Catastrophic Impacts of COVID19 in Bangladesh Apparel Supply Chain

An article written by my former PhD student, Rejaul Hasan, and I just came out this week in Contracting Excellence, the journal published by IACCM, which documents the catastrophe that is unfolding in Bangladesh, one of the world’s major exporters of garments for the apparel sector.

The lockdown policies in place in the US, Europe, and the UK may make a lot of sense for Western countries where people can stay at home and work. But in Bangladesh, 90% of the jobs come from the apparel sector where workers rely on daily wages and now their lives have stopped!

Discussions with a Bangladeshi factory executive illustrate a typical story on how many producers have been abandoned.  The factory owner has had trusted business relationships with several global brand customers for more than twenty years.  Orders were received in early February 2020, and as usual, the owner purchased cotton fabric and materials to produce the orders. One set of orders to a major New York brand was due on February 17, and was shipped and received by the buyer.  The 200-page contract signed by the supplier stated that payment would be made for goods upon receipt. No payment was issued on February 17.

Waiting patiently until February 20^th, the buyer sent an email and was told payment would be pending. He was told the same story on February 25^th, and on March 1, he finally received notice that the payment would not be made for another 60 days. The payment term was shifted with no prior notice. This directly conflicted with the terms of the contract as well as the purchase order.

The factory owner was shocked. “How could the buyer change the payment terms after I shipped the product, and suddenly cancel all other orders that were already in production in my factory, for which I have already paid materials? This buyer didn’t even call me to discuss the issue. He could have called me, and we could have worked something out, and found a way to delay payments, hold the inventory in stock for a period, take a partial shipment or other arrangement.  Instead, he cancelled more than $4M of orders and informed me in an impersonal email. This is a lesson I will never forget, as you disrespected me, and our trust is broken.”

this story is being repeated by brands all over the US and Europe, who have completely ignored the plight of their suppliers.  Although retail brands are still struggling (e.g. the impending bankruptcy of JC Penny), there must be some action taken to prevent a humanitarian disaster from occurring.

At a minimum, clothing brand organizations should adopt normal and ethical contractual behavior, and use the following guidelines during a crisis like Covid:

• Suppliers should receive payments for orders that have been shipped, and also ensure that payments go to suppliers to cover all legally-mandated wages and benefits incurred for all orders that are already in production that were placed by the buyer.
• Buyers who postpone payments or use clauses in their contracts to issue payment delays should take the additional steps of helping to secure supply chain financing for their apparel suppliers. Factoring invoices through established fintech companies can be arranged to adhere to the terms of their purchasing contracts and pay suppliers for orders already in production or completed.
• Future procurement practices should focus on order stability for proper planning, timely payment of orders, and full respect for workers’ rights.
• IMS and other global agencies should act to mobilize international financial resources. Most garment workers can be sustained for their basic food requirements to feed families and children to the tune of a few dollars a day.  These workers depend on it.

We may also likely see a very different apparel supply chain post-Covid when business as usual begins.  The lack of trust that has come about as a result of this failure of the brands to adhere to contractual payment terms will likely remodel the entire sourcing contractual and payment terms that exist today.

Click here to read the entire article.