Learnings from the report on Supply Chains & Sourcing after Rana Plaza

We’ve tried our best to summarise some important points from the latest in depth report on ‘Supply Chains and Sourcing after Rana Plaza’ from the ‘Centre for Business and Human Rights’. Firstly it states “Business as usual is NOT an option” and at ediTRACK we must agree and here’s why…

We are seeing increased demand for our Ethical Trade software as the spotlight shines on organisations end-to-end global supply chain practices.

There are also a growing number of campaigns such as ‘Fashion Revolution Day’ – where consumers are urged to turn their clothes inside out to find out who really made them. Consumer awareness and demand is growing for products produced in an ethical way.

The population may be growing but the world’s getting smaller due to the power of social media and the internet. It’s now becoming almost impossible to turn a blind eye to unethical practices when results are catastrophic and can be shared in seconds on a world-wide scale.

 What does the report tell us?

In short, the report highlights a continuing trend of neglect in efforts to improve infrastructure and worker safety where it’s most needed. Workers might be becoming more skilled but supply chain practices are not transparent enough – improvements need to be made and new processes must be put in place.

Some new goals have been set:

  1.  Ensure a sustainable garment sector with higher standards in factories
  2. Make ’made in Bangladesh‘ a sign of pride for the country
  3. Have a supply chain driven by competition, not pursuit of lowest nominal costs

There are obstacles to achieving these goals…

1. Over sourcing – leading to a dependency on unsustainable business models and Indirect Sourcing:

Financing and export credits are based on total order and export volume, not production capacity, so big companies take huge volumes of export orders beyond their production capacity – typically at 10x their capacity. This leads to main factories carrying out the profitable complex work and then subcontracting the more basic work.

Agents act as match makers between buyers and factories, including assessing whether the buyer wants a compliant or non-compliant factory – About 1,000 agents operate in Bangladesh servicing 4,417 factories.

2. Lack of transparency

A significant portion of the supply chain in Bangladesh is non-transparent, comprised of factories that do not maintain direct financial relationships with American and European brands and retailers.

Even though retailers forbid subcontracting in their policies, the Bangladesh trade associations still issue licenses between primary and subcontracted factories where the buyers are often not informed. Many buyers devote little time to understanding the nature and scope of subcontracting and some retailers want to ignore subcontractors altogether.

It estimates there are approximately 2,000 third tier suppliers and factories completely hidden as they are not registered with trade associations or government. Work is then carried out via verbal agreements and these are usually the factories with the most unsafe working conditions.

3. Bangladesh’s infrastructure is among the most underdeveloped in the world

The country suffers regular power outages leading to delays in production and overtime being the standard in order to not miss deadlines.

Electrical failings are also common due to short circuiting or sub standard wiring – the leading causes of fires. Furthermore, electricity supply meets less than 75% of peak demand, gas supplies meet less than 85% of daily demand and water pipes can have insufficient pressure to function properly. There is also a lack of space for fire engines and other rescue vehicles should a safety hazard arise.

There are some developments around export processing as it’s being encouraged to move garment production into purpose built zones called  ‘Export Processing Zones’ which have improved safety standards along with uninterrupted gas and power supplies. However these ‘Zones’ or EPZs are governed by a separate governance framework that has weaker protection of workers rights.

4. Corruption, lack of funding and governance

The government lacks the political will, technical capacity, and resources necessary to protect the basic rights of its own workers. Corruption is also causing foreign governments and the World Bank to withdraw investment in infrastructure.

In the absence of public regulation, private players have stepped in, including many of the largest brands and retailers in the world. There are two overlapping private schemes to improve building safety, the ‘Bangladesh Accord on Fire and Building Safety’ and the ‘Alliance for Bangladesh Worker Safety’. Whilst these are great initiatives they don’t target some of the most vulnerable factories producing for the export market – so it’s covering less than 2,000 out of an estimated 5,000 to 6,000 factories.

In addition there is also no organised system for financing radiation efforts based on results of inspections. Lead times and prices are increasing for items such as fire doors, sprinkler systems and smoke detectors.

Labour inspections that are independent of sourcing initiatives are largely ineffective in improving conditions and it is predicted to take several years before clear trends in compliant performance emerge. Currently no programmes are focused on improving the issues caused by indirect sourcing.

It is known that the largest factory groups maintain showcase factories with higher safety and production standards but are using less compliant factories as the production engine of their operations.

What are some of the recommendations to improve the situation?

It’s a huge and complex issue and it needs a combined approach and thorough assessment. This can only be achieved if everyone involved in the garment industry works together including; Global brands, factory owners and academic institutions to name just a few.

They need to use new tools and find improved ways of working together in order to create a comprehensive factory list which includes registered and unregistered factories.

There needs to be a change to the existing disparate sourcing models. Indirect sourcing needs to be addressed with more open and honest relationships built with suppliers to learn exactly what subcontracting goes on, so that it can begin to be controlled in accordance with minimum standards.

Global brands need to build long term commitments and prioritise transparency when working with their first tier manufacturing partners. As an example, H&M works together with it’s suppliers to find approved sub contractors and this is the exact sort of business relationship that helps to improve compliance.

Our Summary

Transparency, fairness and collaboration is the key to ethical trading. There is a huge task ahead to repair and rebuild some of Bangladesh’s most hazardous factories and it’s going to be an on-going project for many years to come. Companies across the sector need to join forces to find ways to continuously improve standards.

Knowledge should be shared about best practice and the most innovative technology available in order to reduce administration and improve collaboration and transparency – allowing the main focus to be on making improvements to working standards so that global trade can flourish to the benefit of everyone.

ediTRACK have worked with leading retailers to build an Ethical Trade Software product used by our clients to achieve optimum visibility of their multi-tier suppliers and processes. Our clients are benefitting from better transparency and more efficient audit management, so that they have more time to focus on improvement programmes and corrective action plans for their end-to-end supply chains.

If you would like to know more or see a demo of our software please do get in touch.

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About ediTRACK

Supply chain software company delivering web-based tracking solutions to help retailers and insurers manage suppliers and processes from; Sourcing, Sample Management, Ethical Trading, Product Development, Order & Shipment Management and Delivery.

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