The challenge of ethical sourcing for fashion brands

The challenge of ethical sourcing for fashion brands

Milan Panchmatia Blog, Retail, Supply Chain

4C Associates’ Milan Panchmatia examines how global fashion companies can balance sustainable supply chains with the need to grow their business.

Supply chains are increasingly fragmented and complex. Rapidly changing demand, economic uncertainty and higher levels of competition, mean businesses are constantly having to review their supply lines. Nowhere is this truer than in the fashion industry.

Here companies are forced to juggle the need for flexible supply chains, with those for cost efficient security of supply. On top of this is the issue of ethical sourcing. Many garments are made in developing countries where labour remains relatively cheap. Whilst this provides a number of benefits, it also fosters a variety of challenges.

The lack of transparency, which is inherit in this type of operation, opens up businesses to several risks. Again, this is especially relevant in the fashion sector where different countries abide by different rules. In this context, ethical sourcing should form a key pillar of any supply chain strategy. Beyond the moral issues surrounding the process, reputational damage and supply risk can hugely impact a company’s performance.

Reputational risk

The public is well aware of the issue of ethical sourcing and was reminded of it again, three years ago with the collapse of the Rana Plaza in Bangladesh, which saw 1,129 people lose their lives. This eight-story commercial building housed garment factories employed by the likes of Benetton, Matalan and Primark.

The disaster led to sustained negative coverage and more than 50 fashion brands signed up to a legally binding safety agreement, which sees participants dedicate £325,000 to funding independent factory inspections and safety measures. Speaking on the issue, Sam Maher, from workers’ rights group Labour Behind the Label, told The Guardian: “Anybody sourcing in Bangladesh should be aware this could be happening in their supply chain.”

Mitigating risks and protecting workers

One of the simplest solutions to the issue is to source more materials locally. Buying in the UK does not guarantee an ethical production process, but certainly decreases the risks. Shorter supply chains are also less fragmented and more transparent. The downside, of course, is that this option is simply not applicable to some businesses. A need for high quantities of products and low costs are often incompatible with the capabilities of local suppliers.

Businesses which rely on foreign suppliers must audit and collaborate with their partners. Auditing suppliers in one of the few methods which injects some transparency into the process and is essential to managing complex supply chains. A good starting point is checking whether or not suppliers are certified by relevant bodies, for example the Fair Labor Association. This seemingly costly exercise can reap mutual benefits and lead to the development of cost efficient solutions.

Making it work

One company which has managed to balance growth with investment in sustainable supply chains is Australia’s largest fashion retailer: the Cotton On Group. The company has seen 20% year-over-year growth for the last six years and had sales worth $1 billion in 2015.

Speaking on the value of ethical sourcing, Pippa Grange the General Manager of Culture, Leadership and Ethics, told Forbes: “As our business grows, so too does our responsibility to our people, customers and communities we touch around the world. […] We do it because it’s not only the right thing to do; it’s actually the best way to do business.”

The company has stressed that its policy of having ethical supply chains has been a key driver towards strengthening relationships with suppliers. A collaborative approach has allowed the Cotton On Group to understand and address the concerns and issues facing suppliers, in a bid to ensure the creation of sustainable, long-term solutions.

Long-term thinking

Many businesses continue to associate ethical supply chains with high costs. To some extent this is true, however, the dangers of ignoring the issue have the potential to cost a lot more. Reputational risk, security of supply and a lack of transparency are all key issues fashion supply chains have to contend with.

One of the biggest concerns for many in the industry is that consumers just do not care enough. While there was outrage following the discovery that Benetton, Matalan and Primark employed suppliers within Rana Plaza, all three retailers are still here. Primark recently announced that its sales grew 9% to £5.9bn in the past year. This, however, is a short-term way to consider the situation and a parallel can be drawn with the food industry.

Taking a leaf from the food industry

Scandals and better consumer education around sourcing have boosted sales of organic and local produce. According to the Soil Association, the UK’s organic certifying body, sales of organic products jumped 4.9% to £1.95bn in 2015. During the same period, the US organic market saw sales grow 11% and hit a record spend of $43.3 billion.

Businesses operating within the fashion industry would do well to head the developments within the food sector and bring about the necessary changes. This does not need to translate to implementing huge costly programmes, but can be rolled out incrementally whilst working towards a wider goal of establishing sustainable and ethical supply chains.