A fundamental change in buying practices is essential
As the Bangladesh Ready-Made Garment (RMG) industry, and the world at large, strive to attain a more sustainable, transparent approach in the purchasing and production of garments, I think it’s an appropriate time to raise the issue of who will bear the costs of the necessary changes, and how those costs will be absorbed in the supply chain.
As I remarked recently, whilst eating at an organic restaurant - consumers are willing to pay more for a product that they can feel sure of, knowing that it’s produced in an ethical, sustainable manner, and it is this factor that we should bear in mind when considering buying practices and production standards within the Bangladesh RMG sector.
Those of us involved in the RMG sector are fully aware that the global garment industry is facing a challenging time. The latest news from Europe and the US about the state of clothing retail, with the industry facing the hardest time since the 1980’s, does not make pretty reading, with companies announcing store closures, redundancies, excess stock levels, and bringing pressure to bear on suppliers to reduce costs.
Against this backdrop, manufacturers are increasingly being pressured to bear more of the costs of production, taking responsibility for the purchase of fabrics, development of samples, costs of couriers, and, in some cases the holding of stock. All of this in an environment where the pressure on manufacturers is very much focused on improving sustainable and transparent working practices.
Clearly a sea of change in supplier/buyer relations is required and an overhaul of buying practices needs to be adopted in order to ensure a healthy, transparent industry for the future. Changes in buying practices are not just limited to an overall increase in cost price.
The first improvement to consider is in the planning and consistency of the buyer’s business with suppliers. Lack of accurate forecasting by customers can lead to large and unpredictable orders being placed at the lowest possible cost, with insufficient time for the manufacturer to produce the goods without the use of over-time or sub-contraction of orders.
If consistent forecasts can be provided by the customer, the manufacturer is able to allocate the necessary man-hours and capacity to fulfill the orders. Obviously, in this volatile industry, there will be occasions when a customer requires a product that has not necessarily been forecast, but if these incidents can be kept to a minimum, it allows better planning for the manufacturer and a more solid customer/supplier relationship.
Currently the practice of open-to-buy - with buyers chasing last minute production orders for products they had either not anticipated, or that has sold better than forecast - is a growing trend in the industry, but, for the benefit of all, the practice of reserving capacity in advance with trusted suppliers needs to be encouraged.
As a nation of experienced manufacturers, we appreciate our customers’ position and want to service their demands to the best of our abilities, but faced with a reduction in lead-times approaching 10% over a five-year period for Bangladesh manufacturers, it is high time to address the situation and reach a method of working that satisfies both the customer and supplier in terms of workable production schedules.
Secondly, I would raise the topic of design and development. There is a growing trend for buyers to expect suppliers to design and develop their own product ranges from which they can select.
The costs of these developments are absorbed by suppliers and yet the rewards can be low, given the investment in time and resources required for the development of product. Buyers should be encouraged to both adopt a more focused approach when requesting products to be developed by a supplier and to consider that if a supplier develops a product for a customer then they will receive the bulk orders for the goods, rather than losing out because of a better price or terms being offered by a competitor.
The subject of design and development also covers the provision of technical information by customers and it is imperative that this information is supplied in appropriate time, containing all the pertinent, accurate information and with all details in-line with the product and price that has been agreed between buyer and supplier.
Buyers’ financial practices is the third, rather prickly topic, that needs to be addressed. As I alluded to in my opening statement, in order to preserve sustainable, transparent practices, a fair price needs to be agreed by both parties.
The realization that fully compliant, environmentally sound, ethical, and transparent manufacturers have a higher cost structure involved with the operation of their business needs to be considered by the customer.
In a world of rising costs, be they raw materials, energy, or labour costs, the recent report “Global capitalism undermines progress in workplace safety in Bangladesh’s garment industry” by Garrett Brown makes worrying reading.
The report concludes that, since the Rana Plaza disaster in April 2013, the unit price for product paid in Bangladesh actually fell by 13%, within an environment of decreasing profit margins and reduced lead-times for manufacturers.
Comparing suppliers solely on the basis of their price quotation is a practice that is archaic and needs to change. Similarly, exerting price pressure on suppliers through the threat of moving or cancelling orders, making changes to terms or garment specifications after price is agreed, demanding retrograde discounts on orders already delivered, or demanding that prices are maintained year on year, with no consideration for inflation are examples of other business practices that need to be changed.
Lastly, buyers should be encouraged to support and incentivize the development of sustainable business practices by their suppliers. The future success of the global garment supply chain hinges on the adoption of fully sustainable, transparent business practices, not only in Bangladesh, but around the world.
Buyers have to realize that, as stakeholders in the industry, the onus of responsibility to promote these practices rests as much on their shoulders as those of their manufacturers and as such, they should be communicating with their consumers about the supply chain and, where necessary, explaining in-depth initiatives that have been undertaken and offering a detailed road map of the garments evolution from factory to shop floor.
Improvements in buying practices are, therefore, well overdue and need to be combined with a standardized, global set of criteria that is agreed by all customers for the manufacture of garments, regardless of the origin of the goods being manufactured.
A fundamental change in buying practices, in hand with a globalized set of compliance and environmental criteria will ensure that the relationship between buyers and suppliers will allow them to achieve their financial, environmental, and social sustainability goals, and will encourage greater transparency within the industry as a whole.
Mostafiz Uddin is the Founder & CEO of Bangladesh Apparel Exchange (BAE) and Bangladesh Denim Expo. He is the Managing Director of Denim Expert Limited.