It is a year now since the Rana Plaza disaster when over 1300 fashion and textile workers died in a factory collapse in Dhaka, Bangladesh. The facility was used by a host of well-known global retailing brands as part of their global sourcing strategies. It later transpired that the owners of the factory had ignored planning laws and built a structurally unsound building with deadly consequences to the work force.

The disaster led some people to question the sustainability of such global supply chains which in their minds had resulted in avoidable deaths either through pursuit of profits or at the very least an unacceptable level of reckless neglect.

To many, the implication has been that globalisation (and global supply chains) meant little more than the exploitation of remote workers, paid well below a living wage and working in conditions which would be unheard of in developed countries.

The disaster caused huge reputational damage to the companies involved and led them, as well as their peers in the industry, to undertake a number of initiatives to make sure that the likelihood of a recurrence was minimised.

One such initiative which came into effect this year was the Bangladesh Safety Accord and this has been signed up to by 150 global brands (including Abercrombie & Fitch, Adidas, Auchan, Carrefour Tesco, Sainsbury’s and Primark to name but a few) as well as trade unions. This commits the signatories to independent safety inspections and public reporting.

The accord states that the parties are committed to the goal of a safe and sustainable industry in which no worker needs to fear fires, building collapses or other accidents that could be prevented with reasonable health and safety measures.

Another such agreement includes US retailers Gap and Target, although their commitment doesn’t go as far in terms of reporting. The World Economic Forum’s Global Agenda Council on Logistics and Supply Chain has also committed to a project which facilitates the development and promotion of best practices of ‘good’ supply chains.

There is the recognition by many in the industry that for supply chains to be sustainable, they need to factor in an ethical, environmental and societal dimension. The short term approach to the use of low cost suppliers may well bring short lived economic gains in terms of cost reduction as well as enabling concepts such as ‘Fast Fashion’ to develop. However the risks of this approach must be costed and weighed against the benefits of such a strategy.

Creating supply chain value from both an ethical and economic perspective is achievable – these goals should not be considered mutually exclusive. One of the key to achieving this goal is an enhanced level of supply chain visibility. For instance, many companies have little or no idea of the provenance of materials used in their finished products especially when they are sourced through multiple tiers of suppliers. This lack of transparency not only creates risks related to disruption through over-reliance on certain suppliers (those who may be located in high risk geographies, for example) but it means that there is also no information on the conditions in which these materials have been produced.

Undertaking an audit of the companies used not only by Tier 1 suppliers but of their suppliers’ suppliers provides a supply chain manager not only with a range of information related to environmental and labour practices, but also with the capability of putting in place a holistic and potentially business critical plan to mitigate a host of other risks.

Consequently it can be in the manufacturers’ or retailers’ best interests to ensure that it fully understands its upstream supply chain, especially in sectors where ‘virtual manufacturing networks’ are the norm, such as in fashion or electronics.

Of course ignoring the ethical dimension has implications for supply chains at a higher level. If industry does not take action to prevent human/reputational disasters such as Rana Plaza, it risks being punished not only by the consumer but also by governments – both those in the markets in which it sells its goods and those where the goods are produced. This is not in anyone’s interests, and especially not the men and women who work in emerging markets. It must not be forgotten  that global supply chains have lifted 600 million people out of poverty in China alone and many other countries in Asia, Africa and Latin America stand to benefit in the future.

It seems that retailers and manufacturers have finally started to take a much wider view of supply chain costs, not merely the cost of production. By committing to higher standards – whether these are ethical or environmental – they are in effect mitigating supply chain risks and therefore lowering those costs which otherwise are only evident following a tragedy such as the one last year in Bangladesh.

 

Ti’s CEO, John Manners-Bell is Chair of the World Economic Forum’s Global Agenda Council on Logistics and Supply Chain and author of Supply Chain Risk: Understanding Emerging Threats to Global Supply Chains which can be purchased through the Ti website. The book will be launched at Ti’s Emerging Markets Logistics Conference June 4-5, Dubai.