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Special Editorial: Fires and Ethics and Morals and Money

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It’s hard to count the deaths in 2012. Bangladesh, Pakistan, India, and China all saw devastating and widely publicized garment factory fires this year. In Dhaka, Bangladesh, the recent Tazreen fire sparked riots and the death toll doubled.

At the same time, brands and retailers keep raising standards and pushing further into the countries where they manufacture. H&M actually intervened in third party labor negotiations between the Bangladeshi government, unions, and owners.

Walmart and Sears both had clothes at the Tazreen factory, and consumers have pounced. Facebook and Twitter have churned with news that “Walmart burns workers to death,” with links to partisan articles. It’s too soon to say what the bottom line impact will be, but a string of such disasters can “burn” through years worth of good corporate behavior in no time.

So what’s the disconnect? Brands and retailers don’t want compliance violations, consumers hate them, and factory owners lose everything when these disasters occur.

The answer is tragically simple.

Cost pressures on both ends of the supply chain pair with a shoddy system of inspections and checks to create dangerous conditions in factories. Unlike most industries, which are inspected by the government or by a regulated third party, compliance in the garment industry is performed by a patchwork of organizations with wildly different practices and standards.

A quick glance at their websites shows similar rhetoric, but there’s a big difference between a company that schedules inspections and knows the factory owner and a truly independent auditor who will drop in unexpectedly and has no stake in the outcome.

Unfortunately, the worst inspectors are often the cheapest, and the most dangerous factories are often the lowest cost, so they attract orders from companies that don’t have a lot of extra money to spend on compliance, and don’t have the ethics to ask why the price is so low.

The same consumers who hate labor violations and dangerous factories are using new technology to push for lower prices on the goods they buy. Smartphones and the Internet have turned brands and retailers into price takers instead of price makers, with all prices falling closer to their absolute floor. At the same time, consumers can now post reviews of the goods they buy, meaning companies are less likely to want to cut quality.

Unfortunately for the people who actually make the clothes, compliance gets put low on the priority list for sourcing executives who are struggling to get goods made to spec, under cost, on an ever-shorter timeline. Fire escapes cost money – in fact, to bring the garment supply chain up to the safety and ethics suppliers of brands and retailers would cost companies an estimated $3 billion a year.

It’s easy to just sign off on compliance reports, and for specialty orders like those at Tazreen, actual employees of the brands and retailers may never even visit the factory, even after many years of working together – it simply isn’t in the margin. That pressure comes from accounts and marketing departments, who ironically often sit a few desks over from the corporate governance people.

Instead of visits, factory direct retailers may rely on third party agents in-country to manage the orders and check compliance, and many companies simply employ an outside company to handle their sourcing. Without proper ethical checks in place, that passes the margin pressure down the supply chain, while putting people in charge of sourcing who have less reputation at risk in the event of a scandal.

Factories can’t pay for the needed improvements. They run on even tighter margins than brands and retailers. Governments in poor manufacturing companies could put better laws on the books, but they can’t afford inspectors. Workers can (and do) strike for safety, but they often lose their jobs and sometimes bring the factories down with them. The people with the most to lose from dangerous factories are retailers and brands with international reputations. When will they step up to the plate and pay factories enough that they can meet basic safety standards?

Tissue-thin compliance reports have replaced ethics, and margin watching has replaced morality. The profit arms race means moving to countries with weak labor movements and limited government oversight. And sometimes, it means there will be fires.


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