The recent press in the Wall Street Journal and other papers on Walmart’s fire in Bangladesh is raising the ire of corporate responsibility groups and human rights groups alike. How can retailers like Walmart support buying clothing in factories that are treating workers with such disregard, not to mention exposing them to working conditions that are dangerous and take lives?
The story isn’t that simple however. A recent discussion with supply chain executives in the apparel industry reveal that the problem is a tricky one to solve – and may be a function of other decisions being made by apparel manufacturers that have nothing to do with labor human rights in the supply chain.
The problem stems from the fact that Walmart (as well as other retailers like Target, JC Penney, Nordstrom’s and others) source products from tier one suppliers – and audit these suppliers, require them to comply to a code of conduct, and seek to drive enforcement to the tenets of a code of conduct as identified by the ILO. This is not only an industry standard, but is now considered an essential element of low cost country sourcing, thanks to the pressure on retailers. They have every reason to want to drive compliance with their suppliers – who wouldn’t? Who wants to end up on the front page of the Journal?
But the problem emerges when tier one suppliers decide to subcontract their work – to other factories that are not on retailers’ radar. These subcontracted or “tier 2” suppliers often aren’t audited by tier one suppliers – unless of course the retailer requires them to do so. And when they subcontract, and accidents happen (as in the Walmart Bangladesh fire), Walmart goes in and discovers that their product line was in that facility – and they had no idea! In fact, they probably didn’t even know the tier one supplier was subcontracting it in the first place, and have never worked with this supplier!
And why would a tier one supplier want to subcontract an order? Because retail buyers often are placing a massive order with that supplier – on short notice. Many of these buyers don’t understand what a supplier’s factory looks like – and may not even have travelled outside the country! Supplier capacity management is all about knowing how much volume a supplier can handle within a fixed amount of time. So if I ask you for 2,000 piece goods for delivery by next week, and your stated capacity is 3,000 units per week, no problem. But if I’m a buyer and I ask you to produce 5,000 units by next week, there’s no way that’s going to happen. And all retailers have extremely strict delivery requirements – which basically translates to NEVER deliver late or we’ll never do business with you again!
So if you are tier one supplier in a country like Bangladesh, and a major retailer is your customer – what will you do? In many cultures in this part of the world, the appropriate behavior is to never say no – but find a way to get it done! So the plant manager says OK we will deliver 5,000 units, and subcontracts the extra 2,000 to his buddy down the street who is running an unsafe operation.
Who is really at fault here – the supplier? Or the buyer? Better supply chain capacity planning, supply and demand management, and improved collaborative forecasting is the real culprit. Everyone in the supply chain needs to work better together on operational processes if corporate social responsibility is to be improved. And companies are going to have to start understanding capacity, as well as who their tier 2 suppliers are. Do YOU know who is in YOUR supply chain?