FOLLOW THE YELLOW BRICK ROAD

This blog is about the issue of retailers and their approach to sustainability. One aspect of this “umbrella term” addresses the issue of sourcing material and product from suppliers and how retailers manage this process in an ethical manner with a (supposed) keen eye on being a good corporate citizen.

Since the mid 1990’s (or thereabouts) we have seen an increasing focus on sustainability. This was driven by a raft of revelations about how iconic well-known US brands such as Nike, Old Navy, Gap and so on, were able to sell merchandise at low prices. It transpired that in many cases this was due to their ability to identify “sweatshops” in parts of the world where there was little emphasis placed on issues such as worker safety and where workers were exploited or where child labour featured prominently.

The author, Naomi Klein, through her book No Logo, also flagged up the sins of many multinational companies in these areas.

This triggered protests by consumers and indirectly, it could be argued, forced retailers such as Nike, IKEA and many others, to put in place programmes to address these issues. Codes of behaviour, inspections and audits became “flavour of the month”. Ethical sourcing became the buzz word: sustainability, the Holy Grail. Through the noughties and into this decade this approach continued with ever-increasing rigour and focus. Can we therefore assume that the issue of ethical sourcing and the associated problems have been fully addressed?

Unfortunately not.

We should have been alerted to ongoing problems with the horsemeat scandal which I refer to in chapter four of Retail Marketing. The key learning outcome from this example was that supply chains can become very complex and to a large extent, uncontrollable. We witnessed situations where retailers caught up in the scandal had little or no firm mechanisms in place to trace the ultimate source of the products. Suppliers sourced from other suppliers who sourced from other suppliers across many countries in Europe. Like money that disappears into off-shore accounts through untraceable “shell” companies”, it became apparent that it was very difficult to determine the ultimate provenance of the products.

I was reminded of this case when I read a recent article posted on the internet. (Hobbes, Michael. The Myth of the Ethical Shopper. Huffington Post, 2015).

In this article, the author paints a pessimistic picture of the way in which companies source their material and product. The cynic in me believes that many of his observations have merit. He reserves particular criticism for the tendency of many retailers to wrap themselves around the psychological “comfort zone” of inspections, audits and traceability reports.

By checking paperwork, many retailers are convinced that suppliers are complying with the standards laid down and are therefore behaving in an ethical and responsible manner. Hobbes suggests that rather than relying on quantitative, paper-driven evidence, retailers can learn a lot more from a more subtle, qualitative approach. He cites the example of Nike who used a combination of both methods. Not surprisingly they found that most suppliers “ticked the boxes” when it came to the paper trail. However in-depth interviews with workers revealed that in many cases working conditions in factories had not improved, and in some cases actually worsened.

In many ways this example mirrors the flaws associated with quality management programmes such as the much criticised ISO900 model. In this case, many companies have successfully completed the paperwork to be certified. However it can be argued that the real skill is to provide the requisite and required paperwork, tick the boxes and thereby get certification. It does not necessarily mean that the organisation is fully practicing quality management principles and procedures in an effective manner.

Hobbes argues that the realities (in the case of the retail fashion and clothing sector) of fast fashion and the need to generate new designs and merchandise in a rapid manner to satiate the needs of consumers, means that supply chains become even more complex. This raises questions of traceability, transparency and accountability across the supply chain. It fosters an environment where “short-cuts” are taken by members of the supply chain in order to meet the ever-pressing and demanding requirements of retailers in terms of price, cost-cutting and speed. As an indicator of the changing face of fashion retailing, factories in such supply chains are churning out as many as four hundred different products for a range of customers at any one time.

Let us explore this issue further.

How many of us have heard of a company called Li & Fung? I thought not.

Li & Fung produces a range of products for a bewildering and diverse range of retailers: from Wal-Mart to Disney. It deals with over 15,000 supplier factories in over 40 countries. It has an estimated revenue of nearly $20 billion – more than the combined total of Ralph Lauren, Armani and Tommy Hilfiger. Yet it does not own or operate any of these suppliers. It is essentially a mega-coordinator or middleman that links together suppliers in areas such as cotton supply, textile mills, stitching and sewing houses.

To be fair, it has policies and procedures in place to monitor and audit its supplier base. It feeds back the results of its auditing too many of the buyers. However, given the opaque nature of its relationships and the complexity of the networks, it is almost impossible to eliminate ethical concerns and issues. In recent years it has had to deal with the death of 29 workers in one of its supplier’s factories in Bangladesh. In Cambodia, nearly 300 workers fainted as a result of malnutrition.

As retailers place ever-increasing demands on suppliers, there is in fact no guarantee that orders will be met by the same supplier on consecutive occasions.

Hobbes cites the case of Wal-Mart and its relationship with a company called Tazreen. This company had a major fire in 2014 which killed over 120 workers. The cause of the fire and the inability of many to escape (when the firm alarm went off, they were allegedly ordered to return to their work) due to unsafe stacking of material led to world-wide condemnation.

Subsequent investigations revealed that Wal-Mart was responsible for over 60 per cent of the products being produced at Tazreen. However deeper probing revealed that the global retailer had never placed an order with the company. It used a mega-supplier to meet the orders – a company called Success Apparel. It in turn hired a company called Simco who also sub-contracted a percentage of the order to another supplier who in turn used another one. You get the picture!

The net consequence of this practice is that in many cases retailers can (legitimately?) exculpate themselves from responsibility for any shoddy, unethical or downright dangerous practices or procedures that may or may not happen.

Wal-Mart has subsequently in some cases reverted back to “in-sourcing” in an attempt to retain greater control over its supply chain. However the practice of using “mega-coordinators / coordinators / suppliers” is still prevalent.

What can we learn from this experience?

Firstly it would be naïve to assume that issues such as ethical sourcing and corporate social responsibility have largely replaced the “bad” practices of the 1990’s and noughties.

The complexity of supply chains, allied to the ever-increasing demands on retailers to promulgate the “fast-fashion” era means that it is difficult to trace the provenance of products in the supply chain.

It is also difficult to fully monitor the practices and procedures of this bewildering array of geographically diverse spread of suppliers, sub-suppliers, and sub – sub suppliers and so on.

It begs the question as to whether shoppers are aware or even care about such practices. That is a discussion point for another blog. Watch this space. In the meantime we will continue down the yellow brick road!

 

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