Sudden shocks to the supply chain have real, tangible impacts on the people making the clothes. Whether it’s a pandemic, trade disruption or war, workers often bear the brunt when orders become erratic, or worse. With buyer-supplier relationships more tenuous and production facilities thrust into survival mode, the propensity to cut corners rises.
Avedis Seferian, president and CEO of WRAP, a social compliance certification organization, said as factories come under more stress, violations in working hours are often the first sign of trouble. Along with those infractions come a myriad of other negative outcomes related to compensation, forced labor, safety and overall factory viability.
Even though these issues persist, Sefarian is heartened to see the industry taking these issues more seriously than in the past and elevating social compliance in their decision-making matrices.
“Ten to 15 years ago, an economic shock would mean cuts for compliance before other things were sacrificed. Today, we’re still seeing cuts but to me they are proportional to cuts elsewhere in the organization,” he said.
Here, Sefarian tells Hertzman Global Intelligence how cost and timeline concerns affect workers — and what downstream partners should be cognizant of before making sourcing changes.
HGI: What happens at the factory level with the tariff rate changes, for instance? What’s the impact on workers?
AS: Compliance, and pretty much anything about production, is best achieved in a planned environment. If all of a sudden things change, you’re now faced with this pressure that requires quick readjustments, and that’s hard to do. If you’re having to deal with a sudden shift in production away from country X into country Y, or you’re shifting from factory A to factory B within a certain country, you’re doing so under a much more time pressured environment than before, and your ability to plan proper levels of staffing and raw materials are compromised and the almost inevitable result of that is what the workers are now faced with a compressed time frame.
Now you’ve got pressure on hours. Now you’ve got capacity challenges. You’ve got a risk of unauthorized subcontracting. It works the other way as well for the factory that lost the order. You’ve got all these workers that don’t have work.
HGI: How does all this then affect other core principles of social compliance?
AS: The sort of logical one is just work them harder with extra hours, and maybe it’s possible that you could get it done with your current workforce. If not, suddenly you’re planning to hire more people really quickly. And one consequence of that might be you no longer have the luxury of putting them through the normal vetting process. Now you are potentially at risk of hiring somebody that doesn’t have the right to work, for example, or is perhaps underage, so now your child labor risks are going up.
Another extension of that logic would be, now you’re putting a lot more people into the same space, [maybe] 10% to 20% more. You’ve got potential health and safety risks. Now, if something goes wrong, you have a higher risk of there being an unfortunate occurrence because of an emergency situation.
HGI: It doesn’t seem like it takes long for these things to start happening.
AS: The vast majority of factories, still to this day, are operating on a payroll-to-payroll basis. They have not institutionalized long-term planning, and haven’t had the ability to build up a rainy-day fund. Smaller factories in particular end up having to cut corners. One would hope they will operate as legitimately as possible for as long as possible, but at some point it might come down to not being able to pay workers as much as they otherwise should have earned. Or they may have to substitute a different raw material and hope to get away with it. These are foreseeable problems. And it doesn’t necessarily mean that they can be planned for, but they should not be thought of as out of left field.
HGI: We hear a lot about partnerships. In the spirit of partnership, how should sourcing executives weigh their options — and their impact on the people making their clothes — when a shock like Liberation Day happens?
AS: You go through a series of questions along the lines of, what is the impact this is going to have on the factory and the workers? How big is the order and how far into the production are they? In addition to how big is the order, it’s what proportion of the factory does that order represent? If you’re only a small percentage of the factory overall, then maybe your departure would not be as impactful.
If you’re talking about a strategic partner facility, that’s a whole other story. I do think those are actually much better off because they have long-term relationships. They’ve likely already been through Covid together, so there’s the sense of ‘we’re in this together, and we’re in this for the long haul.’ But those are the exceptions.
Caption: A garment factory in Katunayake, Sri Lanka, on Monday, March 13, 2023. Sri Lanka’s GDP likely shrank at a slower pace on a quarter-on-quarter basis in the fourth quarter of 2022, falling 0.5% quarter on quarter, less than a 6.1% drop in the third quarter of 2022, according to Bloomberg Economics’ estimates. Photo credit: Thilina Kaluthotage/Bloomberg
