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Innovative Solutions for Ethical Sourcing in 2015

It’s no simple task to maintain sustainable supply chain compliance in an increasingly complex global market, but some companies have tapped into out-of-the-box ways to manage ethical sourcing.

At a talk titled Cross Industry Perspectives at the Ethical Sourcing Forum late last month, a panel of experts representing brands, investment firms and the U.S. government, discussed innovative solutions for now and ahead.

Oliver Niedermaier, founder, chairman and CEO of TAU Investment Management, an active growth equity investment firm focused on transforming global supply chains and one of the panelists, said simply that brands have to “up their game” in the supply chain and improve their supplier base.

“We’re in supply chain 2.0,” Niedermaier said, explaining what he calls today’s race to the bottom. “Intensifying global pressures are squeezing the garment industry.”

The sourcing sector is facing a plethora of problems, according to Niedermaier, including: inefficient operations, tight profit margins, downward price pressure, consolidation, demand volatility, cost of capital, inaccurate/unreliable orders, de-prioritization of human and natural resources, and product diversity and complexity.

“Look at the price increases, or lack thereof — basically the stuff gets cheaper and cheaper and we’re buying more and more of it,” Niedermaier said.

Textile waste is another area that troubles TAU. The supply chain “gets goods from A to B and then we throw them away,” Niedermaier said. “The average American throws out 68 pounds of clothing per year. This can’t be efficient. This can’t be good business.”

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Looking ahead, Niedermaier sees tomorrow’s race to the top as opposed to today’s unsustainable race to the bottom. The future of sourcing will be about building bigger, better more sustainable factories. And skimping on worker care won’t work.

“If you invest $1 in healthcare, you get a $4 return in terms of decreased turnover,” Niedermaier said. “In Bangladesh, average staff turnover is between 8 to 10 percent a month [Industry best practice is 1.5 to 2 percent for turnover]. If I lose 10 percent of my staff every month, it’s probably not very efficient. It makes sense to pay them, pay them on time and give them bonuses.”

Tomorrow’s supply chains will be more like an ecosystems, less linear, Niedermaier said. Companies will need continuous technology-enabled reporting to connect raw materials, components, manufacturing and retailers all to the cloud.

Supply chains in the coming years will be most successful with the multi-stakeholder method and the transparency method, Niedermaier noted.

“What transparency does,” he said, “is it drives the race to the top.”

Part of what made the tragic Rana Plaza building collapse in Bangladesh so viral in the media were the vivid pictures of humans trapped among the mass rubble, masking a reality that companies typically attempt to hide.

“Nobody understands that everything we do on a daily basis is all looped into the work environment,” Niedermaier said.

In Bangladesh, mobile phone penetration is roughly 30 percent, Niedermaier explained, and in just a couple of years, that number will reach over 8 percent.

“More workers are getting mobile phones that can take those kinds of pictures.”

One thing TAU — which has the tagline: “Capitalist Solutions for Capitalism’s Failures”—has done, is provide mobile phones for workers at all of its manufacturers. Health care plans and paychecks are managed via the mobile device, which can also be used to connect to an employee hotline.

“I don’t have to pay for these phones,” Niedermaier said, adding that more than enough mobile phone brands are eager to sponsor the program for their own corporate social responsibility. “We can actually be a platform for these companies to invest in factories.”