delivery, companies must now consider a host of additional issues as they evaluate vendors.

At the top of the list is the ability to ensure worker safety. And following the Wal-Mart announcement, other brands and retailers will soon adopt similar policies against unauthorized subcontracting, if they don't already have such policies in place. As a result, companies must now evaluate vendors on a complex matrix that includes:

  • The traditional decision points of price, quality and track record of on-time delivery
  • Factory safety and the ability to guarantee safe working conditions
  • Full transparency on the use of subcontractors
  • The ability to satisfy compliance issues, such as CPSIA, the California Transparency in Supply Chain Acts, and child labor and environmental laws
  • As well as the traditional metrics of price, quality, delivery record and suitability for the work.

The process of selecting and managing sourcing vendors has never been more critical, since a single supply chain tragedy can cause unprecedented damage to a company's brand reputation. Brands and retailers must select vendors more carefully than ever, and must also take measures to help ensure accountability and full supply chain transparency on a host of issues. As the Associated Press article concluded, "when you have a lack of transparency, you have a lack of accountability."

 

1 Associated Press, "Walmart Adopts 'Zero Tolerance Policy' On Subcontracting After Bangladesh Factory Fire," Jan. 22, 2013.
2 Just-Style, "Lawmakers Urge Action Following Bangladesh Fire," Dec. 13, 2012.
3 Associated Press, "From the Ashes of Bangladesh Fire, Evidence of a Complex Global Supply Chain," Dec. 1, 2012.