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Welspun Hires Ernst & Young to Review Supply Chain

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Welspun India, one of the world’s largest textile manufacturers, has appointed Ernst & Young to review its supply chain systems and processes, following accusations that it sold fake Egyptian cotton goods to Target and other U.S. retailers.

The announcement came one week after Target cut ties with Welspun upon discovering that the company had sent 750,000 mislabeled Egyptian cotton pillowcases and sheets last month. Within a few days Walmart, J.C. Penney and Bed Bath & Beyond had all opened investigations into their Welspun cotton certification records.

The company on Thursday released a transcript of its conference call with investors earlier this week, during which managing director Rajesh Mandawewala said the company was taking responsibility for the mishap.

“There has been, let’s say, a failure on our part, so without any ambiguity the fault is on our side,” he said, pointing out several times that the problem was not about the quality of the sheets, but the “provenance” of the fiber.

When an investor asked what exactly had gone wrong, Mandawewala’s response was vague.

“In the manufacturing process you source a lot of materials at various stages like cottons, yarns, fabric and since there is a need for us to revalidate all our supply processes and systems, thus the audit,” he said, adding, “We are taking this issue very, very seriously and just want to make sure that the supply systems and processes are extremely robust as we go forward.”

Welspun’s share price dropped for a fifth consecutive day Friday and is down by more than 50 percent this week. The company said it expects the audit to be completed in six to eight weeks.

Mandawewala noted, “We believe we will emerge stronger from this process with tighter controls and robust processes.”

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