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Do Prices Set By Buyers Cover Compliant Production?

While demands have ramped up where compliance is concerned, prices paid by buyers haven’t ramped up with them.

In surveying suppliers for its Better Buying Purchasing Practices Index, which sets out to benchmark buyer behavior in the global supply chain, Better Buying found that more than 43 percent of suppliers reported experiencing “high pressure” negotiating strategies from buyers about lowering their prices.

It’s a practice that’s long been rampant in the apparel industry, but one that’s often come at the cost of compliance.

Looking at whether suppliers are given sufficient funds to meet all of their buyer’s expectations, including production costs, compensation for workers and individual buyer codes of conduct, buyers ranked on a 0-5 star scale for the index received an average score of 3.5 stars for cost and cost negotiation.

“Under half of suppliers (38.1%) indicated that the prices they received for all of their products covered compliant production,” Better Buying said. “An additional four out of 10 said 80 to 99 percent of their orders were priced to cover compliant production. The remaining 20.6% received a large amount of orders where the costs were too low to cover compliant production.”

Suppliers might take an order at a lower price in order to keep their staff working when workflow has slowed, or in hopes of pleasing a buyer who may pick them for future business.

Whether they’re willing to acknowledge it or not, brands subjecting their suppliers to unreasonable conditions to back up boasts about their compliance and sustainability, are pushing those same suppliers toward unethical acts just to accommodate.

And depending on where in the world that buyer’s business is, conditions can improve or worsen.

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According to Better Buying, buyers headquartered in Europe and the U.K. earned four stars for their costing practices, which came up better than the 3.5 ranking North American buyers earned.

What’s more, where the goods will be made also has much to do with how buyers behave about price.

“Suppliers reported more price pressure coming from buyers whose largest orders were placed in East Asia (Cambodia, Indonesia, Malaysia, Thailand and Vietnam),” according to the index.

Buyers’ scores for fair pricing in those countries was an average of 2.5 stars, compared to 4 stars for orders placed in China, South Asia, the U.S. or Canada.

“The higher volume of orders being produced in Cambodia and Vietnam (East Asia region), where labor costs have risen dramatically, may suggest that buyers are not complying with increased labor costs,” Better Buying noted.

What suppliers pay to produce for the brands buying from them also factors into whether they have enough funds to cover their orders, though buyers’ pricing practices don’t often factor that in.

According to the index, “Suppliers in East Asia may have higher overhead costs, making compliant pricing even more difficult when buyers negotiate prices across multiple regions.”