'A united front of manufacturers of all apparel producing countries can be instrumental in re-addressing the balance of power between buyers and suppliers. This is to ensure ethical buying practice for the sake of the fashion industry and its workers’ livelihoods,' Mostafiz Uddin, managing director of Denim Expert told Dhaka Tribune's Ibrahim Hossain Ovi in an interview.
Unethical buying practices by the global fashion brands came under the spotlight during the Covid-19 pandemic. How can we stop the buyers from employing unethical buying practices?
The Covid-19 pandemic has been unprecedented and both buyers and manufacturers alike are affected. Brands and retailers faced dwindled sales as stores across the western world remained closed for about four months due to the pandemic until now when they are gradually being opened as the lockdown in the cities are withdrawn.
The pandemic was the time when collaboration and cooperation between buyers and manufacturers were needed more than any time before. But unfortunately, we have seen that some buyers imposed the whole liability of the situation on manufacturers.
In the wake of the pandemic, they cancelled orders which were ready to ship or at different stages of production, delayed the release of payments and demanded discounts and deferred payments from manufacturers.
These were a violation of business contracts and sheer unethical practices by buyers. I think the lack of unity among the manufacturers is the Achilles heel that allowed the buyers to resort to such unethical decisions at large.
“A united front of manufacturers of all apparel producing countries can be instrumental in readdressing the balance of power between buyers and suppliers. This is to ensure ethical buying practice for the sake of fashion industry workers’ livelihoods.
Workers retrenchment is a big issue now. Can buyers play a role in retaining employment?
As global apparel consumption may fall in the post-Covid era, brands and retailers cannot place similar quantities of orders like previous years to factories.
But they should immediately take delivery of the orders that were already produced or the orders for which the manufacturers already procured raw materials.
Holding back of these orders is crippling the financial capacity of the factories and has affected their cash flow which made many of them vulnerable to collapse.
If the factories are not saved, thousands of workers employed in them could not survive as their lives and livelihoods are related to the fate of the factories.
Buyers can also financially support the suppliers who have been serving them for long as trusted partners. This support can help the manufacturers to be afloat amid crisis and they in return can support their workers without going for lay-offs.
Does the existing business model make brands to honour buying contracts and ensure payment?
As relationships between buyers and RMG manufacturers have developed over recent years, a prevalent payment system that has emerged in our apparel industry is that of Sales Contract (SC). Under this system a manufacturer will rely on a Purchase Order (PO) from a customer to execute an order.
Based on the PO the manufacturer and customer will create a Sales Contract (SC) to allow the manufacturer to raise their own L/C to procure the necessary raw materials to complete the customer's order to the required standard.
The flaws in the SC payment system have been harshly exposed in the aftermath of the Covid-19 pandemic, as customers, citing the extraordinary circumstances caused by the virus, are withholding payments or cancelling orders, leaving the manufacturers, without the security of a bank guarantee, financially exposed.
I think this payment system requires a complete overhaul, by learning lessons from this pandemic situation.
The business deal between buyers and manufacturers should be performed through Letter of Credit (LC) in the post Covid era. The LC system offers manufacturers some financial security in that they are guaranteed the payment if goods produced comply with the customers' requirements.
A letter of credit (LC) is basically a guarantee from a bank that the seller will receive a specified amount of money within a specified time in the LC system. In return for guaranteeing the payment, the bank will require that strict terms are met and will want to receive certain documents—for example shipping confirmation and inspection report for the goods as proof that production has been completed to the customer's required standards and satisfaction.
The manufacturers need to abandon the Sales Contracts and do deal with buyers only in LCs. That’s the lesson learned from this pandemic situation.
How can we keep the supply chain sustainable in the post-Covid world?
To me, the main pillar of sustainability is people. Sustainability does not only mean taking care of the environment, it most importantly refers to nurturing the most precious asset of the planet, and that is humans.
The pandemic has made these humans (the workers) most vulnerable. Tens of thousands of workers across the apparel producing countries in the world have been facing uncertainty about their lives and livelihoods as their factories suffer from order cancellations and non-payments.
For a sustainable supply chain in the post Covid world, global apparel stakeholders once again should revisit the definitions of sustainability to ensure the dignity of the people involved at all strata of the industry.
A safety net is needed for the workers so that they are never thrown to the streets in any crisis period.
Why do the buyers dare to stop or cancel orders?
There is no denying of the fact that apparel is a buyer-dominated industry where the buyers have the strongest voice.
The lack of unity among manufacturers contributed to their apocalyptic situation during this pandemic.
For a long time, some buyers have been exercising unethical purchasing practices with impunity as the manufacturers do not raise their voice against such irresponsible behaviours of the brands and retailers fearing reprisals from the buyers.
In fact, there is no presence of any global authority where the manufacturers can seek redress.
If aggrieved, it’s not possible for a manufacturer to win a legal battle against a buyer in a western country as that is the buyer’s territory.
Hence the pandemic has made the urgency of a global authority which will legally bind both the buyers and manufacturers. It’s time that associations and bodies of manufacturers place this demand of forming such a legally binding authority to European Commission, OECD etc.
Without such presence of a globally authoritative body, where any stake of the supply chain, if aggrieved, can seek redress, a recurrence of such apocalyptic situations for manufacturers cannot be stopped.
What should be the new model, where brands will pay for every stage of manufacturing?
One of the main reasons behind why buyers can cancel orders to manufacturers at any stage of production is that in this existing business model a buyer does not have to pay the manufacturer until the garments are shipped and a manufacturer has to pay costs of production by themselves.
So, a new business model is needed where brands and retailers will pay in every stage of manufacturing and send a significant portion of the payment in advance for the procurement raw materials to make them more responsible financially.
Manufactures unitedly and seriously need to advocate for such a model of business. Otherwise, the hope of such a participatory business model will remain a pipe dream.
What are the challenges this sector is facing due to Covid-19 and how to redress it?
The first and foremost challenge is the uncertainty that engulfed tens of thousands of workers. To mitigate this, brands and retailers should immediately take delivery of their cancelled goods and make payments to the factories. This is not a charity, it’s rather a fundamental business assumption that the buyers should honour.
Pandemic is a situation where both buyers and manufactures are impacted alike. So, they need to consult among themselves and cooperate with each other to tackle the crisis.
New seasons are coming but travel restrictions have not been withdrawn in many countries. So, like before, physical meetings will not be possible. Therefore, both parties have to use digital technologies for sharing designs, approving samples, doing b2b meetings, etc.
Though the lockdown in western cities is gradually withdrawn, people may not go to shops as many times as before, they may rather prefer buying clothes online.
Hence, e-commerce and online sale will emerge as a new opportunity to recover the loss made during the pandemic and thereby earn a good profit. So, both the manufacturers and the buyers need to avail of this opportunity.