18 June 2014 | Wendy Kent
It is becoming increasingly important for the buying and ethical teams within retailers to align. Both departments play a very important role within their organisations and their cooperation is critical to achieve mutual success.
The problem we face is despite all the time and money poured into ethical strategies and auditing within the retailers on one side of the office, on the other side the buyers are not necessarily incentivised in the same way. Purchasers are feeling the pressure to deliver 100 per cent on all fronts and have no choice but to continue with the hardball negotiation. But for a supplier to adhere to all of these demands this has to come at a cost. Whether it be a financial or ethical one, it is impossible to tick all of the boxes without implication.
I have identified the three main negotiation points of buyers that can conflict with the objectives and perspectives of the social and ethical teams and as a consequence challenge us as a supplier.
• Price. As prices are continuously negotiated, this pressure is applied to the factories. Raw material prices and labour costs increase every year and along with currency fluctuations this has resulted in an increase in manufacturing cost that has not been passed on to the retail price. If there isn’t room to improve prices, the most likely area to reduce costs is to look at the workers’ salaries.
• Speed. As buyers push for shorter lead-times suppliers are often asked to apply this pressure on the factories. If the factories are increasing the hours this could mean employees work more than the acceptable number of hours per day, week and month. If the factories choose to bring in temporary staff, this means they need to be registered. They need documentation to be employed and officially on the books, and because we are pushing for speed, these regulations could be overlooked which conflicts with the auditing code put in place by the ethical teams.
• Quality. Each retailer wants to uphold certain standards and maintaining quality is important to their reputation. Quality often means using more expensive materials and investing more time to make the item, which equates to higher cost in materials and labour. Therefore asking for higher quality products while still maintaining low prices and short lead times is unrealistic as per the terms of the ethical audit.
Overall it is clear buyers need to push for speed, price and quality to meet their targets, whereas on the other hand ethical departments are looking at ways to improve conditions in the factories to ensure responsibly sourced products are being sold in their shops. A lot of improvements have been made in this area, and we have seen much more alignment between these departments over the past few years. Retailers are feeling the squeeze of the economy and this dictates the KPIs that are then passed on through the individual departments.
As an industry we all need to take responsibility for the effects our actions have on the bottom of the supply chain. As with most things, a balance is hard to achieve. Taking action to achieve social and ethical goals does not always appear commercial in the short term but the long-term value is priceless.
☛ Wendy Kent is chief operating officer at Matrix APA