Even as Covid-19 continues to grip the globe, triggering or threatening fresh waves of lockdowns and business closings, brands and retailers must shore up their purchasing practices and improve worker conditions or else risk jeopardizing supply chain resiliency, a recent global supplier survey shows.
Indeed, though the adage “what gets measured gets managed” is a familiar refrain, the absence of reliable data demonstrating accountability and corporate responsibility progress makes it difficult to protect workers, hone efficiency and bolster profitability, according to the 2020 Better Buying Index report, published late last month by the Better Buying Institute, a Texas-based research organization. The pandemic, the report’s authors wrote, “has brought that challenge to the forefront,” with the “significant imbalance of power” between buyers and suppliers growing only more stark as the pandemic wears on.
While the report found that several brands and retailers had finessed their purchasing practices over the past year, particularly when it came to better planning and forecasting, greater headway is not only possible but necessary.
“Unplanned disruptions like Covid-19 tend to cause extreme reactions from buyers attempting to minimize their exposure to short-term financial risk–reactions that often do not consider the ripple effect on suppliers and workers and the other resulting risks,” Marsha Dickson, president of the Better Buying Institute, said in a statement. “While the impacts of the pandemic have certainly created new challenges in global supply chains, problematic purchasing practices are nothing new and must be addressed in order to meet rebounding consumer demand and protect decades of sustainability progress.”
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The organization marshaled 22 buyer companies, which in turn invited 2,460 suppliers from more than 40 countries, including China, Bangladesh, India, Mexico and Vietnam, to anonymously rate their performance. It then cast a gimlet eye at the year-over-year performance of 10 of those companies in 2018 and 2019 to determine how supplier feedback on buyer purchasing practices have spurred them to develop and track the effectiveness of their strategies for improvement.
According to data collected in 2019, half of the 10 companies had improved their planning and forecasting practices since 2018, providing suppliers with the increased visibility they needed to plan production responsibly and ensuring ongoing employment of their workers. Eight of the 10 had fewer suppliers left with unutilized capacity due to forecasting inaccuracies, and six of the 10 had fewer suppliers yoked with surplus materials.
These are positive signs, especially in the face of current market uncertainties, Better Buying said. Despite these advances, however, fewer than half of the companies can say their suppliers regard them as partners in business growth, which means companies should continue to prioritize such efforts, since inaccurate forecasts can increase the potential for noncompliance or drive more workers further into the informal sector.
“When forecasts are not provided far enough in advance, suppliers are under increased pressure to meet shipping deadlines—resulting in higher stress for management and workers alike,” the report’s authors wrote. “Last-minute forecasts (less than 60 days in advance of production) make it especially challenging for suppliers to plan their production capacity, control costs and maintain a stable, full-time workforce.”
Cost negotiation practices were another area that saw an uptick in performance. Half of the companies had more suppliers reporting that all orders were priced to cover the costs of compliant production. Eight of the 10 companies improved by relaxing their use of high-pressure cost negotiation strategies, with a 30.7 percent decrease reported by one company’s suppliers. Four companies reduced their instances of “demanding across the board price cuts from previous orders/years,” with one company improving by 15.5 percent. And five companies reduced their instances of “demanding level prices be maintained from year to year” without consideration for inflation.
Pricing orders for compliant production, Better Buying said, eliminates the need to “cut corners on any area of a supplier’s sustainability efforts.” Suppliers, facing reduced financial pressure, are able to provide workers with commensurate pay and benefits, maintain working-hour limits and incorporate eco-friendlier production practices. Curtailing the use of high-pressure cost negotiation strategies is “integral to this work.”
“While paying higher prices is not the only way to ensure workers are paid decent wages, it is difficult to understand how workers could be insulated from continuous downward pressure on suppliers,” the report’s authors wrote. “Prices below the cost of compliant production incentivize the exact opposite of all that CSR teams are working to uphold: unauthorized subcontracting to facilities with little or no oversight, unsafe building conditions, withholding wages or benefits from workers and more.”
Payment and terms, which are critical to suppliers’ cash flows, have become especially contentious amid the pandemic, with a number of brands and retailers using delays as a strategy to keep their own bottom lines afloat. At least half of the 10 companies, per Better Buying’s analysis, have made “notable improvements” in their payment practices by paying more suppliers on time and in full. Four companies lowered their late payments by an average of 10 days, which the organization called an improvement that directly affects suppliers’ ability to pay their workers.
But paying invoices on time and in full is not an optional or “nice to have” practice to be employed at a buyer’s whim or convenience, the report’s authors said.
“Supplier cash flow is a complex calculus involving payment to vendors for the required materials, payment to workers for their labor, sometimes high interest rate borrowing, and waiting until after finished goods are shipped to be paid by their buyer,” they wrote. “This model already stretches suppliers’ cash flow and costs of doing business to incredible lengths, meaning that unexpected delays or reductions in payment create significant risks that workers will not be paid in full or on time.”
Delays not only deepen workers’ dissatisfaction with their bosses but they also threaten their already precarious livelihoods, Better Buying added, meaning that any buyer with commitments around decent wages should make on-time and in-full payments a top priority to avoid this.
The coronavirus has only exacerbated these issues, the report noted, and buyers must collaborate with their suppliers more than ever to sharpen data collection, communication, efficiency and protections for workers. Fears also abound that Covid-19 may roll back any hard-won progress.
“There is much work yet to be done on the path toward responsible purchasing practices,” Better Buying said. “The pandemic simply affirmed the fact.”