An article in Bloombergbusinessweek (February 7,2013) suggests that the fast (even two week) fashion cycles at Zara, Hennes & Mauritz (H&M) create stress on suppliers in Bangladesh who need to respond rapidly or lose the business. The corresponding stress shifts to employees and, the article alleges, creates conditions that compromise safety – leading to deaths due to fires. The article claims that a 10 cent extra cost per garment can improve safety if spent on fire prevention and worker protection efforts. But will such a price increase offered to manufacturers be spent appropriately on safety ? Have retailers gone too far in their focus on matching trends and should the safety consequences be rejected by consumers ? How can consumers be educated about the tradeoff ? Should regulators at retail locations demand that retailers accept global responsibility for the consequences of their “fast fashion” supply chain choices ?
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‘Fast fashion’ or ‘Quick response’ in the goal of delivering quick fashion in the fastest time and in a cost efficient manner (high demand for constant product turns), seems to have many hidden costs that cannot be ignored.
This business model aggressively pushes subcontracted factories that already have the leanest production costs to further lower prices in order to keep their contracts. Factories are forced to side lay costs related to environmental safety or long-term employee well-being in order match their production schedule with the demand.
In addition to the safety hazards of the garments factories (fire, electrical outlets, lighting, number of exits, hygiene standards), this model also increases overtime of factory employees due to continuous, frequent demand for style changes or too many styles per design. This increases their setup times per batch and has a bullwhip effect as a consequence of which laborers have to work overtime to meet the schedule.
These are the hidden costs of providing the widest variety of fashion possible, at the lowest cost, to a customer base that ‘doesn’t want to wait’ by suppliers who are ‘just’ responding to customer demand.
One of the ways to ensure safe working conditions for laborers is to have ILR or other governing bodies enforce policies on the subcontractors such that safety standards and laborer working conditions as per standard are the minimum required (could vary according to the economic and social conditions of the country) to run the factory. I do not see that a price increase offered to subcontractors would be spend appropriately on increasing the safety standards unless it is enforced. The enforcement has to be on the subcontractors’ side. This will automatically have a push-back effect on the retailers.
In addition to this, regulators at the retail locations can demand that retailers accept global responsibility for the consequences of their “fast fashion” supply chain choices. This will control their aggressiveness in pushing down the manufacturing costs of the subcontractors.
Both the above would help improve conditions for laborers but the key enforcement as discussed above should be on the subcontractors’ side.
One way consumers can be educated on the ‘trade offs’ of their low cost, fashion wear is by retailers / subcontractors including a small tag together with the price tag on the garment, that subtly but effectively conveys the hidden costs to the buyer.
A supplier merely responds to the requirements of the retailers as per the terms of the contract. In a situation where the suppliers are having to forsake safety standards in their premises due to the pressure of fast response and innumerable product variants, further pressure on them through regulations will make the matter worse. Moreover, labor laws vary for different countries and hence, it wont be easy to create a standardized regulation to ensure suppliers meet the morality norms and expectations of customers in another country altogether. Moreover, I feel that any price increase offered to manufacturers would not be spent appropriately on safety as they have no incentive to do that. And neither is there a deterrent to prevent lower focus on safety. It is critical to remember that this situation has arisen because of the pressure retailers put on these suppliers to meet the production and delivery schedule. In such a situation, I feel that retailers should be made to accept global responsibility of their “fast fashion” choices. This would result in the retailers themselves ensuring minimum safety standards in their suppliers’ premises. Since the retailers are the business drivers for the suppliers, there would be no alternative for the suppliers but to accede to the demands of safe practices by the retailers. Only after this global responsibility is put on the retailers can we go for additional measures to ensure safety, e.g. regulations on the suppliers.
On 24th April 2013, an eight-story building “Rana Plaza” in the Savar Area outside Dhaka with over 5 garment factories collapsed, killing close to 1,100 people. It supplied clothes to the most well-known brands in the US and Europe. In Another Incident, 112 garment workers died in a fire incident at The Tazreen Fashion Factory in Bangladesh. The country is the second largest garment exporter in the world after China but little has been done for the worker safety although everybody including the Bangladesh Government, the factory owners, the foreign retailers and many other stakeholders have been prospering through this business model. One of the major concerns was the lack of any trade unions to protect the rights of the workers against the suppressing factory owners.
However there has been some improvement since the Rana Plaza incident, The government inspectors along with ILO and EU have been overseeing close to 1500 factories in Bangladesh for safety norm implementation. Moreover, separate inspection by 175 retailers in Europe an 26 in the US through an accord on Fire and Building Safety is also being carried out. But the fact remains, as to how effective are these efforts? In many cases, the inspectors hired by international brands would ask the owner to put the safety improvement but never followed for remedial measures as per the account by the local workers. Thus the challenge lies in implementing these measures successfully. In one such serious efforts towards setting the norms right in Bangladesh factories, was the cancellation of the order by several brands from the Azim group in 2014 for enforcing anti-union activities in the factories. Later the unions were recognized and the compensation was paid to the union leaders. As a stepping stone to resolving these issues, the Bangladesh government is in the process to revise its laws in line with ILO ‘s conventions. With the norms in place, the sourcing companies need to institute inspection to ensure that factories comply with companies code of conduct as per the Labor Laws of Bangladesh and the ILO’s convention ratified by Bangladesh. Secondly The sourcing companies need to ensure that the contracts have room for incorporation of cost of labor, health and safety compliance and further carry out inspection for its implementation through a consortium of Brands operating in the US and Europe to establish safer operations in the factories in Bangladesh, avoiding any future incident like Tazreen factory or Rana Plaza. These incidents not only impacts the Business in Europe the US but also destabilized the economy of Bangladesh which is heavily dependent on the garment exports. Thus it is in favor of all the stakeholders to set the right safety and working condition norms for maintaining a sustainable supply chain of garment sourcing in Bangladesh and beyond.
1. Customers are tuned to fashion cycles by the retailers. Brands influence customers to expect variety and speed. A customer does not have such expectations until it was sown into his/her thought by the brand. Hence retailers have to take responsibility and ensure that there are no unreasonable expectations set into the minds of the customers.
2. Retailers need to ensure that they associate themselves with suppliers who are responsible and have safe working conditions
3. Low cost cannot come at the cost of safety and loss of lives. There are several other improvements that can be undertaken to reduce cost. Retailers can help smaller manufacturers to collaborate with others to learn and implement process improvements
4. Consumers are brand conscious and labels on packages must be transparent to reflect the supply chain origins. Regulators must mandate that retailers take responsibility for their sourcing decisions.
I believe that companies should voluntarily enforce a vendor management program where certain guidelines and standards of the company has to be ensured on quality, safety and performance. Obviously this will lead to increase in outsourcing costs. But the payback is much higher.
Firstly, this will ensure that suppliers follow good business practices and welfare schemes
Secondly, it reduces the risk of working with a supplier that can bring disrepute to the brand
Thirdly, suppliers will have incentive to perform on all three factors rather than performance alone.
Such schemes require a good established system monitoring the working of the suppliers and rewarding good practices and penalizing bad ones. This will also ensure a fair bit of control on the suppliers and also its sub-vendors.
Companies may ignore these risks now but when such instances and reports come forward, they can be very damaging to the brand image and have a big impact on the sales. The correctional measures would also become more expensive then.
One of the major problems with quick fashion cycles where the majority of the production happens in third world countries is the cost associated with unsafe conditions and the resulting loss of life/property/quality. Here is an example. Thermal power stations in India are some of the major pollutants. There are a lot of strict restrictions and norms on the levels of pollutants that a power station is allowed to emit. Power stations control the emissions by using electrostatic precipitators (predominantly). Even with such restrictions in place, most of the thermal power stations choose to not turn on the electrostatic precipitators. The reason? The cost of running these precipitators 24*7 is much greater than the cost associated with being caught and the penalty that they have to pay. The way to prevent this is to ensure that the costs associated with violating the standards far outweigh the benefit an organization would gain from it.
Similarly, not all the consumers will consider safety consequences while making their purchasing decisions and hence the onus should be on the manufacturers/retailers and the terms in the contracts with the vendors should reflect the high costs associated with violating the safety conditions.
In my opinion, cold hard economics would win every time over wishful thinking that hopes to appeal to the ethics or morality of the consumers. The consumers are so far off removed from the reality of the manufacturing process that hoping they will make conscious decisions on the basis of the work place environments.
Another problem with the assumption that a premium will trickle down to the manufacturing workers is that the supply chains are so fragmented that realistically, the chances of the benefit getting lost before reaching the intended target. Labor laws in the country of manufacturing are maybe the only hope for these workers, however, they are also susceptible to manipulation or corruption often rampant in these countries.
So what is the way to go about solving this problem? One way may be to establish a tax regime which can incorporate penalties on companies that do not adhere to strict manufacturing practices. These have to be punitive and prohibitive in nature that provide a strong enough deterrent so that companies do not try to skirt the regulations.
Fashion industry inherently is a very high margin industry. A few cents here and there really does not create much of a difference for US manufacturers.
The key here is for Bangladeshi suppliers is to understand the value proposition of US manufacturers to its customers and align their supply chain accordingly. Moreover, fashion industry requires agile response more than lower costs, thus cutting costs to balance agility may work as a short term solution but not for long term.
Government, in this case, can setup regulations and rules that will enforce the suppliers to follow safety standards and given the uniform price increases across suppliers will enforce US manufacturers to pay the minor premium to their suppliers.
The problem of ill-management of resources in third-world country is highly significant. Due to abundance of human resource, which leads to humongous competition among them, which ultimately leads to their ignorance by the firm owners in these countries. Regulators in home countries could place regulations to check on their retailer but the truth is that there is hardly any visibility and control these regulators could employ on the firms in third-world country like Bangladesh. Even if retailer puts measure in place, the supplying firms may not employ those measures and lie about them. Ideally, the retailers should educate the suppliers and their employees and provide incentive to them (from the huge margin that they enjoy) to improvise the working conditions in these countries. Also, work with governments of their own country and supplier’s countries to put in measures to keep a check.
We just discussed the model of Zara in class and with their 10 day renewal of every fashion trend I also thought that this puts too much stress on the people working with manufacturer. When such high responsiveness is demanded than such chaotic atmosphere is definitely going to put workers at health risks or hazardous risks at work.
We should look at this problem from two perspectives- one is from manufacturer’s eyes. They want high responsiveness and once they have this skilled workforce which is giving them responsiveness they should be looking at sharing the benefits with their workforce. Lot of work is now being automated and manpower is used for value added works it become more important for manufacturer to invest in employee safety.
For customers they re becoming more and more sensitive as to how the product is produced. Hence the news of Bangladeshi textile workers and their condition disturbs the people all around the world. Buyers of high end retail have now become advocates for brands and so they would not like to associate with any brand that indulges in malpractices.
So it becomes imperative for fashion retailers to improve working condition for workers as it will benefit manufactures in long run and help build brand with consumers.
Just a price increase offered to manufacturers wouldn’t encourage them to promote safe working environment. unless the local regulations and laws do not specifically require the garment manufacturers to enforce safe working environment the manufacturers will focus on economic profits. Corporate Policing and specific contract terms with regular audits will need to be enforced by brands to sustain safe working conditions at the manufacturer’s location .
Companies will also need to adjust contracts to guarantee that they pay real cost of production , including the costs of providing a safe working environment.
Further, companies can incentivize workers and managers to uncover and disclose any problem at production site, so that they can effectively govern this policy.
Retailers must do a thorough due diligence of the manufacturer’s facilities, processes, quality and safety standards before awarding the contract to the manufacturer. Given the focus of the retailers on frequent design changes and shorter lead times to remain competitive in the market, the pressure put by them on manufacturers is not surprising these days. However, similar to quality audits, the retailer firms should routinely perform health and safety audits at the manufacturer’s facilities. It will also make sense to create standard operating procedures for the manufacturers and make sure that manufacturers adhere to it. A rating system can also be put in place by the concerned authorities, which will reward the manufacturers who will follow highest safety standards and report minimum casualties. This will also incentivise the manufacturer to attain a higher safety rating which will help them in securing future businesses.
Fashion industry is one industry where the primary driver of sales is not the price of the product rather it is the design, color and other similar factors intrinsic to quality of product. For this industry, there should be stricter regulations and the home country government where the factories are setup should be responsible for them. Customers should be made aware of the firms which do not spend enough efforts to take care of people who are working for them. Firms try to overwhelm the users by giving too much information about all the contractors they use, this information should be made easy and in a way customers can make a decision based on it.
Similar to FDI or ISI approval, there should be an international body which grades retailers on a scale and create gamification like scenario. This will help customers in making right choice and as soon as customers start focusing on this metric, firms invariably will spend money and efforts to be rated better on such a scale.
The stress on the employees working for suppliers in Bangladesh cannot be directly attributed to the the retailers who are demanding faster supplies. Its the weak government policies that are in place in these regions and the lack of enforcement of current policies that encourage suppliers to exploit the workforce. Even if the retailers such as Zara were to grant them additional funds for the improving safety and working conditions in their factories, it is unlikely that the funds would be utilized as its intended to be. Moreover, even if the contracts between the retailers were to relax the strong commitments required from the suppliers in the contracts, it would not deter them from changing their practices.
Instead, the retailers need to work with the regulators to come up with more stringent requirements in factories of the suppliers to improve safety and working practices. The law needs to be enforced by the regulatory committees and it should be included in the contracts between the retailers and the suppliers. Deviation from the acceptable requirements would result in penalties for the suppliers. While, its unlikely for the suppliers to improve practices when additional funds are awarded, they would certainly do so to avoid penalties. Additionally, the retailers need to be more involved with the manufacturing process and monitor it better to identify any unethical practices that may compromise the safety of the workers and penalize those activities based on the contract.
Safety in manufacturing should be a prime concern for the manufacturers. However, in this case the responsibility of compliance should be shared by the big players and brands like Zara. For a small scale manufacturer the only concern is making making profits which leads to negligence in compliance which ultimately affects the employees. There should be checks and balances in the system that ensures that these manufacturer comply with safety standards in their facilities. A good way to go forward in implementing this strategy would be to ensure that these large parties buy supplies from only those manufacturers in developing countries who comply with standards. The larger companies have greater role to play in helping these small scale supplier understand the value of safety and support them financially to set up safety complied facilities. There is no doubt that such efforts require investments but on the positive note it builds a better reputation for the large companies. Customers would value products of the companies more who comply and share the social responsibility of all its stakeholders.
This is a huge challenge faced by many industries in the world. The blog mentions about a 10 cent increase in the cost of the garment and leads to better safety conditions, however, it is very likely that the manufacturers won’t use this price increase to better the safety conditions, rather just increase their profit margins.
Further, retailers have gone too far in matching trends and staying up to date with the fashion trends that it has led to safety consequences at the manufacturer’s end and the consumers are not aware of these consequences. Consumers would also want to be associated with a brand which has ethical practices in place and the retailers/firms should educate the consumers about this. Advertisements in fashion magazines and national televisions, newspapers should be used to educate the consumers about the potential risks. Consumers of high-end fast fashion, after knowing the consequences would be willing to pay a premium and retailers can incentivise the manufacturers to adopt ethical work practices.
The retailers should be held responsible for any consequences in their supply chains. Retailers should ensure that their supply chains have ethical practices and are completely transparent. Third-party certification agencies such as Rugmark should be employed to carry out supply chain audits.
I don’t agree with the intuition that “fast fashion” creates safety problems for employees at global supplier factories. When the firm is following the “fast fashion” business model it is most likely to follow a pull based replenishment than a forecasting based push model. Having said that, safety is one major concerns in any manufacturing industry. Thus it is of utmost importance to ensure the safety of both man & machine at all times. The article claims that a 10 cent extra cost per garment can improve safety if spent on fire prevention and worker protection efforts. But, the question is how can we be certain that the extra amount will be spent on safety measures. It could be very well be possible that the manufacturers take the lion share of the profit increase and invest the bare minimum in safety measures. In my opinion, it is the very nature of the business where the supply chain has be responsive and we shouldn’t be linking the nature of it directly to safety concerns. At the same time, the retailers have to be updated with all the trends; otherwise they will go out of the business. Hence, in my opinion there should be fixed amount of investment for safety measures before allowing the business to even get started and if a certain company doesn’t meet the minimum requirement they will not be allowed to run it. There should be ranking or evaluating matrices in place that observe all the safety measures available and then only allow the factories to start production. This information should be made available to the consumers by the regulators, so that the consumers can make an informed decision of whether to buy products from factories that don’t make the minimum safety requirements. This way, the consumers have the choice and can dictate the entire value chain by their decisions.
The retailers should take the complete responsibility of the product that they are selling, which means that they should be held responsible for the supply chain of their products. In order to ensure safety norms at the manufacturing locations, the retailers should tie up only with those manufactures who maintain safe working conditions. The retailers can either themselves or through a third party certification agency get periodic audits of their manufacturers. If required, the retailers should invest in maintain a safe working requirement at the manufacturer’s end, failing which the manufacturer should loose the supply contract from retailer.
The fashion world is very competitive today where the firms want some kind of differentiation on one point or another. In such a condition, if a firm has invested its time and money in setting up the operations so as to attain two weeks fashion cycle, it would be quite difficult for the firm to compromise on that. Hence, smoothening the production process – by implementing safety processes in the entire production journey is the only possible solution.
The probability of such incidents as Fire is very low and hence, if there is no motivation for the supplier to enhance the employee safety, the supplier’s management would not implement safety improvement processes. Hence in a condition when per garment cost is increased by 10 cents, the supplier would likely improve its bottom line rather than improve employee safety.
However, the supplier motivation can be driven by many steps:
1. Enforcing stringent safety laws which would force owners of the companies at retail location to look for safety regulations in the supplier’s factory. However, there are a variety of factors such as a) investment in setting up safety regulations for numerous events such as fire, quakes, floods, etc.
b) global politics involved
c) an emphasis on capitalistic economy
2. Enforcing safety regulations at production/sourcing location or country
3. Preferential treatment for suppliers with proper safety processes
Educating the customers on the safety of the humans involved in supply of the products/services is important in a similar way as enforcing regulations. Imagine a situation in which the impact of fire is extremely publicized on Youtube, facebook, twitter which makes customer to stop liking a product or brand. It would force the other brands to look for safety of their supplier’s employees.
Ensuring safety of assets is a must for any kind of the firm and it becomes although more important when the entire industry’s major asset working is “manpower”. Recent deaths due to unsafe practices leading to fire is a major cause of concern not just for the retailers outsourcing their production but to the end customer also. As a sane customer no one would like to use products which are being manufactured which called for inhuman working conditions and even deaths in many cases.
It becomes the responsibility of the retailer to take appropriate actions in the regard and in fact all the retailers should come together for these common causes to enforce the compliance across the supply chain. Just 10 cent extra per garment can ensure this and it is really a very meagre amount which can lead to better output. Time and again it has been proved that the workers working under proper conditions are more productive and are less likely to commit errors and mistakes. This will indirectly lead to the overall cost reduction with lesser wastages and even faster lead times.
A novel example where a firm has really disrupted transport industry when considered from the perspective of drivers is Rivigo which is operating in India. Just by making sure that the drivers lead and normal life and come back home to their family at the end of the day has really lifted the spirit of the manpower and ultimately the business efficiencies and profits.
Customers should also be made aware more about the facts as they can really force a retailer to take corrective action in case anything wrong is observed.
Yes,Fast Fashion pushes the stress down to the workers in the supplier end indirectly that has led to a lot of accidents and even suicides , in the case of Apple , at the worst. After the recent issue of not paying the workers at Zara , much of the customer base did not want to associate themselves with Zara when they got to see weird sad messages in the tiny notes kept in their newly purchased dresses.
The Fast Fashion industry claims a premium on whatever they sell as they brand it as hot selling and say that it would not be available if not purchased now.In this case, the retailer enjoys a high margin premium of over 300-400% in every piece they sell.So inorder to sustain in the business, they must enter into strategic relationship with the supplier wherein investment has to be done so that the supplier would also be in the right shape to deliver the goods as per the fast cycle instead of cutting corners.
So retailers , have to come out of the margin mode and look at the business with wide lens wherein they see supplier also as a key partner in serving their customers.
Fast Fashion is here to stay and I do not think it would be appropriate to hold it responsible for the deplorable condition of the workers in the Bangladeshi textile industry. If the fashion houses like Zara and H&M demand fast fashion and the Bangladeshi suppliers meet the requirements then why cannot they meet the safety requirements if the same Zaras and H&Ms of the world demanded it? But for this to happen, just by demanding such safety requirements and improved working is not going to work. Companies like Zara and H&M have to work closely with their suppliers and make them aware of the risks of such events like fire, building collapse etc. Only one such event is enough to destroy whatever profits the supplier makes in the whole year and thus working actively to mitigate such risks makes actual economic sense to them. Zara and H&M should make their suppliers aware of such mitigating measures and even train them to implement them in a cost- effective manner and can also share some of the cost as such events pose risks to companies like Zara and H&M as well. I do not think blaming fast fashion, which is a consumer choice, for fires, poor working conditions etc. at the supplier end is correct as there are measures which can be taken to mitigate such risks. Ignoring those measures is in fact the reason for such mishaps and both Zara and their suppliers should work together to come up with a feasible solution as such events prove to be a costly affair for both the parties.
Retailers do need to take up some part of the responsibility for the entire supply chain. Implementation of safety regulations becomes the challenge here, even if retailers are ready to fund. The retailers themselves cannot enter into the policing and this calls for authentic external agencies or NGOs that can take ensure that manufactures implement safety regulations and utilise the funding appropriately and can certify them. It should be made mandatory that for a supplier to receive an order, he/she must be certified by these NGO or group of NGOs. The retailer must also have an agreement to maintain transparency between them and the NGO and discuss on the method followed for analysing manufacturer adherence. To answer the question-if retailer have gone too far chasing fast fashion, the answer is totally market driven. With competition, to remain relevant in the market, it is essential for players to differentiate their products on some lines – price, quality, speed etc. So fast fashion is just a way of business – however, compromising on manufacturer’s violation is the not the way to go. Marketing strategies that can educate consumers about the problems faced at manufacturing facilities and how the price rise given to them helped in mitigating it, can in crease consumer’s willingness to pay to some extent. Other methods can providing for loans for business expansion to manufacturers who adhere to norms, long term agreement promises can possibly help in implementing norms even without providing a price rise to them. The retail firms must also introspect to identify other cost suckers in the supply chain-better demand forecast, better sourcing, better warehousing are some ways to make the supply chain leaner. This can compensate for the loss incurred with suppliers.
The production work of large fashion houses is outsourced to parties especially in the developing nations where cost of labour and overall production is pretty low. This affords high margins for the fashion houses. However, it would be unfair to give a stingy piece of buy to the outsourced parties involved or increase their share of the pie at the cost of expensive purchase by the customer. Knowing the fact that there is almost 200% to 300% margin on fashion garments, the cost of this social responsibility should be borne by the entity that makes the most from this transaction, i.e. the fashion house.
This industry also witnesses thus much irregularity because it is totally unregulated and has no by-laws to govern prices and profit sharing. Some policy around this issue is another potential solution.
The demand for lowest cost products with fast response time has led to compromise not only in safety, but it also harms environment and violates human rights. The suppliers present in Bangladesh, China and Mexico may even hire children in order to compete globally. If companies agree to pay 10 cent extra per garment, it may not lead to the manufacturers spending it responsibly if left on their own. Companies need to start taking responsibility of their supply chain. They can hire third party vendors to monitor the practices at their global supplier factories. The consumers, when educated about where the extra ten cent is being spent, would be more than willing to pay for it. Companies can also spend their CSR budget on improving the working conditions at the factories of their global suppliers. This can be further legalized by regulators at retail locations demanding that retailers take responsibility of their global supply chain, as opposed to institutions such as Fair Labor Association which are set up by collaboration of retailers.
Fast changing fashion is demand of the day and retailers need to follow the trend to remain in the race. To keep costs low, firms manufacture their products in developing countries with loose work and safety laws and regulations. Suppliers do not spend on employee safety fearing that a small price rise may lead them to loose their business. Retailers need to take some responsibility to maintain safe working environment at their manufacturing plants. Retailers can enter into contracts with supplies which outline maintaining a minimum level of safety environment at manufacturing units. They should educate consumers, through marketing campaigns, about their work ethics in manufacturing and how price rise can help them keep better work environment for its employees, developing a sense of social responsibility.
In my opinion, consumers will not pay extra for the safety practices that company is following in its supply chain. However, consumers see for the consistent performance by the company it terms of quality of products it produced for a long time. If a company is follows safety standards in its supply chain, it is likely that company can produce quality products consistently. Also, if company cares for its suppliers by providing safety conditions in manufacturing, suppliers will on company side in producing goods at the time of crisis also. Company should realize that it is not financial terms it should look at but also long term relationship and consistency.
In my humble opinion, I feel that there are definitely safety risks. When these employees are under pressure to complete a higher number of operations within the same time frame, they tend to cut corners or compromise on quality of work. Additionally workers at the shop floor do need to take safety precautions such as use of appropriate personal protective equipment and speaking to supervisors over health and safety concerns.
These are bypassed in the interests of time when the workers are under pressure. Managers neglect the risk associated with worker injury. Besides the compensation issues, a worker injury pulls down the morale of the other workers and serve as a prompt to them to consider alternate and safer professions. There is also negative perception in the market about the conpany and there are non governmental organisations that could get involved.
Hence managers should avoid aggressive deadlines for workers on the shop floor to prevent any compromise on product quality and ensure worker safety.
It is true that retailers have gone too far in their demands, putting a lot of stress on the manufacturers for fast replenishment due to short fashion cycles. Such demand pressures cause manufactures to overlook safety measures. In April 2013, came the most horrifying garment-factory accident in the registered history when more than 1100 people died in the building collapse at the Rana Plaza complex in the Savar district of Greater Dhaka, Bangladesh. Even if the owners of the setup would be aware of the potential disaster, the rapid response requirements from the fashion retailer brands forced them to continue the work so that they do not lose business. Such accidents cannot be done away with even if extra 10 cents per cloth are paid to the manufacturers.
A good solution for improving safety standards would be to have regulations in place such that fashion retailers are also made responsible for safety measures implemented across the supply chain. Strict safety audits for the supply chain would help achieve the safety goals. These safety audits would rate each firm as per the safety practices and each SKU in the store would come with safety tag and associated safety rating with details about all ratings possible. Moreover, good safety practices would also help a firm in creating/improving goodwill and also enabling firms to tout their better safety practices to attract more market share.
There are two ways to solve this problem.
The first is to have government regulation, whereby retailers in the US are required by law to have complete information about their suppliers and sub contractors. Better process visibility will come at a cost, translating into an increase in the price charged to consumer.
Second way is to make the consumers more aware of the inhuman working conditions in the apparel manufacturing facilities. This will create a customer driven push and the retailers will then have to invest resources to make the processes of their suppliers more transparent. Apple had to face the same issue due to some reports of unsafe and inhuman working conditions in its suppliers factories. Apple responded by making its entire upstream supply chain transparent.
In my opinion, government regulation in a free market economy does not help to the extent free market dynamics do. Firms, in most cases, find ways and means to fool the system. However, market driven forces are much more difficult to game. Investing in supply chain transparency could create a positive brand association in the minds of the customers. Hence, educating customers about the incremental costs of 10 cents could actually strengthen the brand perception. Furthermore, the customer driven push for better working conditions will actually press the retailers to put a wholehearted effort. This way the retailers will ensure that the extra price actually translates into better working conditions for the factory workers.
Two of the biggest apparel brands in the world in terms of revenue, Zara and H&M have reached the pinnacle of success due to its concerted effort to evolve its demand forecasting ability over the last few decades. This has helped them place production order closer to the season, however it also leads to shorter lead time for vendors in countries like Bangladesh, Vietnam, Sri-Lanka, Cambodia and Thailand. High depth in production quantity associated with fast fashion giants like Zara and H&M gives them huge power over the manufacturers.
As articulated in a famous movie “with big power comes big responsibility”, these players should look to bring sanity in the apparel manufacturing business by strictly following the safety compliance. It may not be viable for these players to change the business model that has made them successful, but being in the position that they are in they must do more to bring the manufacturing safety level in Asian countries to the acceptable level. Local buying house of these brands can help and ensure the implementation of safety measures in these factories if the price increase is passed on to the local manufacturers. As responsible retailers it is their prerogative to conduct timely audits and ensure the compliance else change the vendor altogether. Companies like Decathlon have an elaborate compliance rulebook which strictly prohibits manufacturers to subcontract. They have strict audit system to discourage any wrongdoing on the part of manufacturers. These types of models need to be followed by the retailers across the globe.
Safety is an option in third world countries. Fragile Govt regulations, corruption, manufacturers cutting corners and cost pressure on them leads to lack of safety for the employees. The brands turn a blind eye towards these as long as there are no implications on them. Change is unstoppable, but safety should never be compromised for that.
The consumer is kept in the dark about these issues it just carries the label such as Made in Bangladesh or Sri Lanka but barely anything can be deduced from just a label.
Brands should take ownership as a responsible corporate organization, set standards and do periodic inspection and/ or insist ISO certification for Occupational Health and Safety Hazards before sourcing. Or the global apparel association should get together and decide on standards for responsible sourcing, similar to Kimberly Process in sourcing of blood diamonds.
What lies at the heart of this problem, in my humble opinion, is the general sense of apathy arising out of a globalized economy. As a manager seated in a plush office in Paris, the person managing the supply chain remains happy as long “work gets done” and as long as his/her team does not have to incur more costs to refine their model. Functions like supply chain are often viewed as “cost centers” and any additional cost that a supply chain manager might ask for to make improvements to the chain that doesn’t directly reflect in the product will be frowned upon. I really wonder if any fashion firm could afford to show the same levels of apathy if such incidents occurred at manufacturing plants within their own countries. The underlying cause is the differential levels of economic development, and the values that different countries attach to a human life!
While developing countries undervalue a human life for a “greater good”, the multinational firms that outsource work to general employment and economic growth for these countries will continue to exploit this inequality. As minimum wages begin to rise, and multinational firms start running out of options to achieve further cost reduction, the consumers will be forced to pay up, and that is probably when such instances would being to decline.
While the country in which these fashion firms operate might try to put pressure on these firms to ensure fair practices in all geographies that they operate in, the lack of a challenging penalty makes enforcement a distant reality.
In my opinion, the economics of cost and prices will always win as far as arbitrage exists in the global trade. If given a choice, the retailers will never enforce rules. Hence negative externality is required. Regulations need to be in force in the buyer nation to provide the transparency into the retailers supply chain. This will ensure three things:
1. The retailers will be forced to establish quality control and best ethical practices in their supply chain which are primarily used as cost lines.
2. With revised guidelines, the managers will scout for suppliers who adhere to ethical practices and safe environment of work.
3. This will act as a catalyst of change in those developing nations who have been flouting rules. If they want to a part of the supply chain of those big retailers, they will have to institutionalize and implement laws. Till now, they have been using the weak regulations as a way to escape.
This will also bring fairness to the entire system as all the retailers in the buyer country will be equally affected.
Fast changing fashion is what consumer wants, and this attitude is not going to change soon. In my opinion, what lies at the heart of the problem is the lack of apathy in between brands and suppliers and as long as the person placing the order is distant from the manufacturing location and has no idea about the work condition their product is getting manufactured in this problem will remain here.
With rising globalization and world trade, the human nature and there has been a rise in apathy. For a brand manager in New York, a factory in Bangladesh is just a supplier. They are so far separated that for them its difficult to visualize how a change in “trend cycle” ( which is just a number for them) can have a far deeper consequence on the employees in a factory in Bangladesh. Few ways in which this problem can be resolved is:
1. Making retailers and brands accountable for the work practices of each part of supply chain
2. Developing 3rd party rating agency that can help find out the suppliers that adhere to the set guidelines
3. Automation and using data to give enough time to the suppliers to be ready for any change is another solution to this problem.
4. Increase the visits of retailers to production houses, so there is a human touch in between the suppliers and retailers.
Like with everything else in the retail industry, transparency matters. No matter how much the price is increased, unless steps are taken to ensure that the corresponding revenue trickles down to safety standard improvements the price increase is a purely capitalist gimmick.
To ensure that price increase is actually causing a change, the company should release third-party audit information about its suppliers regularly to signal the consumers regarding its commitments to the safety of suppliers/manufacturers. Of course, the consumer mindset needs to be changed regarding the fast-fashion apparel industry as the current trend is indifference towards policies regarding suppliers and/or manufacturers.
In order to ensure that manufacturers spend on to improve safety of the workplace and labors, it is necessary that company pay regular visits to them to check whether safety measures have been implemented by the manufacturers or not. Companies could get into a safety contract with the manufacturers to terminate the deals in case of any unethical practices come into notice. Companies could also conduct a third-party auditing at these workplaces.
Firms would have to take strong measures to prevent such unethical and unsafe work culture promoted by the manufacturers. In todays’ world, with the strength of social media, it would not be surprising if consumers come to know about these practices, which could definitely jeopardize the reputation of the company and would lead to loss of potential customers in the long term.
Belinda Goldsmith, a reporter in Reuters, recently in one of her articles brought out the key concerns fast fashion pose to working conditions of employees across the world. Similarly, Andrew Morgan’s “The True Cost” explore the impact of fast fashion on the world. Several instances in China, Bangladesh, India have been cited in international media regarding the impact of consumerism and changing preferences of consumer tastes over the poor working conditions.
The fact that 400% more clothing is made today as compared 20 years ago with over 97% outsourced to poor nations is startling enough. Minimal wages, little job security and exposure to hazardous work spaces further add to the harsh tragedy. A large part of this is attributed to the rapidly growing consumer demands that are putting pressure on retailers to deliver.
In my opinion, the true response to improving the impact of fast fashion stems from consumer demands. While retailers can asked and held responsible to drive better and humane working conditions, a lot of onus also rests on us – the consumers. How many consumers today have gone and asked about how the products are produced or what goes into the production of the products? Very few. This ignorance is bliss attitude in some manner too drives these effects deep into societal norms. For a retailer everything starts and ends at consumers. But, in essence, the consumers only realize the effect after looking at media reports, without realizing that the outcome is an effect our own demands.
When one thinks about the willingness of consumers to pay an extra 10% for fast-fashion, the argument for the price hike needs to be strengthened by a conscious effort on the part of the manufacturer to educate the consumer about the risks if this money is not spent on safety and well-being of the workers in the developing/third-world countries, where their clothes are manufactured. According to me, a well-rounded strategy, consisting of not only fund allocation to suppliers, but also a portion to auditors to go and audit the suppliers for their working conditions, is the need of the hour. Only then does this money spend get justified, because otherwise there would be no control over the Supplier spend otherwise. Only when accountability is built into the supplier contracts etc. will the Supplier actually make a conscious effort to comply and improve the working conditions of its employees/labor.
There is no guarantee that the ten cent per garment increase in cost given to the suppliers will be spent appropriately on the safety measures, in a country like Bangladesh workers don’t demand for safety measures because employment is absolutely necessary for them and they do not have much choice, the safety of workers can be guaranteed if retailers themselves take the responsibility of screening the suppliers and selecting only those who have adequate safety measures installed or installing the safety measures themselves so that safety is not a trade off for focusing on matching trends. Consumers can be educated about the trade-off by running a campaign about how as little a s ten cents premium over their garment prices can go a long way in ensuring safety of workers that produce the garments,the pressure from regular consumers into accepting the responsibility for their global supply chains can force retailers to prioritize safety of workers.
The Bloomberg article ‘The Hidden Cost of Fast Fashion: Worker Safety’ is thought provoking. After all, we tend believe to believe that fast fashion is beneficial for workers as they must also be receiving a fraction of the premium prices that we pay for fast fashion. However, the situation depicted in the article paints a reality that is stark opposite of what we believe. From the supply chain angle, this is a classic case of unfair distribution of the overall profit pie among various stakeholders in the chain due to asymmetric negotiating power and information asymmetry. Asymmetric negotiating power is evident by the fact that suppliers in Bangladesh stand to lose the business in case they don’t respond quickly. Also, the employees don’t have information on margins of other stakeholders in the supply chain – information asymmetry. While the article claims that $0.1 per garment would be enough to cover safety expenditure required, it is fair to say that any price increase at retail level may never reach this destination due to several other stakeholders in between. To me a more effective solution is to educate customers about ethical sourcing done by many other firms/ industries such as diamond industry, ‘The body shop’ etc. At the same time, it’s also important to have independent third-party audits to ascertain working conditions of employees in third world manufacturing sites and to have suitable govt. regulations requiring disclosure of employee working conditions and enforcement of safety norms.
The US and the developed world is more dependent on the underdeveloped or developing world to cut costs than the otherwise for the survival of underdeveloped countries. Unless there are enough laws in place in these underdeveloped and developing countries to strictly deal with safety violations the trend of exploiting the underdeveloped world and its work force to cut costs will continue. But is the underdeveloped world big and strong enough to enforce such laws against developed countries and jeopardize the business coming in from these countries, maybe (but without doubt) no. So, the power to eradicate such exploitation lies in the developed world in the hands of end consumer by not expecting rock bottom prices and acting responsibly and understand the cost structure.
And coming to fast fashion, it is the manufacturers (and designers) that create these fast fashion trends. As long as clothing is treated as a basic necessity these kind of issues will not crop up but conglomerates to generate sales, keep changing the trends. Nothing to lose if the customer does not get his favorite color in a particular design, but the companies in a way to grab that extra sale, go for fast fashion trends and fast manufacturing. I think the thirst of sales of Zara and H&M is the cause of unsafe practices in unsafe manufacturing conditions.
With the advent of new trends, fashion is born and deteriorates very quickly. Consumer preferences and tastes change frequently. If a famous actor or sensation wear a particular brand, the demand sky-rockets suddenly. The respective brands are expected to have enough supply during such scenarios or else face public backlash.
The apparel history was not always like this since the beginning. Brands were built over time and were known for a particular design or material. But with changing trends and extensive competition, differentiation was necessary. Many brands show this by having short turnover cycles, and latest trends pushed to the store even before the last ones are out. From their end its necessary to maintain business. But every time there is a demand shock or shortening cycles, the waves are felt harder upstream. At the upstream – Suppliers need to work even harder to deliver the products expected of them. This is because, companies like H&M, Zara have over time built their reputation and brand to a level which allows them to take greater control of the overall pie in the supply chain network. They control the profits and the operational flow. If a supplier is not good enough, it will be dropped. This fear pushes suppliers to cut cost at every possible opportunity. The only survival skill supplier sees in such a situation is lowering its cost. While this may not be ethical, most suppliers in countries like Bangladesh are not left with any choice. Even if prices are increased, the employees at supplier end will hardly see any value. Only educating the consumers about added costs will also not make much of a difference. It should be through regulations and norms that changes need to be brought about. Rather than prices increase, there has to be a standard set of rules followed across all channels in any supply chain which needs to be followed by all suppliers and retailers and not just one aspect of the chain. There have to be globally defined and locally relevant rules, i.e., they cannot be define using hard numbers but percentages and targets. This should become a criterion to be even accepted as part of the chain.
While enforcing laws and regulations in developing countries become a key challenge, one should remember that in today’s socially connected world nothing is hidden. If a company chooses to go ahead with suppliers without doing due diligence and background checks, sooner or later this information may become public and the goodwill lost will be higher than cost saved.
Particularly with respect to the Fashion Industry and considering giants such as Zara , what drive customers are staying ahead with the trends and being fashionistas. Price is not as big a factor when it comes to making purchasing decision. An increase of 10 cent per garment may not create unrest among the customers, but the bigger question here is whether such an increase in price will reflect in taking safety measures at the suppliers end. The question is here is not merely allotting funds but whether such finds are properly channelized and utilized to address the bigger issue at hand. The retailers should ensure that proper care and safety measures are being taken at the suppliers’ end. Having strict policies and better working conditions , particularly intervention from government is essential. With respect to the retailers , in addition making information available out there about their suppliers, creating visibility about the role of retailers in evaluating supplier working conditions will also stand as a testimonial and metric for the retailers that customers should consider. In sum , the involvement all the stakeholders is crucial to envision change.
More than the funds ,it the right blend of involvement and awareness that go long way.
In order to make sure that the advantages of price increase are being judiciously used by tier 1 manufacturers, systems have to be put in place to control and monitor the processes, safety standards, regulatory requirements etc. by the retailer itself. There may be other methods to reduce cost than just ignoring the safety standards. May be retailer can take a hit on the margins as this a high volume business in order to ensure safety of the workers involved. In case this is not a viable option for the retailers, they should increase the prices and advertise in media and their own webpages the good working conditions back at their manufacturers which will increase the brand equity and thus increase the customers’ willingness to pay. At the end of the day it’s the retailer’s responsibility to ensure that workplace regulations w.r.t labor policies, safety regulations etc. are met and work towards systems that increase visibility of the supply chain.
In the business of fashion where forecasting demand is extremely difficult, it is imperative that the supply chain should be capable of responding to demand in a rapid manner. Such quick response does result in increasing stress to employees and also lead to suppliers cutting corners in terms of safety requirements.
However, I believe, it is imperative, not just from a conscientious point of view, but also from a brand equity point of view, that the fashion retailers make it absolutely necessary in terms of certain work environment standards, to be met by their suppliers. This could be ensured by regular independent audits or visits by the retailers to their suppliers and vendors. We all are aware of the boycott movement against some of the big fashion retailers on account of the Rana Plaza garment factory collapse in Dhaka, killing around 1200 people. Therefore, in order to prevent such a hit on their top lines as well as their 300% bottom lines, the retailers would be well advised to monitor the work conditions of their supply partners.
The retailers like, H&M, Zara etc have high visibility among the upper-middle and upper income strata of the the society. Hence, extra 10% cost of production can be safely transferred to the consumers in this scenario. In fact, companies can increase their WTP for their products by broadcasting the fact that product has been created ethically. However, the real issue remains the same, will the suppliers actually spend that extra 10% on improving the working conditions or not?
One solution to that issue can be, retailers themselves can take charge of the situation by investing that 10% of the cost in suppliers factories on fire prevention and worker protection efforts. In this case, retailers like, H&M and Zara will be responsible for improving working conditions. As far as consumers are concerned, it will take some efforts to educate them regarding the trade-offs made by retailers in delivering the products in “fast fashion”. However, it can be taken as an opportunity by retailers to do better than their competitors in terms of attracting the aware customers who understand these tradeoffs. In the end, it should be the responsibility of retailers to ensure global ethical supply chain for “fast fashion” as retailers are the real winner in terms of high margins (200-300%, as discussed in class). Regulators at retailers should definitely demand better visibility of supply chain to ensure proper working conditions.
Making a single player like Zara responsible for the entire supply chain is too impractical. Over the long term, it would lead to unnecessary legal battles. A global fashion business already has too many things seeking its attention. An alternate approach would be bringing a push towards supply chain transparency. For example, Indian Government is already getting more and more suppliers online.
A rating based system where any supplier who falls below a particular benchmark gets delisted would be much better. This would be sustainable and businesses would be self-motivated to follow good practices. Such a rating system would also allow flexibility in terms of policies. If the regulators want to increase wages of labours, they can increase weight on that particular attribute.