An increasing number of companies that outsource production in Asia are not certain about key manufacturing links in the supply chain. This is especially true for the apparel industry. This is largely due to an unregulated subcontracting process where work is given to subcontractors without the permission of the brand owner.
Typically, this occurs because the appointed factory has been overstretched with higher volume of orders than its capacity. This is true for almost every company, during seasonal uplifts in demand. The suppliers fear losing or disappointing regular customers, hence they resort to unauthorized subcontracting.
But the risks associated with unauthorized subcontracting are high. Examples from the recent past abound: A factory fire in Jilin which killed 119 (June 2013) and the Tazreen factory fire, also in Bangladesh, that killed 112 (November 2012); the tragedy that occurred at Rana Plaza in Bangladesh in May 2013, where a factory collapse took the lives of over 1,100 workers brought to light many negative aspects of broken supply chains.
These events led to widespread negative coverage and massive criticism on social media channels. The reputation of the involved brands and retailers faced major setbacks and sales declined. According to Wall Street Journal there are about 5,000 apparel factories operating in Bangladesh and as many as half of these factories are essentially subcontractors. While major retailers have written contracts with an estimated 2,000 contracted factories, that is not the case with sub-contracted factories.
In the unregulated part of the industry, workers are hired directly by contractors or subcontractors (rather than through a union). They work in improper working conditions, at low wages, with excessive overtime, and inadequate training. Given these conditions, it is not surprising that their names do not appear on the record given to the brand owner.
Unauthorized subcontracting is prevalent in Bangladesh, China, India, Vietnam, and Cambodia among others. Brand owners know they cannot solely rely on government regulatory supervision, so almost all large brand owners have a Corporate Social Responsibility (CSR) division.
Social auditing is a tool that can be used by CSR departments. Qualified auditors, like Asia Inspection, independently assess workplace health and safety, child and forced labor, working hours and wages, discrimination, discipline, management systems and dormitories, if provided by the factory. These audits are understandably difficult because of the complications due to distance, cultural differences, and the complexity of suppliers’ networks.
Social audits can be done in-house or contracted out. While audits can be performed by an internal team, it is often more cost effective to leverage the global network of an auditor.
On-site product inspections can ensure that the factory audited is where the product was actually manufactured. The auditors get to look at the books, but still that can be faked. The auditors are trained to pick up on discrepancies, and even body language in the interview, to know when and where to dig deeper.
Gauging working hours is a good example. Auditors would ask multiple employees and managers. Those answers would be corroborated with what the equipment is capable of and then compared to employee time sheets.
Neelam Singh is ARC’s supply chain analyst covering Asia. For additional information on useful selection criteria and processes associated with CSRs, please contact email@example.com.