Apparel factory fire reveals big brands' shadowy supply chains

DHAKA, Dec 7 (Reuters) - Sweating and trembling as he

fielded questions about last month's killer fire at one of his

factories in Bangladesh, Delwar Hossain insisted he had no idea

the workshop was making clothes for Wal-Mart Stores Inc

when it went up in flames.

On the other side of the world, Wal-Mart said the factory -

where 112 workers lost their lives - was not authorised to

produce its merchandise and had been sub-contracted by a

supplier without its permission.

That there should be such blind spots in the supply chain of

the world's largest retailer is puzzling.

However, an investigation by Reuters since the Nov. 24 blaze

has found that, under pressure from big Western brands to

produce huge volumes of apparel fast and at rock-bottom prices,

Bangladeshi suppliers routinely sub-contract their orders.

This frequently happens without the knowledge of the

end-buyers and, all too often, the orders end up in factories

that under-pay workers or cut corners on safety.

Experts in supply-chain risk say the practice has led to a

lack of control over what is manufactured where, by whom and

under what conditions.

"The first problem is retailers and wholesaler s are

demanding more and more compliance and more and more protocol.

However, they keep pushing everyone for lower and lower prices,"

said Edward Hertzman, who runs Sourcing Journal, a trade

publication.

"You have one department of the company campaigning for fair

wages e tce tera, but then in the very next room the sourcing

department is asking for 10-20 percent cheaper. How do you do

that?"

In the charred remains at the site of the fire in an

industrial suburb of Bangladesh's capital, Dhaka, a Reuters

photographer found clothes that were labelled for - among other

big-brand retailers - Wal-Mart, Sears Holdings Inc and

Walt Disney Co.

After the fire, both Wal-Mart and Sears admitted that their

goods were being manufactured at the Tazreen Fashions workshop,

even though both had specifically denied that factory

authorisation as a supplier.

Disney said its records showed that none of its authorised

licensees had manufactured Disney-branded products at the

factory for the past 12 months.

Garment producers in the South Asian country say U.S. and

European buyers haggle with them over every nickel and cent to

keep their costs down, right down to the price of a shirt

button. In turn, the suppliers - operating on wafer-thin margins

- are forced to minimise their own costs and this often means

farming work out to factories that operate on a shoestring.

"Everything has a price," Bangladeshi Commerce Minister

Ghulam Muhammed Quader told Reuters in Dhaka.

"If you want to really give higher wages or really want to

give some sort of other safety standards at a higher level, it

costs some money. So the competitors for getting the orders from

the big brands always try to cut their cost in different ways."

BANGLADESH BOOM

For a long time Western apparel buyers depended heavily on

China to source their products. But labour shortages and

mounting wage pressures prompted them to look elsewhere and

Bangladesh has become - as a 2011 McKinsey report put it - "the

next sourcing hotspot."

There they have found a country that has favourable trade

terms with Europe and, crucially - with the minimum wage for

garment workers under $37 a month - plenty of cheap labour.

Bangladesh's roughly 3,000 factories now account for 80

percent of the country's $24 billion annual exports. The

industry employs 3.6 million people and more than four times

that number are dependent on the sector for their livelihoods.

In short, it has become the economic lifeblood of the

once-impoverished country as it moves up from aid to trade.

Poor working conditions such as overcrowding and even locked

emergency exits, have long been the dark side of this success

story. Rights groups say efforts to address this have often been

thwarted by curbs on union activities that employers and the

government fear could threaten the boom.

In April, a labour activist was found murdered and his body

bore signs of torture. Human Rights Watch said the killing

raised the possibility of government involvement because the man

had previously been detained and tortured by security officials.

Officials dismissed the suggestion.

There have been building collapses and many fires at

Bangladeshi garment factories in the past, although none as

deadly as the blaze at Tazreen Fashions.

Shamoly Akhter, 19, was working on the second floor of the

multi-storey factory building as night fell. She said that, when

a fire alarm started ringing, two supervisors prevented

employees from leaving and told them to return to their work.

"The alarm was ringing continuously and we were struggling

to get out ... but they said it was just a drill," she said at a

Dhaka hospital, where she was being treated for injuries

sustained when she leapt from the burning building.

She said that music playing in the factory was turned to

high volume, apparently to muffle the sound of the alarm.

When finally the workers forced their way to the staircase

they found it was ablaze, thick with smoke because highly

flammable yarn and fabrics stored around exits on the ground

floor had caught fire.

The factory had no external fire-escape stairs so Akhter,

like many of her co-workers, jumped from a window to the ground.

Factory owner Hossain, who was not present when the fire

broke out, said he had never been told by the building's

planners that an outside staircase was necessary.

"You see, there are three staircases so why would we need

another one?" he told Reuters in an interview.

SUBCONTRACTING - "A VERY COMMON PRACTICE"

Hossain is managing director of Tuba Group, which has

several garment factories. One of its units - Tuba Garments

Limited - was recently sub-contracted to produce Wal-Mart

clothes, but the order was diverted to Tazreen Fashions,

according to two industry sources who declined to be named.

Hossain confirmed the order came from a sub-contractor, but

said he had not been told the clothes were for Wal-Mart.

The trouble is that Wal-Mart rated the Tuba Garments factory

as a "yellow" in "ethical sourcing audits," which meant orders

could be placed there, but Tazreen Fashions was not on its list

of authorised factories.

"If somebody cheated ... it is not the fault of Wal-Mart, it

is not the fault of that factory even," said Mohammad Shafiul

Islam, president of the Bangladesh Garment Manufacturers and

Exporters Association. "It is not possible to police everything.

Inspection every single hour, every single moment is not

possible."

Islam said sub-contracting only happens "sometimes," but one

garment manufacturer who asked not to be named said it is "a

very common practice."

"Wal-Mart goes to the lowest bidder so manufacturers have to

work on high volumes, but no one can find enough compliant

factories to fulfill the orders, so they sub-contract," he said.

Sourcing Journal's Hertzman, a veteran of the sourcing world

who pairs retailers and apparel brands with factories in five

Asian countries, said the whole certification process is often

more cosmetic than anything else.

"A lot of times factories find ways to get around these

certifications," he said. "Everything looks kosher on the day of

the audit, but they really are not up to par."

The problem boils down to cost, he added. Manufacturers

commit to ethical behaviour, but they choose countries where

workers are paid comparatively meagre salaries because it saves

them money. Cheaper manufacturing there means cheaper goods on

shelves in the West, which is what consumers ultimately want.

Most Popular in Business