Supply Chain Matters continues with our ongoing commentary related to apparel supply chains in the aftermath of a series of recent tragedies at apparel factories across Bangladesh.

We extend a shout-out and compliments to the Wall Street Journal for providing an ongoing series of quality, in-depth reporting addressing current conditions of apparel factories across Bangladesh. A series of reporters both in Bangladesh and across the globe have done a tremendous job in identifying both industry-wide and local challenges, particularly in the wake of the Rana Plaza tragedy.

We call special attention to the latest WSJ article, Why Retailers Don’t Always Know Who Sews Their Clothes. (paid subscription required)  The article identifies one of the biggest challenges in the apparel supply chain that of a de-facto, unregulated subcontracting process.  We recommend that our retailer and apparel industry readers take the time to review this article.

For those who cannot gain access, here is the condensed summary. 

The article concludes that global retailers sometimes have little idea where some of their clothes are produced because of local industry business practice norms. The reasons are many but generally revolve around practices reflected across Bangladesh, a major production source for production of apparel. There are estimates of 5000 apparel factories operating in the country and the WSJ quotes local industry officials as indicating that as many as half of these factories are essentially subcontractors.  While major retailers have written contract standards with an estimated 2000 contracted factories, that is not the case with sub-contracted factories. Subcontractors are busy with work because prime contracting factories or local buying agents either overbook business beyond owned capacity, or the contracting factory cannot fulfill stated delivery commitments because of delays.  The article notes that prime factories do not inform their retailer customers of sub-contracting practices because of the fear of losing future orders or monetary penalties. Yet, within the local region, the sub-contracting process is a well-recognized practice

The article provides succinct examples. In the November 2012 factory fire that resulted in the loss of 110 persons, girl’s shorts with Wal-Mart labeling were found in the charred aftermath. Wal-Mart indicated that its authorized manufacturer subcontracted the work without its knowledge.  Labels sold by Inditex, the parent of Zara were found in a subsequent factory fire. Zara also indicated that the order was subcontracted without permission. At the Rana Plaza factory tragedy, apparel labels such as the French label Camaieu were discovered, again without permission to subcontract.

Going forward, the WSJ cites local industry sources as questioning how many of the Bangladesh apparel factories will be able to meet stricter building safety and worker labor standards. The new European and U.S. industry consortiums that were recently announced will formed to develop and enforce consistent industry standards for a factory to maintain or expand orders with global retailers.

After reading many of these published in-depth profiles of current apparel industry practices in Bangladesh and other low-cost production regions, it appears to us that much work remains.  There are both in-bred cultural and overt business practice challenges that need to be addressed. 

Retailers can no longer cast a convenient blind eye or look the other way to business norms that force contracted suppliers to not want to share sub-contracting information, and in-turn, and industry climate that is fully aware of the sub-standard working conditions among subcontracting factories. Governments such as  that of Bangladesh need to stop turning a blind eye or catering to industry influence, and get serious about stricter enforcement of labor laws and building standards. Industry sourcing and procurement teams need to move away from the shield of contract language toward a deeper understanding of what is occurring in global factories.

Hopefully, the current broader visibility to local conditions and to what factors cause such conditions, will lead to positive changes in the months to come. An industry supply chain that operates on single-digit margins must come to the realization that practices and standards of doing business have to change.

We encourage both business media and industry participants to continue to examine local conditions and root cause business practices and to work towards improvements that allow both workers and industry participants to gain positive outcomes.

Bob Ferrari