Wal-Mart issued its first interview today after being linked to the notorious Tazreen Fashion’s factory fire in Dhaka that killed 112 workers.
In an exclusive interview with Reuters, Vice President of Ethical Sourcing Rajan Kamalanathan admitted that the world’s largest retailer must do more to monitor its supply chain and ensure that it is not using unauthorized manufacturers. The company’s current controls were not sufficient, he conceded.
Kamalnathan indicated that the current system doesn’t incorporate the sourcing decisions of subcontractors, who make up a large part of Wal-Mart’s manufacturing base. According to the interview, subcontractors are not currently required to inform Wal-Mart of where they’re putting the order.
The Tazreen factory had been labeled unsafe by Bangladeshi authorities and by Wal-Mart’s own auditors, who flagged the factory in April and December of 2011. The company has repeatedly said that its Faded Glory line should not have been in production at Tazreen because the building had not been approved.
Despite a large auditing program (in 2011 the company audited over 9,000 factories), the company acknowledges that it is currently only able to check factory that it controls or directly contracts with. It does check the factories hired by agents of suppliers, for example.
Wal-Mart’s supplier contract does require suppliers to use compliant factories that meet Wal-Mart’s global standards for worker safety and rights. But without a robust system to check those factories, Wal-Mart is counting on the word of the supplier, and the supplier is counting on the word of the agent.
Kamalanathan pointed out that the problem is industry-wide, and that Wal-Mart needs to get more involved in factory operation. A strong relationship with suppliers is not enough to ensure standards are met.
Retail and clothing designers were on the brink of creating a fire safety code that would be written into supplier contracts, but Wal-Mart and several other major companies recently blocked that effort due to cost concerns. It remains to be seen whether the effort will be revived.
Wal-Mart’s factory certification program emerged in 1992 as globalization was picking up steam. It focuses primarily on Bangladesh and China. Their team has 120 employees and also employees auditing firms in major manufacturing companies.
Factories are ranked on a four tier color system, with green meaning no or small violations, yellow meaning some violations, orange meaning serious violations, and red indicating violations serious enough that the company is severing ties. There is a program called “Orange School” where factories can learn to address serious violations. Tazreen received an orange warning in May 2011 and December 2011, but did not go through the school.
In a further sign of the lack of transparency in the garment supply chain, Tazreen was no longer authorized to make clothes for Wal-Mart, and neither Wal-Mart nor Tuba Group (the owner of the factory) was aware that the clothes being made in Tazreen were Wal-Mart bound.
Cost pressure is partly to blame, according to Kamalanathan. Industry groups claim that low-cost merchandizers such as Wal-Mart push factory owners to cut corners on worker pay, safety, and fire exits.
A multi-party effort took place in Dhaka in April 2011 to establish rules that would require factories to pay high enough prices to cover basic minimum safety features. Unfortunately, that effort was scuttled by Wal-Mart and other firms who claimed that the costs would be too great for them to bear. Wal-Mart sales exceeded $443 billion last year. The estimated cost of the improvements? $3 billion, industry wide.
Still, the company insists that it will be able to create a transparent and well-policed supply chain that is also very low-cost, through its audit program and work with public and private partners.