How Not to Work With Suppliers

Factory auditing is not enough: Why designers need to examine their own purchasing practices to enable fairer supply chains.

Published 5th June 2021 by Nicole Obidowski

The fashion industry is famously rife with greed and profiteering. Such stories are not without substance, though of course there are many brands who make it a priority to avoid exploitation in their supply chains.

Received wisdom says that in order to responsibly manage their manufacturing network, ethically-minded business owners must monitor their production partners closely, through codes of conduct and 3rd party factory audits. Yet even though high profile companies such as H&M, Boohoo and Zara have such monitoring programs in place, dangerous conditions and sub-poverty wages continue to show up among their suppliers.

Improvement in conditions and wages for garment workers around the world cannot be achieved without change at brand level, given the unequal power dynamic between buyer and supplier. However, the popular perception that sweatshops are purely the invention of greedy businessmen is overly simplistic. In reality, mills and manufacturers operate within a wider industry culture that is rife with unfair and disorganised practice. At the top of this hierarchy sits fashion brands, whose actions set the tone and dictate norms throughout the wider supply chain. The habits they perpetuate, referred to as “purchasing practices”, can have direct impacts on wages and conditions at the bottom of the food chain.

In 2016, the International Labour Organisation (ILO) undertook a study of 1,454 suppliers from 87 countries, researching the correlation between brand purchasing practices and conditions for the workers in their supply chains. The resulting report exposes how a variety of operational conventions at the buyer level have a strong influence on their manufacturers, exerting downward pressure on wages, driving up overtime hours and incentivising subcontracting.

The ILO report identifies four main areas  of influence which we will explore here: contract clauses, technical specifications, lead times, and market power / prices.

Image: ILO “Purchasing practices and working conditions in global supply chains: Global Survey results”, 2017

Contract Clauses

Most brands know to list order quantity, price, delivery date and payment terms on a Purchase Order. But some don’t attach any further Terms and Conditions (T&Cs), particularly small business owners who may not realise that their PO is often serving in place of a contractual agreement.

Such ambiguity may cause anxiety for suppliers as it leaves them open to unpredictable consequences if the brand later decides to change, cancel or reject their order. The Coronavirus crisis has highlighted the risks that suppliers can face, with three quarters of sourcing executives cancelling orders during the first wave of the pandemic, according to McKinsey & Co data. Moving forward post-Covid, this anxiety will likely be heightened, with McKinsey anticipating a growing number of suppliers questioning the financial risks they have previously been expected to take on.

The simple solution is for brands to generate Terms and Conditions sheets which can then be attached to each Purchase Order. T&Cs not only provide clarity for suppliers, but can also be used to protect the brand, so if drafted well they can be of benefit to both parties and are well worth the time to compile. Basic Terms and Conditions templates are readily available online, to be downloaded and edited as required.

For a more detailed and ethically-oriented resource, the American Bar Association has published a set of Model Contract Clauses as well as a Buyers Code, under their Contractual Clauses Project. These clauses can be cut and pasted into your base T&Cs to suit your particular business practice.

Image: Better Buying Guide, 2017

Technical Specifications

Tech Packs (AKA Specifications or Spec Sheets) can be thought of as the instruction manual to creating a specific product. They are used to communicate all of the information the supplier needs to correctly execute samples and production. If the tech pack is not accurate, or required information is missing, the result is either delayed or incorrect products.

As such, it’s in both party’s interest that tech packs are detailed and correct. However, the impact of inaccurate specifications can lie disproportionately with manufacturers. 72% of suppliers reported to the ILO that inaccurate tech packs had lead to additional sampling costs, with half of suppliers reporting they’d resulted in financial loss for their company.

Any unexpected additional costs placed on the factory has an indirect impact on garment worker wages, as such expenditures reduce the supplier’s already thin margins. Furthermore, when such costs are unpredictable, factory bosses may become cautious of promising higher wages for staff even in profitable periods, anticipating future spikes in operating costs.

Of course, when samples arrive with the wrong details and finishings, the designer must request new samples. Such additional sampling requires additional labour, and deciphering poorly drafted specifications generates many questions and unnecessary back and forth communication with the buyer, further increasing labour requirements. For this reason, 41% of suppliers reported that inaccurate technical specifications had led to additional overtime hours.

Despite significant consequences for both brands and factories, inaccurate tech packs are not uncommon, with 1 in 5 suppliers reporting to the Better Buying Guide that the majority of specifications they received from buyers were late and/or incorrect.

Emerging designers in particular can be guilty of trying to skimp on Tech Packs, either by hiring a lower-cost but under-qualified freelancer, or by attempting to do it themselves despite lacking the required experience. However, such strategies are typically counter-productive, and if the brand does not end up incurring additional expenses, then their supplier will. In fact, according to ILO data, inaccurate technical specifications have the most damaging impact on wages of all purchasing practices, being associated with a 22% decrease in hourly wages.

For this reason, if fair pay in your supply chain is a priority for your brand, you will need to ensure that you are allowing enough time in your development schedule to create detailed tech packs, and enough budget to cover the services of a freelancer with the right level of experience.

Image: ILO “Purchasing practices and working conditions in global supply chains: Global Survey results”, 2017

Lead Times

Unrealistic lead times (the amount of time between order confirmation and shipment of goods) are rife in the fashion industry, with the ILO identifying textile and clothing manufacturing in particular as having the most inadequate lead times of all sectors.

Factories feel a lot of pressure to meet their buyer’s requested deadlines, as they stand to lose the order or may even face financial penalties if they fail to deliver on time. This can lead to a host of negative consequences for garment workers, who endure excessive overtime and sometimes work night shifts to keep the factory running 24 hours a day. In some circumstances, workers are put under so much pressure to meet deadlines that they are not even able to take toilet breaks.

While some suppliers rely on extreme overtime and night shifts to temporarily increase capacity, others quietly outsource manufacturing to nearby subcontractors. Such outsourcing facilities are notorious for poor working conditions and may even operate illegally, such as the underground factory in Morocco which flooded earlier this year, killing at least 28 garment workers trapped inside.

Despite these impacts, the ILO found that only 17% of suppliers consider their orders to have sufficient lead times. Meanwhile, 56% of suppliers reported that unrealistic deadlines had led to increased production costs, again reducing their bottom line and putting further downward pressure on wages.

For brands, the solution is deceptively simple: plan ahead and follow a critical path.

A critical path is basically a step-by-step schedule for each collection, laying out the lead times and deadlines for everything from finishing design sketches to warehouse delivery. By carefully working backwards from important sales dates and incorporating each supplier’s individual pre-confirmed lead times, you can work out realistic deadlines to ensure you are able to place orders with your factories on time.

Of course, the development process is long and complex, and any designer familiar with the production cycle will know that sticking to a critical path is much easier said than done. This is why it’s so important to build buffer space into your critical path.

Even so, it is likely that you will still occasionally miss your own deadlines, in which case always try to shift your suppliers delivery deadlines accordingly – otherwise garment workers are likely to pick up the slack.

Image: ILO “Purchasing practices and working conditions in global supply chains: Global Survey results”, 2017

Market Power / Pricing

It might come as a surprise to hear that the majority of garment and textile suppliers report sometimes accepting orders at prices that are lower than their own cost of production.  While it seems illogical to knowingly operate at a loss, suppliers have compelling reasons for making such decisions. Most commonly factories will accept short-term losses in the hopes of retaining the customer and securing more profitable orders over the long term.

This is not an easy gamble for a factory owner to make: 29% of manufacturers reported that accepting prices below cost would likely lead to difficulty paying workers’ wages, and 33% of suppliers said they would find themselves exposed to the risk of going out of business. As you can imagine, producing orders at a loss can also affect garment worker wages. The ILO found that suppliers who felt pressured by their buyers to sell below cost paid on average 11% lower wages than those that did not. Such practices also incentivise factories to shift production to cheaper subcontractors, with order prices below cost being associated with a 16% increase in outsourcing.

Pressure to take on loss-making orders increases markedly where a supplier relies disproportionately on one buyer, a situation for brands to consider as they grow and scale their businesses. In cases where a supplier operated half of it’s production capacity to service just one brand, the ILO found that suppliers were taking on more loss-making orders, and in turn workers were paid an average of 20% lower hourly wages and saw a 30% increase in outsourcing. This would indicate that their main customers were (knowingly or unknowingly) placing unrealistic pricing demands onto suppliers, with significant consequences for garment workers.

Asking your supplier if they can give you a better price is not automatically problematic. After all, you need to look after your own margins or one day you may find you no longer have a business. However, it’s important to be aware of the pressure this may place on your factory partners and to tread carefully if you value your supply chain.

Suppliers may not tell you up front if they are accepting your order at a loss. Therefore, to prevent this from happening, you will need to ensure you are making informed and responsible requests when negotiating costs or advising target prices. Try and ensure that you are aware of the labour hours required to produce your garments, as well as the living wages in the parts of the world where you manufacture.

Unrealistic target make costs often stem from unrealistic target retail prices, and a common root problem for many emerging brands is comparing their retail prices to those of larger, more established businesses. These established companies are likely operating at economies of scale that are usually unachievable for a smaller brand. Therefore, those with small production runs will need to think more creatively about how to cut back on costs. Amending patterns to reduce fabric consumptions, simplifying construction details, and maintaining tight control over development and overhead expenses are all ways that you can increase your profitability without impacting on the financial viability of your suppliers.

Image: ILO “Purchasing practices and working conditions in global supply chains: Global Survey results”, 2017

Are Unions the Answer?

When we look at the problem of sweatshops, worker-empowerment based solutions are typically overlooked or ignored. However, the ILO report makes a point to identify organised labour as a major upward driver of working conditions and wages. The report finds that the presence of a trade union is associated with a 15% increase in hourly wages, a result that has been replicated in multiple studies around the world.

Yet, while worker-led social responsibility is certainly an integral part of dismantling sweatshop culture, the data presented by the ILO suggests that unionisation alone can not solve the problem without support and change from the brand. Even where workers succeed in organising and lift wages by 15%, they are swimming against the tide if the purchasing culture imposed by brands continues degrading their wages by as much as 22%. Many working in the industry will be familiar with rumours of garment workers fighting long battles to unionise, only to find that brands stop placing orders with their factory when they will no longer tolerate their unrealistic expectations by working long overtime hours for low wages.

In order to truly support garment workers fighting for fairer pay and safer working conditions, brands must consider their own internal procedures to ensure that their purchasing practices are not working against those same workers.

With today’s fragmented global supply chain, fashion brands have become largely removed from the consequences of their actions. Practices such as missing design handover deadlines, rushing out tech packs, or asking factories for overly idealistic target prices are routine across the industry and in companies of all sizes. For those working within brands, such habits may seem imperfect but inconsequential. However, as demonstrated by the ILO’s research, such purchasing practices can result in significant costs to manufacturers. In turn, that cost is effectively taken from the pockets of the garment worker.

Conversely, by building a better understanding of how our internal processes can impact external suppliers, we equip ourselves with simple and low-cost strategies to improve working conditions throughout the supply chain, while fostering positive, equitable and efficient relationships with our manufacturing partners.

The key is simply to remember that every one of our actions has consequences: an important lesson for all responsible designers to keep front of mind.

For more helpful tips and tricks on running a sustainable fashion brand, make sure to follow us on Instagram: @n.o.development

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