Monday, January 28, 2013

Balancing Acts: Procurement, Make, Buy, Go

Advances in technology have increased the transparency of companies. Instead of crying wolf - just grab your phone and snap, click, tweet - done. A company’s business is under the world’s magnifying glass. Manufacturing supply chains depend on many places to lower material, labor, and transportation costs. In turn, this balancing act requires executive decisions to be made: Should we forgo control for production costs? Will the loss in control put the brand at risk?  And how much will it cost?

The article Rethinking Procurement in the Era of Globalization (den Butter and Linse, MIT Sloan Management Review, 2008) brought up thoughts of an old topic not discussed too much these days. We've been more concerned with sustainability and environmental responsibility. Companies send disclosures as a Code of Conduct to consumers and suppliers stating the company's ideals. As a consumer we think - who’s the person on the other end of this iPod, Jordan or even U.S.A. made cotton goody?. In the midst of making greener supply chains, reducing waste from fast fashion and sustainable sourcing, where does responsible sourcing and livable wages come in? Decisions like these have driven apparel manufacturers to explore variations of vertical and horizontal supply chains.

On one hand, by organizing the efforts of many companies to supply materials for producing a good, the end producer (like H&M or Apple) is able to respond quickly to changes in hard and soft costs - like labor or tariffs respectively. And although managing more control over a supply chain is costly, it seems to effectively lower risk and make procurement more efficient.

When observing the quality of products like American Apparel or Knights Apparel "Alta Gracia"- a company that needs to subsidize its fair wage factories with products made in non-fair wage factories. You could ask: Is this cost really because of the supply chain or is it priced into the brand? Either way you're getting what you paid for - even if its just an idea.

Policies like the California Transparency in Supply Chains Act of 2010 ("SB 657") require California retailers and manufacturers like American Apparel to disclose efforts and measures used to track possible slavery and human trafficking in their supply chains. Disclosures like these are supposed to provide information to customers and allow them to make more informed choices about the products they buy and the companies they support. However, in the Era of Globalization where factories produce products for multiple companies - and sometimes competitors - this is not manageable. Companies exist to produce at an efficiency that allows them to grow. While we would like companies to be accountable for all of their inputs, changes happen quickly. And even though digitization and automation of information technology has allowed us to do more in the world all at once, it is still very objective and is not equipped to make assessment of factory conditions along the supply chain.

So thinking about where technology has allowed us to go and its current limitations: Should consumers expect fair labor associations to investigate to the end of every supply chain or could we say disclosures are enough?

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.