Visibility is something every supply chain manager longs for—until something goes wrong and eyes focus on them for all the wrong reasons. Right now business media around the world are eyeing the supply chain management of some of the biggest retailers in the U.S. in light of the tragic collapse of the Rana Plaza building that housed more than a thousand garment industry workers in Bangladesh. Although these workers might not have been making product for U.S. retailers directly, these companies are being challenged to set an example for retailers around the world by signing an agreement designed to upgrade fire and safety practices in the Bangladesh garment industry.
So far, the Gap, Walmart and other U.S. retail giants have refused to sign the “Accord on Fire and Building Safety in Bangladesh,” because they don’t want to get caught up in a legal spiderweb. They would rather set their own high standards of safety for their global suppliers. Special interest groups are on the attack, using press releases to rally universal moral indignation.
“There is a serious gap in Gap’s credibility if it says that it only wants to sign the agreement if it is not legally binding,” said Taren Stinebrickner-Kauffman, executive director of SumOfUs.org. “Gap’s argument that it is unable to sign the Agreement because of U.S. liability rules is ridiculous. PVH, the American owners of Tommy Hilfiger and other global brands, has already proven that it is possible.”
SumOfUs.org describes itself as “a global movement of consumers, investors, and workers all around the world, standing together to hold corporations accountable for their actions and forge a new, sustainable and just path for our global economy.” Sounds righteous, but I wanted to make sure this group wasn’t just being self righteous rabble rousers. I asked one of my go-to sources on supply chain legal matters, Enan Stillman, partner with Graham & Penman, LLP, why U.S. retailers are so reluctant to sign an accord that many European counterparts have already committed to.
“By signing a binding agreement, they create a duty of care, and would have to enforce the safety standards or subject themselves to liability if the standards are not met and the retailers continue to buy from non-performing suppliers,” Stillman explained. “Moreover, it would be difficult to police the standards used by a supplier in a developing country because conducting on-site due diligence is not always practical when one has hundreds of suppliers that are frequently changed.”
On top of that there’s the logistical challenge of obligating themselves to finding new suppliers who will meet binding standards. This search will not only add costs, but it would interrupt their supply chain.
“Ultimately, it’s a simple cost-benefit analysis,” Stillman concludes. “A retailer weighs adding liability against additional profits. Typical shoppers are focused on price, products and convenience. They are mostly indifferent to work standards for suppliers in developing countries. This doesn’t factor into most shoppers mindsets when purchasing goods. Consequently, retailers are reluctant to subject themselves to additional legal risk in a potentially murky area, and take on a duty of care that’s impractical to supervise, because doing so will likely not generate any significant additional revenue.”
I’m afraid Mr. Stillman is right. Consumers do take the origin of what they wear for granted. We can thank the growing sophistication of supply chain technology for that. Cloud-based information networks have made it possible to partner with suppliers on the other side of the world. And world-class transportation networks have made it possible to meet tight production schedules and get products to markets while still in season.
Supply chain visibility has never been stronger. But logistics executives now have an opportunity to set an example by how they deal with Bangladesh and other troublesome links in their chain. Could reshoring be an answer? Repartnering? Reengineering? All strategies should be put on the table for periodic review.
Consumers have the luxury of ignorance about the origins of what they consume. Industry owes it to their customers to maintain that innocence without having to redirect any guilt. That’s more a matter of vision than visibility.
