Thursday, November 29, 2012

112 Die In Tier 2 Supplier Fire - What Will It Take For Companies To Employ Effective Global Supplier Management?

An article on comcast.net today reported that a weekend fire in a Bangladesh clothing factory of Tazreen Fashions Ltd. resulted in the deaths of 112 workers.  Found in the factory were garments bearing the branding of Walmart, Sears, and Disney.

The scope of the tragedy was much greater because of basic safety measures that were absent, specifically that there wasn't even one emergency exit for the eight story factory where 1,400 people were working.  The owner of the factory was quoted as saying "nobody told me that there was no emergency exit, which could be made accessible from outside...Nobody even advised me to install one like that."

A real Einstein running that factory, huh?

Of course, Walmart, Sears, and Disney tried to downplay their role and responsibility in having their merchandise made in unsafe conditions.

The article reported that "Wal-Mart said it received a safety audit that showed the factory was 'high-risk' and had decided well before the blaze to stop doing business with Tazreen. But it said a supplier had continued to use Tazreen without authorization. The retailer said it stopped doing business with the supplier Monday."

Similarly, the article reported that "Sears said it learned after the blaze that its merchandise was being produced there without its approval through a vendor that has since been fired" and that "Walt Disney Co., which licenses its characters to clothing makers, said its records indicate that none of its licensees have been permitted to make Disney-brand products at the factory for at least a year."

So, the bottom line is that the suppliers and licensees with whom these US corporate giants have contracts violated their contractual obligations and subcontracted work to forbidden factories.

Sorry, but I don't absolve Walmart, Sears, or Disney of blame.

As I always stress, it is important to have "boots on the ground" in the countries where links in your supply chain are located.  It is absolutely critical to have personal visibility of materials as they move throughout the supply chain.  An annual visit isn't enough.  You should be able to see where your items are in each stage of processing at any time.  The numbers need to add up...and not just on a computer screen, in person!

The reason companies source in countries like Bangladesh is for the low labor cost structure.  Obviously, they are trying to minimize cost.  Then, things like this happen.  I consider it a consequence of the effect of so aggressively chasing the last few pennies of cost savings.

I'm not saying that low cost country procurement shouldn't be done.  I am saying that it should be done right.

Companies need to allow some of their cost savings be justifiably offset by effective global supplier management practices.  They need to put their procurement, quality, and other staff on airplanes more often to verify that contractual obligations are being adhered to, that environmental standards are being maintained, and that work is being done in safe and sanitary conditions.

I have been criticized for advocating surprise supplier audits in countries where relationships and trust are important.  Perhaps Walmart, Sears, and Disney wanted their supply base to feel trusted and didn't provide the oversight that, in hindsight, was so dearly needed in this case.

Well, did their suppliers justify that trust at the end of the day?  No, they spit in the faces of the corporate giants and did what they wanted when they weren't being watched.  Don't misinterpret this as a statement against any country or culture.  Most people and organizations in these "trust is #1" cultures are indeed trustworthy.  But there are some that aren't and there is the very real risk that you could be lured into overly trusting a supplier that violates not only your trust, but also laws and basic human rights.

If you're not willing to have in-person oversight with "boots on the ground" in low cost countries, please, source domestically where it is less costly and more convenient to oversee your supply chain.  How many more child labor violations, unauthorized uses of lead paint and other dangerous materials, and deaths from inadequate safety systems is it going to take before companies decide to do international procurement and supplier management the right way? 

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer - Next Level Purchasing Association
Author - The Procurement Game Plan
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com


2 comments:

Cynthia Matz, City of Milwaukee said...

For governmental procurement agencies, there is an organization to help you ensure you do not end up in the headlines with suppliers (factories) producing clothing under these conditions. Visit http://buysweatfree.org/.

Dick Locke said...

This is the second clothing factory fire in two months. The previous one killed 300 people in Pakistan. Same locked doors, same finding of Western brands in the wreckage.

If there are fingers to be pointed, I agree a country or culture is not the place to put blame. I think there's a problem in the clothing industry.

The big Western brands never seem to develop close relationships with major suppliere but intead spread their work around myriads of smaii, undercapitalized suppliers which makes supplier management extremely difficult. The industry not only has poor sourcing practices but some of the lowest quality standards that I'm aware of.

Compare this situation to the electronics industry, which also has problems but seems focused on solving them. Foxconn, for example has a million employees assembling electronics. When they have problems, which they do, buyer and seller work together to solve them instead of the buyer saying "What? Our product was there? We never heard of them."

But I do agree with Charles that those who can't keep boots on the ground shouldn't be there.

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