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WRAP Report Reveals State of Supply Chain Social Compliance

Worldwide Responsible Accredited Production (WRAP), a non-profit organization dedicated to global compliance, recently released a report highlighting the state of supply chain social compliance and outlining the drivers pushing buyers to improve manufacturing processes.

In a report titled, “Constructive Dialogues: Examining Social Compliance Programs Through Conversations With Stakeholders,” WRAP uncovered several major trends expected to emerge over the next few years to 2017.

In terms of sourcing, which was the first trend WRAP highlighted, the industry will see a greater consolidation of vendor bases, and social responsibility will play an increasingly greater role in sourcing decision-making.

Avedis Seferian, WRAP president and CEO said, “This is an offshoot of the greater emerging theme of partnership and collaboration with suppliers that we have seen in recent years. In the past, it was common for brands to cycle through many different suppliers over a given time, dropping and switching vendors based almost entirely on economic considerations,” he said.

“While this method may appear to have cost advantages, it also makes the assessment and control of risk and compliance challenging. Today, buyers see greater value in building long-term relationships with a select number of trustworthy production facilities rather than cycling through a much larger number of them. This allows them to more closely monitor compliance and exercise greater control over their supply chains. With the benefits of this approach becoming clearer and clearer, we expect a resulting consolidation of vendor bases to emerge as a general trend.”

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Increased transparency came forth as a major trend with regard to social and environmental compliance.

“One of the biggest ways that we see transparency growing in the future is through information sharing among brands and between brands and compliance organizations,” Seferian said. “Growing trust among these groups means that they will be more willing to share audit reports among each other, and advances in technology will make this easier than ever before. In addition, we are already seeing more buyers sharing their vendor lists publicly. We’re also seeing more sharing of experiences and “success stories” through both formal and informal channels and at conferences and similar events, all of which contributes to creating an overall environment that encourages even more transparency.” Of the survey respondents, 45 percent said they are working to collaborate and conditionally accept another buyer’s audit.

The third trend WRAP projected was a growing and more sophisticated use of media among corporations, governments and NGOs.

In general, companies aren’t sure they are getting the complete picture of what is taking place along their supply chains, the report noted. The majority of respondents (96 percent) said they conduct audits using external third parties, and many visit factories fairly infrequently.

But as social compliance issues continue to publicly plague the industry, buyers are looking for an approach to auditing that can be verified and trusted, and as a result, compliance programs have shifted toward “auditing with an eye to remediation,” the report noted.

“As social compliance has evolved over the past two decades, one of the lessons learned by compliance practitioners has been that constant engagement with suppliers is a critical aspect of ensuring success. While audits will always remain an important tool in the social compliance process, we know that a production facility cannot simply be audited into compliance,” Seferian said.

Audits are now serving as an entry point for buyers and brands to initiate an ongoing dialogue with suppliers about compliance requirements and how they can consistently meet those requirements, the report noted. “As such, social compliance programs now include a greater emphasis on things like training and remediation,” according to Seferian.

Based on the stakeholders’ input regarding the world of social compliance and supply chain management, WRAP leadership also outlined the following trends for the near term future:

  • Continuing labor and input cost escalation, particularly in Asia (e.g., China, Bangladesh, Cambodia, Indonesia, Vietnam)
  • Continued movement of production from China to Bangladesh, Cambodia, Indonesia, & Vietnam
  • Evolution of Sub-Saharan Africa and Myanmar as new lower cost alternatives
  • With cost escalation, an increase in Free Trade Agreement (FTA) sourcing–TPP, including Vietnam & Malaysia, and CAFTA–to gain duty advantages (16%-30% of FOB)
  • China textile cost increases will prompt significant textile investment in Vietnam (TPP), USA, and Central America/Mexico
  • An increase in responsible sourcing, which includes a variety of themes (e.g., social compliance, chemical and product safety compliance); this will require partnerships and relationships with facilities who are experienced, well financed and well established
  • Risk assessment will grow in importance, owing to multiple concerns regarding transparency, traceability, and accountability, as emphasized by demands from NGO’s, consumers, and governments; additionally the evaluation of quantities by country will continue to trend as very important in order to ensure no over dependence on any one country
  • Fewer suppliers to maximize impact, also to ease development costs in fashion sensitive buyers and cost management will be the new norm due to rising labor, material, and energy input costs

Seferian said, “Two of the biggest things that stood out from the report in regards to ensuring future success for WRAP were trust and communication, both of which were seen as paramount requirements by buyers seeking social compliance partners. WRAP’s plan of action going forward will focus on growing the deep trust we have established with buyers and other stakeholders around the world who count on us for dependable social compliance expertise and increasing communication with all stakeholders about the enhancements that we are making in that regard,” he added.

WRAP surveyed a total of 50 thought-leaders consisting of buyers who use WRAP (11), buyers who don’t use WRAP (27), and other stakeholders (12). The research for the project spanned from early October 2013 to early April 2014.

View the full report here.