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Companies face numerous challenges when monitoring supply chains

Economic pressures, difficulty in monitoring subcontractors cause roadblocks

Companies face numerous challenges when monitoring supply chains

The Rana Plaza garment factory collapse that killed 1,129 in April 2013 led to calls for companies using suppliers in Bangladesh to im-prove factory conditions and businesses' subsequent efforts to do so, but several challenges remain more than a year later.

They include economic, cultural and regulatory issues in Bangladesh not unlike those that often confront efforts to improve worker conditions in other emerging-market countries along companies' supply chains.

The collapse of the eight-story Rana Plaza, which occurred a day after cracks appeared in the building, is considered the deadliest garment factory incident in history. The various factories in the building manufactured clothing for retailers including Benetton Group S.p.A., Bonmarche Holdings P.L.C., Primark Stores Ltd. and Wal-Mart Stores Inc.

A study earlier this year by the Center for Business and Human Rights at the Stern School of Business of New York University highlighted some challenges companies face in trying to address worker safety at suppliers in Bangladesh. Among them is the fact that subcontracting is common among many suppliers and is not always transparent to buyers or regulators.

The report also said the two major plans formed last year to address worker safety in Bangladesh — the Bangladesh Accord on Fire and Building Safety and the Alliance for Bangladesh Worker Safety — “fail to address the greatest risks of this system.”

While both plans established systems to monitor factories and train workers, “the universe of factories encompassed by their programs is less than 2,000, while the total base of factories and facilities producing for the export garment sector is likely between 5,000 and 6,000. The worst conditions are largely in the factories and facilities that fall outside the scope of these agreements,” according to the report.

What's more, the government of Bangladesh lacks the resources “and often the will” to protect garment factory workers, while the poor state of critical local infrastructure heightens the risk of factory fires and other tragedies, according to the report.

The Rana Plaza collapse is hardly the only deadly incident occurring at a Bangladesh garment factory. Among the more notable other tragedies was a 2012 fire in the Tazreen Fashion factory, which killed 112 workers.

The coalitions have pointed to the inspections they have conducted thus far and steps they say have been taken to improve worker safety and close unsafe factories. In its first annual report, issued July 22, the Alliance cited its members' development of a fire and safety standard for factories in Bangladesh and that it had inspected what it said were all 587 factories in the country from which its members source.

As companies look to suppliers in inexpensive markets such as Bangladesh, it's “the classic thing with sourcing overseas,” said Geoff Taylor, executive director at Willis Ltd. in London. “There's what I call a duality of consumer behavior in that consumers insist on the lowest, cheapest prices, yet they insist on the highest ethical standards.”

As retailers relying on emerging-market suppliers look to improve worker conditions, “you've got to understand sometimes that what's acceptable in a country wouldn't be acceptable in the United States or Europe or Japan,” Mr. Taylor said. “Building a better building in Bangladesh means it's going to cost twice as much. It's much harder to do in that economy. I'm not saying it makes it right, but it makes it a challenge.”

“The other issue is that supply chains are not simple. You're not just buying from one supplier,” Mr. Taylor said of the need for businesses to gather information on suppliers of suppliers on down the chain.

Following the Rana Plaza tragedy, “I think there's a lot more awareness on the part of companies to audit and investigate the details of the supply chain,” said David J. Closs, John H. McConnell chaired professor in the Department of Supply Chain Management at the Eli Broad School of Business and the Eli Broad Graduate School of Management of Michigan State University in East Lansing, Michigan.

In some cases, banding together in industry groups — such as the Bangladesh Accord on Fire and Building Safety, which has more than 150 members including many major European brands, and the Alliance for Bangladesh Worker Safety, which has 26 North American members including Gap Inc., Target Corp. and Wal-Mart Stores Inc. — can make it easier to achieve that sort of supply chain scrutiny in emerging-market countries, Mr. Closs said.

“Industries in some cases have to collaborate to look all the way down” the supply chain, whether it concerns worker safety, quality, environmental or other issues, he said. “It makes more sense to collaborate than to have each company do it on their own.”

Mr. Taylor said he thinks many large brands “have a pretty robust approach to sourcing sustainability,” including worker safety as well as workplace conditions and even water usage. “There's a reputational factor, and certainly for the large brands, that's important,” he said.

Gary S. Lynch, CEO and founder of the Risk Project L.L.C. in Mendham, New Jersey, said he thinks some larger firms are moving to reduce their exposure to supply chain risk by cutting ties with problematic suppliers.

Many companies “don't want to go through any more negative publicity, particularly with social media being so strong,” Mr. Lynch said. But achieving improvements in working conditions often means achieving cultural change that can take years or decades in emerging-market nations, he said.

“When you look at the execution side on the ground, there's some pretty big cultural issues to overcome,” Mr. Lynch said. “We all know how long it took us to get seat belts.”

Mr. Taylor offered a similar view.

“Health and safety in factories in the U.S. and Europe 100 years ago was probably much the same as it is in these poorer developing nations” today, he said. “It took us a long time to get there.”

Nicole Bryan, assistant professor of management at the School of Business at Montclair State University in Montclair, New Jersey, said overcoming the challenges in improving worker safety at suppliers requires innovation and entrepreneurial approaches to solving the problems while also devising ways to measure progress.

“There is an opportunity to take something that is pretty big picture in terms of politics and economics and culture and contribute to a solution,” she said.

“Any solution to the factory situation that's focused only on infrastructure and doesn't include community empowerment isn't going to be successful,” Ms. Bryan said. “In fact, we've seen successes with community-based approaches with some of the most challenging situations in agriculture.”

She cited certification efforts in cocoa and sugar production as examples that might help those looking to improve factory worker conditions at emerging-market suppliers.

The NYU study recommended that global brands and their first-tier suppliers “recalibrate their relationships to prioritize transparency and longer-term commitments,” beginning with a thorough review of all Bangladesh garment manufacturers. Once the review identifying which factory produces for which brand is completed, it's necessary to craft “an ambitious but practical plan, consistent with business realities, to address the most urgent risks.”

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