Do Apparel Brand Pricing Policies Create Unethical Practices at Manufacturers?

25 years after social responsibility in the apparel and textile industry came into existence, has it really made a difference, or is it a terminology that some brands use to communicate their corporate and ethical responsibility to consumers?

The idea of employing a socially responsible work force in the manufacturing of apparel is a noble cause, but what changed 25 years ago that made policing necessary?

Apparel manufacturing, when it was in our own back yard was never a thing of beauty. There were some sizable well managed facilities but their was also sewing been performed by illegal or newly arrived immigrants in small to medium sweat shops or a spoke and hub network of outworkers working from their homes. For many of the workers this was their primary source of income, off book and under minimum wage but they could work an infinite number of hours, which presented the chance of a new beginning.

Like today, this was driven by brand pricing to achieve corporate profitability, competitive placement and consumer sales.

Retailers and brands, needing to remain competitive in a shrinking global environment remained focused on pricing to ensure consumers kept coming through their doors. Thus it spelt the end of backyard manufacturing and the start of global outsourcing where production was no longer visual and the supply chain was at arm’s length.

Competitive pricing was paramount and offshore manufactures were hungry to meet the need of brands willing to take whatever means necessary to win business.

Social responsibility challenges within offshore manufacturing became highlighted but also exacerbated by the media drawing attention to child labour, unsafe and inadequate conditions, confinement with no choice to work overtime and lack of benefits. Brands then heightened policies of mandatory compliance auditing and implementing corrective action planning to show consumer corporations care.

Enter factory policing through policies like BSCI, ETI & WRAP.

To maintain expected pricing levels and margins factory owners resorted to different tactics to grasp their share of the market. These tactics, which still exist today, include bribing auditors, running compliant and non-compliant HR & payroll records and subcontracting to smaller factories for the main labour component.

Whilst today there is a definite change and improvement. At a grass root level the same situation exists as it did 25 years ago, brands and factory owners still strive to increase profits. Brands will always be under pressure to increase margin. For garment manurfacturing, there are two main choices to reduce cost, fabric or sewing labour. While fabric can be manipulated to reduced cost, it can easily be checked. Labour on the other hand can be wrought through excessive unpaid overtime or subcontracting, not always easy to detect if there are no people on the ground.

Another challenge is for the factory to meet the needs of the workers, this at times may be a contradiction to social responsibility policy.

–      Workers are generally non-local and live in a dormitory, they want to maximise the number of hours worked to increase their salaries, if factories don’t have enough work, workers will go to another factory that can offer their expected overtime. Limiting working hours in itself creates problems for factory efficiency.

–      Workers sign non-compliant labour contracts based on minimum wage as they want to maximise their take home salaries. They do not believe the benefits offered by the government will be seen or are transferable once they relocate to their home town.

Social compliance protects the workers, but it can restrict workers in getting what they see as been important and puts the factory at risk of not meeting supply chain objectives across price, capacity and delivery.

The conundrum created between social compliance and sourcing initiatives intensifies the risk of the factory doing something non-compliant.

Example; sourcing asks the factory to cut prices by 10%, while CSR asks for a 20% wage rise. For suppliers paying legal minimum wage and legal overtime, payroll would increase labour costs by 10-20%. However, despite this reality, little science goes into price-setting by brands and retailers. So, functional alignment of brand policies needs to be part of due diligence before real gains can be made.

Unfortunately, it takes a catastrophe to make change.

After the events of the 2013 Rana Plaza incident where 1130 lives were tragically lost, compliance was further heightened throughout the immediate and downstream vendor community. It didn’t however solve the problem at hand, it just increased policing of the factories which ultimately protects the brand.

On 8 February 2017, the OECD launched a Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector which responds to todays need.

The guidance encourages the Apparel, Textile and Footwear industry to think differently and to react differently in a progressive, balanced, and realistic way. Under the Guidance, companies are expected to scope risks across the full length of their supply chain, including risks related to subcontracting and homeworkers. Moreover, this assessment moves beyond auditing to not only identify labour, human rights and environmental impacts, but also understand WHY they are occurring.

The policy presents a preventative tone rather than purely regulatory, which is a step in the right direction. It has been noted that major brands are reducing their stance on auditing and moving their resources to improve partnerships with manufacturers and workers.

Under the OECD Due Diligence Guidance, companies, particularly brands and retailers, are expected to assess their own supply chain and determine how their price setting and ordering may be contributing to excessive overtime, low wages, precarious contracts and illegal subcontracting.

To truly make brands ethical, the brand’s socially responsible policy must be extended across the full supply chain and be part of strategic sourcing’s TCO approach in achieving the total brand and business objective, not just a corporate statement.

The modern supply chain sees the importance of building sustainable supplier engagement, social accountability and achieving cost objectives through strong partnerships across brand, manufacturer and workers which must be aligned to business goals.

To achieve true social responsibility all parties, government, brand, manufacturer and workers, need to be transparent and work together on achieving mutual objectives be it ethical or margin objectives. Education and transparent partnerships will build and deliver results for all.

PHIL BAILEY – GLOBAL SOURCING & SUPPLY CHAIN LEADER

Mobile : +86 139-2251-4774 Email : phil@phillip-bailey.com Website : www.idgc.co

A Global Sourcing, Procurement & Supply Chain Leader with 28 years proven skill transforming complex Retail, Wholesale, Catalogue and Ecommerce sourcing, supply chains and operations for global Apparel, Textile and Consumer Products businesses that source from low cost production regions and distribute to global markets.

Note selected text in this document was directly derived from; A Responsibility Revolution in the Fashion Industry: How OECD’s new Due Diligence Instrument can transform the global garment industry. http://oecdinsights.org/2017/01/31/fashion-industry-oecd-due-diligence-instrument/

The full OECD guidance can be downloaded from this web page; http://mneguidelines.oecd.org/responsible-supply-chains-textile-garment-sector.htm

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: