Ethical trading–how to mitigate risks?

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It is 6 months since a major clothing factory collapse at Rana Plaza in Bangladesh, which many believe was caused by poor safety legislation and lack of funding. More than one thousand people died and a further two and half thousand people were injured – most victims have been unable to go back to work. Public outcry was experienced across the world, with blame mainly falling on the retailers whose clothing was manufactured at the factory. This is another instance where retailers are unaware of the full impact each stage of their supply chain can make.

Legislative changes

The incident sparked a wave of new regulations in the clothing industry. In July 2013, Bangladesh passed legislation to increase worker protection, by permitting labourers to form unions. In the same month, amid concerns about a consumer backlash, some 90 retailers – mainly from Europe – signed The Accord on Fire and Building Safety in Bangladesh, while U.S. and Canadian retailers announced a separate pact, The Accord on Fire and Building Safety in Bangladesh is a legally binding agreement between apparel brands, retailers and trade unions. Under the terms of the deal, brands – which include H&M, Marks & Spencer and Primark – have each agreed to contribute up to £325,000 a year towards rigorous independent factory inspections and the installation of fire safety measures. As one of the retailers producing clothes at Rana Plaza, Primark has also committed to provide compensationto victims of the collapse and their families.

Lack of Transparency

Many of the retailers involved claim that they were unaware of the extent of the danger that the factory workers were put in. In the immediate aftermath of the Rana Plaza collapse, there was a chaotic rush to inspect other factories at apparent risk. This incident, following the horse meat scandal earlier in the year, underlines the need for supply chain transparency at each stage – both to uphold moral obligations and to avoid detrimental publicity.

If companies are not aware of every aspect of their supply chain, there can be serious consequences when problems occur, especially on the scale of the Rana Plaza disaster. Publicity can be damaging to reputations, which can further damage revenue and relationships. Compensation claims and stricter regulations may also affect the bottom-line.

Ways to mitigate the risk

There are a number of ways companies can protect themselves against supply chain surprises. Many companies have adopted ethical auditing, both in person and by way of electrical monitoring, in order to monitor worker conditions throughout their supply chains. Training commercial staff such as buyers and technologists to ensure they understand conditions for workers in their supply chains and the impact their decisions make is another way to avoid ethical supply chain problems. It is important to integrate ethics into the business from a holistic viewpoint. Choosing suppliers with ethical values is a great place to start. Many companies are working with other parties to improve social and labour standards – this is especially important in wider issues such as minimum wages and working hours.

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