How Unauthorised Subcontracting is Damaging the Bottom line

  • Written by Laura Wheatley
  • Published on 26 September 2017
  • Our Voice

Outsourcing has long been synonymous with garment manufacturing. During the industrial revolution, new technology made it possible for clothes making to move away from homes and into factories, giving way to the birth of the ready-made garment industry. By the 1960s, customer demand for cheap clothing lead to the rise of fast fashion. Smaller workshops and factories could no longer cope with demands and so brands and retailers began outsourcing their manufacturing across the globe.

Outsourcing work abroad means that fashionable items can be produced quickly and at attractive prices due to lower wages, reduced resource costs and duty free exports to western countries. A large pool of suppliers provides retailers with much more flexibility compared to in-house manufacturing.

Typically, the term “outsourcing” is used to describe a manufacturing process whereby an order is passed from the retailer down to multiple external suppliers for them to create the desired item(s). This way, each asset; whether a care label, a button, a zip or something else is made by a specialist factory. Often a retailer will have a list of nominated and approved suppliers, from which each component can be ordered. But, what about when the nominated suppliers aren’t used?

Unauthorised Subcontracting in the Garment Supply Chain

One notorious example of the potentially brand damaging consequences of unauthorised subcontracting, is the Rana Plaza disaster of 2013, when the multi-story Rana Plaza building collapsed. 1135 people died and many more were injured. In the weeks that followed, the retailers whose garments were being manufactured in the building were identified. A number of those denied any knowledge that they used the garment factories within Rana Plaza – their manufacturing had been outsourced without their knowledge or authorisation.

This isn’t a one-off. In October 2016, a BBC Panorama report uncovered Syrian refugees, including children, working in Turkish garment factories, producing clothes for retailers in the UK. The wages being paid to these refugees equaled a little over one pound an hour – much lower than the Turkish minimum wage. When questioned about the conditions within their supply chains, two high street retailers declared that they were unaware of their garments being produced in the identified factory and that it was not one of their approved locations.

Unauthorised Subcontracting and the Bottom Line

Examples such as the Rana Plaza disaster show why it’s important for retailers to map and monitor their supply chain for the sake of those working in it. But what about for themselves? The inability to track orders and oversee suppliers has a direct impact on both business operations and the bottom line.

The intensification of fast fashion means that lead times are getting shorter and shorter. In an attempt to increase the speed to market and get the latest fashions in store ahead of the competition, retailers are presenting manufacturers with shorter lead times than ever before. If the manufacturer can’t produce the order in time, they might subcontract without the retailer’s permission in order to meet these strict deadlines. Amongst other problems this could lead to faulty goods, late deliveries and brand dilution. 

If items arrive below sufficient quality, they cannot be sold. If they are late, they might have go straight on sale. As one retailer told us, “losses due to late delivery and low-quality products in 2016 were over £1.2m, which represents 10% of our annual net profits.”

So even though supplier compliance and supply chain tracking is clearly beneficial to suppliers, it’s always beneficial to retailers - financially beneficial. 

x

CHECK OUT ANOTHER BLOG

Like what you see? We've got plenty more where that came from.

GO THERE

WANT TO FIND OUT HOW WE CAN HELP YOU?

VISIT OUR MODULES PAGE

VISIT NOW