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How do Buying Practices Impact the Creation of Ethical Supply Chain

The relationship between the brand and supplier can be greatly impacted by buying practices– for good or bad. We will look at how buying practices impact suppliers in their ability to meet environmental and ethical standards.

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Key takeaways

  • There is a clear link between the buying practices of brands and the ability of suppliers to conform to the conduct that is required of them.
  • There is a negative impact on the wages of workers when suppliers are pressured to deliver short turnarounds given, inaccurate technical information or asked to deliver lower prices.
  • The best way for brands and labels is to build long-term partnerships with suppliers and clients.

Over recent years there has been competing pressures on the buyer supplier relationship. On one side purchasing practice practices that are typically conventional have been driven by pressure to meet margins increasing focus on speeding up the timeline of production and keeping purchase costs low.

Running in parallel there is increasing pressure for buyers to make sure that their suppliers meet ever-increasing expectations of safety, labour and managing environmental standards.

The pressure that buyers face are well understood but what is overlooked is sometimes the pressure to deliver cheaply and quickly and how this impacts on the factory’s ability to deliver the social and environmental standards that are required by brands.

How Buying Practices Impact Suppliers

An increasing amount of research shows that there is a link between the purchasing practices of brands and the ability of factories to make sure that the codes of conduct that are imposed by brands are being followed.

The ethical trading initiative has been explored by the UK, Norway, and Denmark in detail. They partnered with the International Labour Organisation (ILO) and conducted a survey of global factories and in their vast experience of the link between purchasing practices of brands and their ability to stay in line with the codes of conduct specified by buyers.

Some of the key findings from this survey were:

  • Both buyers and factories are responsible for the structures, actions and strategies that make sure a factory can deliver on code of conduct.
  • 93% of factories said that they had to meet a code of practice but just 51% were given the support and resources needed to do so.
  • Buyers have a long way to go to recognise the factors that they control in helping factories hit these targets.
  • Even though brands require suppliers to hit ethical codes the majority of buying decisions are based on existing relationships, speed of delivery, and price.
  • Improving these practices and the knock-on effect to health and safety, workers and environment management is a crucial part of managing the supply chain.

The Key messages from the survey are below and you can find the whole ILO report here

1. Contracts that are inadequate

About 35% of factories do not have a written contract with buyers from brands. If there re written contracts oftentimes detail is lacking about who is held responsible for the conditions in the factories, costs associated with style/design changes and risk management (among others).

Impact on Supplier

  • All the risk of changes to design/specification are placed on the factory
  • Production costs are increased
  • They cannot invest in H&S equipment, pay staff a living wage or even low at environmental management.

Risks for Brand

  • Relationship with supplier can be insecure.
  • Production is delayed
  • There is a risk of reputation damage that comes from poor environmental or working conditions.

1 in 3 factories don’t have contracts with buyers

2. Specifications that are inaccurate

Around 33% of the factories surveyed said that technical specs were either somewhat accurate, inaccurate or very inaccurate. This leads to excess sampling, which then creates unnecessary costs.

Impact on Supplier

  • Production costs go up.
  • Cannot invest in environmental management systems HSE equipment or even pay staff the living wage.

Risks for Brands

  • Production delays
  • An increase of quality failures
  • Administrative costs increase
  • Reputation risk.

3. Short lead times

There were only 17% of the suppliers in the survey that considered their orders had sufficient lead-time. Almost half reported that 30% of their own orders had leads times that were insufficient.

Impact on Supplier

  • Overtime is used excessively.
  • Unauthorised sub-contractors are used who may not meet the relevant standards.

Risks for brand

  • Quality failures increase
  • Shipments are delayed
  • Increased cost if overtime is charged back to the brand.
  • Reputational risk.

Graphic showing lead timesOnly 17% of suppliers say they have enough lead time.

4. Minimum Increases to Wages

Only 25% of the buyers that were surveyed were willing to increase their prices to make sure that minimum wage requirements were hit. This decreased to 17% for factories in Bangladesh. There is often a 12-week wait before the prices are actually seen in the factories.

Impact on Supplier

  • Profitability is decreased which means that their long-term stability is threatened.
  • The ability to pay the legal working wage is undermined.

Brand Risks

  • Long-term profitability could be impacted damaging long-term potential of business.
  • Ability to pay legal wage is undermined
  • Supplier could be lost
  • Risk of reputation damage
  • Legal implications of not paying legal wage

What is the opportunity?

Buying better is an opportunity. Buyers have the opportunity and the moral obligation to affect change at the other end of their supply chain. This is often seen as challenging, if not imposable. Research does show that this is actually a great opportunity for brands to have a positive influence by making sure that decisions they make about buying are conduction.