Mind the GAP

The big supply chain story this weekend has been the UK newspaper The Observer’s report on child and slave labor in an unauthorized subcontractor of one of GAP’s direct suppliers. In a statement Gap announces a full recall of the particular garment line produced in that sweatshop.

An early count of categories of this blog will teach you that social issues in apparel supply chains are among the more publicized supply chain issues. I suppose it is somehow reassuring that these conditions can still make the news prominently after years of people drawing attention to them. It is sad of course that this has not been enough to completely eliminate such practices. Doubly sad, actually, as GAP has a reputation of being a company that works hard on sourcing ethically, not least of which their sustainability report is proof in which the entire first part details their supply chain approach.

A look through their report teaches us that GAP has 90 “Vendor Compliance Officers” who performed 4,438 inspections of 2118 factories in 2006, covering 98.7 % of the factories that received the approved rating in 2005. Terminations of contracts do happen.

Additionally, GAP also invited all its top suppliers to a conference in 2005 to assess their capabilities in an effort to make sure the right type of order ends up with the right kind of factory (high-quality, small order vs. low-quality, quick, bulk orders etc.) and the emphasizes the importance of the relationship. These relationships are a work in progress and perhaps a step to inducting these suppliers into a more transparent ethical sourcing structure, again, as their report details.

It is clear that GAP does not willfully work with sweatshops that condone child and slave labor and actually does quite a bit to stimulate responsible business is its suppliers. But for instance, the Clean Clothes Campaign’s Looking for a quick fix report shows how, codes of conduct, audits and inspections are only half a solution. It is telling in this respect that despite GAP’s impressive inspection figures it only takes a team of inquisitive reporters to find a very rotten apple, just like in 2000, when the BBC reported on poor working conditions and abuses in GAP suppliers in Cambodia.

Granted, this instance concerns an unauthorized subcontractor to one of its suppliers. It is not clear whether this supplier has been inspected recently, but they clearly went outside of the agreements they had with GAP. Despite working on closer relationships with suppliers, this one slipped through the net in an act that the supplier must have known would severely damage their relationship with GAP.

The abuses are a vivid illustration of the dilemma’s faced in the apparel supply chain, between price and ethics incentives and who is responsible for them. Should GAP inspect even more? Or should it simply pay more for the products it sources? How far does their responsibility go down the chain? The first tier? The second? Or should they simply not source from high risk areas? Should the Indian government put more effort into enforcement of labor laws and perhaps take funds from another project or indeed risk its economy as low-costs producer? Where does human decency factor into the economic decision of parents deciding to sell their children and of factory owners that put them to work without pay and the GAP’s supplier’s disinclination to check this adequately when sub-contracting? What about individual consumers? How much doubt about ethics should we tolerate in a product, if any?

If anything GAP’s report is a good tool to highlight some of these dilemmas and how they deal with them. Their quick response to the issue has also been laudable, including ad hoc engagement with all suppliers in the region. The Gap report is a good start to showing how this incident may be the exception rather than the rule. But GAP will have to continue to structurally engage its suppliers, check them, train them and create the conditions for them to successfully meet GAP’s demands for price, quality and ethics.

But should GAP also ask suppliers to report from their perspective? This could help GAP and its stakeholders better understand the dilemmas from both sides. The sustainability report I would really have wanted to read, would have been the supplier’s!

Deloitte highlights systemic risk in supply chains

When Deloitte’s Consumer Products Group recently surveyed consumers, 855 indicated being aware of the recent recalls and the supply chain scare, 33% indicated paying more attention to labels and packaging since then. More importantly 18% indicated they had actively started looking for additional information on the internet and elsewhere.

Deloitte categorizes the recent recalls as a new type of systemic risk that can seriously damage brand value. It further says that most companies are completely unprepared to deal with this kind of risk.

In the article, Pat Conroy, vice chairman and U.S. consumer products group leader at Deloitte & Touche USA LLP is quoted as saying: “Companies must now decide how they will compete in a much more transparent future (…)They have an opportunity to create and maintain trust by adhering to the highest standards of quality and transparency. On the other hand, in this new age of transparency, there will be immense consequences for missteps, which will directly affect consumers’ trust.”

It seems that in the age of increasingly aware and active customers, companies will have to be completely open on how they’re doing. Companies have to go out on a limb and explain themselves preemptively; describe the risks of their business and their supplier choices before something goes wrong.

When it does, and millions of consumers start browsing for details, it helps if there is a trusted, reliable, and brutally honest sustainability report available to pop up in their queries (as well as reports from key suppliers).

Wal-Mart to go far and wide?

On Monday the Financial Times topped with a story on Wal-Mart, which is starting a pilot with thirty companies in seven product categories to get them “to measure and report their green house gas emissions, in the biggest move to disclose emission from businesses.” Wal-Mart wants to be able to compare suppliers based on their emissions efficiency, and they draw a direct line from reducing emissions, to reducing energy use and thus cost among their suppliers. Eventually the retailer wants to role out the program to 68,000 suppliers.

It seems that the main supply chain initiatives fall into one of two categories: either they go far down the value chain of a product, from the base of the pyramid to the top, completely disclosing on a product; or they go wide, casting a wide net and engaging many direct suppliers of the company and dispersing the initiative across more suppliers, but not as deep.

The article is interesting because it lists efforts by Coca-Cola (also part of Wal-Mart’s pilot),Cadbury Schweppes and Kimberly-Clark trying to do the former, measuring the carbon footprint of certain products, whereas the Wal-Mart initiative and currently also the GRI/GTZ “Transparency in the supply chain” project do the latter, engaging first tier suppliers.

Looking at this division, it is interesting to see that brand name companies are looking to make certain identifiable products stand out as completely transparent, whereas retailers lean more towards being “generally responsible” and engage with their direct suppliers, which, of course, are quite often said brand name companies.

Regardless of preference or relative incentives, however, it is important to choose the right approach for what you want to measure. As far as emissions go, it makes sense to go as far down the supply chain as possible: the big emissions are usually at the bottom of the value chain! EarthNews’s Michael Burnham rightly remarks that “To reduce its indirect emissions of carbon dioxide and other Earth-warming gases, Wal-Mart may have to influence companies several layers deep into its supply chain.”

You can start by going far or wide but to really measure emissions in a significant way it will be relevant to end up doing both.