Global Trade Project: Analysis of Purchasing Practices in the Garment Industry

As part of its membership and participation in the Ethical Trading Initiative, WIEGO engaged in an experimental project with a High Street retailer of fast fashion to analyze the impact of purchasing practices on working conditions in one factory in Turkey. The project, begun in 2008, involved an analysis of purchasing practices along the supply chain from the buying and technical functions in the UK through the intermediary agent in Turkey down to the sub-contracted stitching unit in Istanbul.

Individual interviews were conducted with members of each of the buying teams in the company’s headquarters in the UK, and with each of the departments at the joint-venture supplier in Istanbul. A physical inspection was carried out of the sub-contracted stitching unit in Istanbul and interviews were conducted with the factory owner and a number of workers with the support of an experienced Turkish social auditor. The social auditor subsequently conducted a number of off-site, confidential interviews with workers. A meeting was held with the General Secretary of one of the largest trades unions, TEXSIF.

It was found that the working conditions in the production unit were typical of many lower-end factory units in the Cut, Make, Trim (CMT) sector of the garment industry. The unit had around 120 workers. Over 60 per cent of the workforce was made up of unregistered workers. This was reported by the national trade union to be the norm in Turkey. Turkey is an important sourcing country to the fast-fashion industry in Europe due to its proximity to market. Lead times are typically very short and this has a direct impact on working hours. Workers who try to join the trade union are immediately fired and black-listed, along with their relatives.

The following purchasing practices were found to have a direct, negative impact on working conditions in the production unit:

1. There was a disconnect between the ethical trading strategy and the supplier sourcing strategy within the company. In spite of the company’s high-profile commitment to its membership of the ETI, buying decisions were made chiefly on the basis of commercial considerations such as price. There was little awareness within the buying function of the impact of purchasing decisions.
2. The critical path analysis (CPA) of a product from concept to shelf is the planning tool used to plot the timing and deadlines along the chain from retailer to supplier and down to the production unit. In many cases, the CPA is an idealized time-table drawn up by a production planner whose best intelligence on production times may be the over-zealous ambitions of a supplier who will commit to any lead time and quantity in order to secure the business from the buyer. Any delays to the CPA at the front end of the process will impact down the chain and impact on production time. This is one of the chief factors which drive excessive over-time.
3. Poor communications and changes to styling post-sealing – the process of signing off on designs. Theoretically, once a design and specification is “sealed,” that is the final product against which orders are placed and no further changes should occur. However, it is common practice (and this is the case industry-wide) that buyers will change designs, colours and specifications post-sealing. This has a significant impact on the time allocated to production as new fabrics and trims need to be sourced. Every day that is shaved off production time leads to increased pressure on the supplier and the workers.
4. Another critical factor in the relationship between buyer and supplier and the impact on workers is forecasting accuracy on quantities. It is often the case that buyers will under-estimate or over-estimate the popularity of a product in the shops. If the forecast is below the take-up of the product, it will usually lead to repeat orders which have not typically  been planned for at the production unit level. A supplier may have committed to other business subsequent to the delivery of the order on the understanding that this would be down-time from that buyer. This will result in a surge of pressure, which can also lead to further sub-contracting to units with even worse working conditions, often without the knowledge or authorization of the buyer. On the other hand, if the buyer has over-estimated the popularity of a fashion trend and is suddenly faced with the prospect of holding high inventory, it is quite typical for buyers to cancel orders that are already in production. It is normal practice for buying companies to expect the supplier to take the “hit” and workers may be laid off at a moments’ notice.
5. Financial penalties are often leveled against suppliers when orders are late, even when the causes of the delay may rest chiefly with the buying company. This may be in the form of charging air freight to the supplier when an order has to be shipped urgently to stop a product from going out of stock or not making the launch of a new range. This financial pressure often forces the supplier to squeeze the workers on wages, on unpaid and forced overtime and on non-payment of statutory benefits.
6. In the case of this Turkish supplier, there was a high degree of dependency on the orders from the High Street retailer. This places a supplier and the workers in the production unit in a highly vulnerable situation. The project with the factory ended when the supplier declared himself bankrupt in Spring 2009. The High Street retailer assumed responsibility for the payment of outstanding wages and supported workers with the fees to seek legal re-dress. However, there is a “duty of care” dimension to the ethical management of supplier relationships and this is something that was lacking.

As a result of the project with the sub-contracting unit in Turkey, WIEGO worked with the company in 2009/2010 to establish a series of work-streams with a team of “ethical champions” from across the buying and technical functions within the business. This occurred  within the scope of the ETI Purchasing Practices programme and with the endorsement of the company's senior management.

The areas of purchasing practices that had been identified as problematic and impacting negatively on working conditions with the Turkish supplier were assumed to be having a similar effect across all supply chains in the business. The champions were tasked with working on one area of purchasing practices with one of their key suppliers in their buying area (e.g. teens, women, men, accessories, etc.) to verify the impact and come up with solutions to change the way in which business was done. The team members came up with some innovative solutions which proved to be beneficial in alleviating pressure points.

Within the scope of the ETI programme working group on Purchasing Practices, other NGO members engaged with different Brands in a variety of ways to tease out the impact on working conditions. Out of a total of six pilot projects, all came to similar conclusions around similar business practices. The broad consensus was that these issues are endemic to the garment industry’s way of doing business. The industry is characterized by a high degree of competitiveness with a race to the bottom on price at the lower end of the market. This inevitably places pressure down the supply chain and those at the very bottom of the chain are affected worse. Industrial out-workers in India were found to be earning less than a quarter of the minimum wage. It surfaced that invisible and unauthorized sub-contracting led to child labour. Unregistered workers in Turkey make up an estimated 70 per cent of the workforce and they and their families are persecuted if they try and join a trades union. The evidence is that the fashion and garment industry’s way of working drives poor working conditions and an increasing informalization of labour.

Read the ETI Step by Step Guide to Reviewing and Improving Purchasing Practices, Lessons Learned from the Purchasing Practices Project, May 2010.