Commercial compliance within the apparel industry has been getting some attention lately and at the apex of these efforts is the Purchase Order. The PO represents a binding trade agreement between apparel buyer and seller. A buyer’s mistreatment of purchase orders to benefit their revolving business plans can devastate the supplier. When production alternatives and suppliers exhaust or misuse engineering options, manufacturing and overhead costs rise. And when costs rise, margins are eroded to the point where completing an order may require more resources than planned, sometimes forcing the supplier to operate at a loss.

The pandemic caused supplier pressures to mount as buyers faced unprecedented hardships, closed stores, and shuttered supply chains. People were forced to quarantine against infections. Any resemblance of commercial compliance was challenged, tested, and often failed. Industry and its allies took notice as this crisis grew, and factories were forced to reconcile with whatever the future had in store.

Many were inundated with cancelled orders regardless of the production stage. Branded products intact with proprietary designs and trademarks in cartons ready to ship, all with proper marking and purchase order numbers, were left for dead and unaccounted for in factory warehouses at the suppliers’ expense.

Human rights groups, non-government organisations, and industry groups of all categories became aware of these commercial compliance injustices. Many already understood some of the impacts of the industry’s poor commercial compliance record. As a result, multi-stakeholder groups were formed to study the problem and develop solutions.

The Better Buying Institute’s latest impact for apparel

The Better Buying Institute, co-founded by two industry pioneers, Dr. Marsha Dickson, a Dr. Irma Ayers professor of human services, fashion and apparel studies at The University of Delaware, and Mr. Doug Chan of The Cahn Group, recognised the need for major improvements in apparel and footwear purchasing practices over eight years ago.

Better Buying surveys suppliers worldwide, carefully measuring and documenting purchasing practices and their impact on preventing respect for workers’ rights.

Better Buying’s latest effort is a “streamlined” survey called the Better Buying Purchasing Practices Index (BBPPI). One of the pillars of the work Better Buying has done was to prove that poor purchasing practices do have a direct influence on non-compliances in the factories. Issues like occupational health and safety, excessive overtime, low wage payments, and even forced labour have increased when commercial compliance is not part of the “business partnership.”

Two years ago, another commercial compliance initiative, the Sustainable Terms of Trade Initiative (STTI) with its far-reaching stakeholder group, revised the terms called “Commercial Compliance Standards”.

STTI defines commercial compliance as the common understanding of purchasing practices that do not cause evident and avoidable harm to manufacturers and do not block manufacturers’ ability to meet objectives for sustainable business.

The STTI comprises industry expert stakeholders with a thorough representation of organisations and associations. This carefully crafted initiative calls for guidelines and contractual agreements regarding human rights within commercial compliance.

The STTI members are the International Apparel Federation, Star Network, and yes, the Better Buying Institute, GIZ Fabric, and 15 well-known industry associations from 11 manufacturing countries, including China, Vietnam, Cambodia, Myanmar, Bangladesh, India, Pakistan, Turkey, Egypt, and Morocco.

A third organisation called The Center for Corporate Law and Governance at Rutgers Law School in New Jersey is home to “The Responsible Contracting Project”. They aim to improve human rights in global supply chains through innovative contracting practices. Their goal is to embed three core principles, Human Rights Due Diligence, Buyer’s Responsibilities, and Remediation into every supply chain contract. In addition, they developed the Responsible Contracting Tools Kit to assist companies in including the missing human rights-related obligations in their commercial agreements.

The practical side of commercial compliance solutions

There is a practical side and other considerations in this context of commercial compliance solutions. The supplier’s perspective is vast. They are willing to make changes when it comes to purchase orders. They want to be part of the solutions, but how, sometimes escapes them. Some need basic and best practice instruction.
“Alleviating the pressures buyers are putting on suppliers can’t wait while management systems are put into place – it requires much more urgent action to actually change buyer purchasing practices right now,” says Dickson.

One industry group acting faster than most is the denim industry’s own “Kingpins Show”, launched in 2004 by its founder and denim expert, Andrew Olah. Kingpins is a member only global industry trade show and forum for everything indigo.

“Kingpins cares about its members” as quoted from its website. Kingpins offers progressive and inspiring ideas and educational seminars during the shows sharing sustainability, compliance and new developments in the indigo industry.

Simultaneously during the Kingpins Shows, the sustainability group, Transformers Foundation (originally founded by a few Kingpins board members), will hold educational workshops and panel discussions about the most up-to-date news and emerging development like ESG compliance in denim suppliers.

Originally founded in 2014, the Transformers Foundation became the unified voice of denim initiatives supporting ethics and sustainable innovation. In 2020, Transformers Foundation released a groundbreaking report called “Ending Unethical Brand and Retailer Behavior: The Denim Supply Chain Speaks Up” which is a well written and an organised practical industry guide to better commercial compliance.
One of the many prescriptions from the report was the formation of the “Ethical Principles for Purchasing of Jeans & Denim.” The principles embody honesty and transparency, empathy, promise-keeping and trustworthiness, loyalty, fairness, reputation and morale, accountability, and respect. Better Buying, together with many other contributors, was a major contributor to the report.

How to help apparel suppliers from the inside

Transformers and Better Buying have made proactive recommendations for suppliers to act. Helping suppliers from the inside. Since the report, Better Buying and Transformers Foundation have been intimately involved in developing supplier framework solutions. Their unique perspective allows them to understand challenges in assisting suppliers to help themselves. Step by step recommendations and more pre-emptive actions by the supplier are part of their supplier independence strengthening exercises and customer management structures.
A responsible and transparent social compliance programme embedded in proper management and best practices requires skills. We must recognise suppliers who can manage change and others who get it but have difficulties practicing what they have learned. These are the suppliers that need extra understanding and care. Dealing with alternative ways to improve some of their business inadequacies and address their frustrations with more challenging solutions.

Giving suppliers a voice beyond their factory walls is a significant proactive solution. Of course, they are naturally obligated to respect human rights, yet some suppliers are better at it than others and should be checked regularly. Many suppliers even go above and beyond their responsibilities and provide their workers with opportunities to improve their lives through education, work opportunities, and family improvement activities. But there is more work to do across the trade table.
Capacity planning is a monumental challenge and one of the many reasons why there are order complications. Transformers Foundation says: “Overcapacity means suppliers take on unethical and distressed clients.” This can create devastating complicated problems for the manufacturer of the orders.

Apparel buyers and suppliers must work together

Buyers and suppliers must work carefully together to ensure that production orders are within the production factory’s capacity. The buyers are given a category sum of production to fill during a specified time frame, usually monthly. This information is rarely accurate due to suppliers overfilling production space to capture every minute of potential business. Buyers may need a significant volume of orders to produce in less time. They must push for more capacity in a shorter time frame. The planning pressures are from all sides. Transparency in sharing accurate capacity data honestly in real time is necessary, or it will continue to cause commercial compliance failures in many ways.

When capacity pressures lead to delivery problems, often the supplier must cut operating costs and take shortcuts to avoid negative margins. In many cases, overtime work increases, along with workers’ hourly or daily work quotas. At the same time, their pay decreases as they struggle to meet their higher quotas. The piece rate is a wage payment system in which workers get paid by the number of units produced for a fixed pay rate, usually amounting to the local minimum wage. Seniority workers may get more. For years and years, workers struggled to meet their quotas by staying past required overtime and “finishing” their work on their own time. In addition to compromised human rights, the product suffers too. Product quality issues often arise in a chaotic run of excessive production.

The pendulum swings both ways. Everything points to the finished goods factory. In another direction, commercial compliance obligations must be recognised by buyers in their product design calendars and merchandising plans. Additionally, product assortments must carefully consider seasonally consistent products to allow suppliers to operate more efficiently with the right balance of production on the factory floor.

How to do better – put fairness and respect first

Contracts, agreements, and surveys expose honesty, loyalty, and transparency as solutions to fair and ethical commercial compliance. Efforts need to start now. It’s time to start conversations with your suppliers openly and toward a mutual understanding of the issues and the challenges to work together to improve them. There’s no “elephant in the room” anymore, and the “cat’s out of the bag.” Let’s put fairness and respect first as we work together to improve our collective commercial behaviour and treat “business partners” as partners. “We can do better,” declares Transformers Foundation.

By Just Style