Can Factory Audits Ensure Brand Protection?

Garment supply chains are often long and complex, making it difficult to see if they are any unethical suppliers hiding within. What’s more, the further down the supply chain you look, the more suppliers and subcontractors are involved. Retailers need a brand protection strategy that will find and address any unethical suppliers before they cause a real headache.

In this blog, we explain why reactive supply chain management can be so time consuming and costly. Can proactive measures help retailers to tackle supplier compliance issues before they do damage?

In June 2015, Patagonia revealed that three years prior, evidence was unearthed of “egregious employment practices” among their supplier base.

Confident that tier one factories were complying with their fair labour codes, the brand conducted further investigations, and discovered that indentured servitude was present among tier two suppliers in Taiwan.

Garment production pays minimum wage in Taiwan, and many citizens prefer jobs with less manual labour, so the gap is filled by Filipino, Thai, Vietnamese and Indonesian migrant workers. Many garment factories will employ labour brokers, who may charge migrant workers high fees, offer high-interest loans and promise inflated salaries. Workers are consequently unable to pay these fees.

Debt bondage effectively creates “a form of indentured servitude that could also qualify, less politely, as modern-day slavery,” stated Patagonia.

For a brand that had built a strong reputation based on ethical and environmental responsibility, modern slavery in their supply chain could threaten their reputation and customer base.

Many retailers will have extensive supplier compliance strategies, and will likely conduct regular audits to check their primary suppliers. However, the problem that most brands face is a lack of enforcement of the same rules across the multiple tiers in their supply chain.

In 2013, Patagonia hired a two-person team to work exclusively on labour standards for its tier two supply chain, and ordered third-party audits. However, other brands may not be able to afford this investment to maintain ethical supply chains.

“Most companies - not only apparel companies - focus on tier one suppliers. They implicitly expect those suppliers to be cascading appropriate controls down the supply chain. But that implicit expectation does not translate into explicit practice,” says Dan Viederman, CEO of Verite.

Reactive supply chain management can be very expensive, as brands must work through their existing supply chain to ensure that ethical standards are being met. However, proactive supply chain management can easily ensure ethical standards, with suppliers vetted thoroughly before any orders are placed.

Rather than making assumptions about supplier compliance, retailers must improve supply chain visibility across the entire production process. This includes the top tier of sewing factories, tier two fabric mills and trim makers, and tertiary suppliers of raw materials, fibres and dyes.

Segura’s brand protection software can make this a possibility. We provide an ordering framework which customers can populate with their approved suppliers and contractors, creating a customised database. Once an order is placed through this system, a comprehensive online audit trail is formed, tracing orders back to their source and building a complete picture of where items have come from.

If any products don’t reach set quality standards or become delayed, retailers can immediately examine the secondary supply chain and address where the problem has developed. In fact, real-time data alerts makes it possible to deal with these issues as soon as they occur, minimising any potential problems caused.

Originally Published 15/09/2015