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Apparel Giants Turn Blind Eye to Outsourced Labor: Study

Early in the Covid-19 pandemic, major Western apparel companies responded to plummeting sales by canceling orders placed with the Asian and South Asian factories that manufacture much of the clothing worn in wealthier countries. In some cases, brands even refused to pay for goods they had already received. This reaction to the health crisis translated into losses of billions of dollars for suppliers in developing countries, but it was poor factory workers who suffered the most, as tens of thousands saw their wages reduced or lost their jobs altogether. 

One of the lessons from this experience is that most global clothing companies lack crucial information about how their policies and actions affect the millions of workers in places like Bangladesh, Vietnam, and Cambodia. These companies are failing to collect the relevant data.  

As the pandemic has eased, clothing sales have rebounded, and a number of major brands have reversed their actions, paying for back orders. Yet even these more responsible companies, which say that they are committed to building better relationships with their suppliers, devote too little attention and resources to determining how their own practices affect workers in the countries where their products are manufactured.

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A recent survey by the NYU Stern Center for Business and Human Rights, where I am a senior program manager, revealed that major brands are failing to collect or analyze even the most basic data regarding this question. We asked 150 companies, to whom we promised anonymity, whether or not they gather information on a wide range of aspects of their relationships with suppliers doing outsourced manufacturing. Twenty-seven companies responded, only 22 responding fully. Despite the modest 18 percent response rate, we collected some useful preliminary insights.   

Natasja Sheriff Wells

We asked about data related to production lead times, often defined by industry as the period between order placement and when the completed goods are due to be delivered, although we note that the purchase and availability of raw materials for garment production is an important factor in the impact of lead times on suppliers. The imposition of extremely short lead times can lead to factory managers demanding that workers put in excessive and sometimes uncompensated overtime, among other abuses. But only 12 of our respondents said that they have ready access to data showing when a purchase order was issued to a supplier and when the order was delivered.  

Our survey also revealed that few companies could retrieve data on the changes they make to product designs after orders have been placed. In the era of super-fast fashion, global brands frequently make such changes without adjusting deadlines. This puts great pressure on factory managers, which can result in inhumane treatment of laborers. Most of the 22 companies that offered responses on the design-change indicated that it was a challenging metric for them to generate. One company we spoke with told us that this information isn’t compiled in one place and is often communicated informally between designers and suppliers. 

A third category of data relates to the amount of factory capacity that corporate buyers book in advance and the capacity actually used to have their goods produced. If booked capacity goes unused, suppliers have to scramble to fill it. If orders end up requiring too much capacity, suppliers may slough off work to subcontractors whose factories may be more dangerous and where brands and regulators have no visibility into working conditions. Our responding companies indicated that capacity usage is of great interest to them, but about half said they don’t collect information about it or would have difficulty knowing where to find it within the company.  

Our view is that companies that understand how their design, procurement, and merchandising practices affect suppliers and workers are going to be in a better position to address potential human rights problems. Oxfam documented almost two decades ago how shortened lead times, price squeezes, and unpredictable orders indirectly undermined working conditions. Since then, many global brands have instituted workplace codes of conduct and periodic factory audits, but very few have been willing to assess how their own actions are affecting labor conditions. 

The companies that responded to our survey themselves acknowledge that having more information of the sort we asked about would help them improve internal communications across otherwise-siloed departments. 

But our survey showed that most companies simply haven’t been willing to invest in the kind of centralized, automated system that would be necessary for collecting and accessing the type of data we asked about. Many companies still rely on antiquated, manually operated systems for this purpose. In addition, a lack of trust and transparency between suppliers and buyers can contribute to difficulties gaining access to supplier-level data.  

Most of our survey respondents said that the cost of upgrading data-collection systems would be prohibitive. But this flies in the face of their willingness to invest in other sorts of data collection,  such as on customer preferences and the effectiveness of their advertising campaigns—areas that they consider “business critical.” 

We acknowledge that capital costs for upgrading digital systems may be significant. What’s more, acting on the information currently not being gathered could be expensive.  Reducing the risk of human rights abuses costs money—in the form of less onerous contract terms and more generous prices offered to suppliers.  

Many major clothing brands—like many companies in other industries—have declared their intention to uphold “ESG” values. The abbreviation stands for environmental, social, and governance. If global companies are serious about improving worker well-being in their supply chains, which should constitute a major element of the “S” in ESG, they need to treat their purchasing practices as business critical and upgrade their data-collection systems with the same degree of urgency that they apply to predicting next season’s hot fashion trend. 

Natasja Sheriff Wells, PhD, is a senior program manager at the NYU Stern Center for Business and Human Rights, where she leads the center’s research on manufacturing and supply chains.  

Chana Rosenthal, CEO of redesign Consulting, contributed expertise to this piece.