Wednesday, January 30, 2013

Safety in the Fashion Industry: Protecting the Supply Chain

Unlike the electronics industry, the fashion industry has recently moved away from Chinese manufacturers in favor of Bangladesh, a country with a cheaper workforce that can often beat out the pricing of rival Chinese suppliers.  One of the drawbacks to this cost cutting is that Bangladesh has very low safety standards for its factories, which has resulted in several catastrophic events.  As of 2005, over 700 works have died in Bangladeshi factories, mainly due to fires and poor safety protocols.

Clothing companies such as H&M have broken the traditional production model by decreasing manufacturing lead time and producing clothing according to "at-the-moment" trends, regardless of seasonality.  This breaks with the conventional "seasonal ordering" by most designers, but has resulted in many negative results as well.  Factories are now producing much greater variety, which can lead to overworking and increased manufacturing errors.  This desire for increased flexibility can lead to a "bullwhip" effect, as explained by Glatzel, Helmcke and Wine in their Mckinsey Quarterly article "Building a Flexible Supply Chain for Uncertain Times".  When suppliers are unable to maintain flexibility for their clients, orders are often duplicated and include "safety-stock" built into the order that result in excess waste.

Bain Consultants Pratap Mukharji and Sam Israelit expressed to Wall Street Journal Editor Ronald Fink that the establishment of "cross-functional teams" is also a crucial component to better understanding the true inventory needs of a company, and should include not only designers but also supply-chain specialists and market researchers.  These teams should also be kept aware of how many other orders have already been placed with their suppliers (to avoid capacity issues), and should be kept aware not only of how much inventory is on the store shelves, but also remaining in the backrooms, central warehouses, and in transit (Ten Ways to Improve Your Inventory Management). 

Another issue is that clothing companies are weary of establishing long-term contracts with their suppliers.  This leads to a "at all costs" mentality among manufactures in the Supply Chain, who are more likely to skirt worker safety laws in order to avoid loosing a client.  Establishing more formal, long-term relationships with suppliers will actually lead to greater flexibility.  In James Freeland and Robert Landel's whitepaper entitled "Managing Inventories: What is the Appropriate Order Quantity", they explain that by establishing relationships with suppliers (and guaranteeing future orders to lock up supplier capacity) may allow for the production of smaller, seasonal order batches instead of the larger "cyclical-batch" orders.  This is optimal for suppliers such as H&M, as it will allow them to produce small batches of "at-the-moment" trend clothing with less turn-around time, lower chances of errors (both in production and worker safety), as well as keeping inventory low which actually increases customer demand and pricing within the fashion marketplace. 


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