The Ethical Trading Initiative (ETI) has stepped in to remind international buyers and retailers to honour their commitments to garment factories in Asia and elsewhere. ETI and German Partnership for Sustainable Textiles (Textilbuendnis) have issued Covid-19 guidance for member brands, including non-cancellation of orders. The guidance explicitly states that such practices fall well below standards expected by their members.
According to ETI Executive Director, Peter McAllister, “Any brands which are saying they are not going to pay for products just because they cannot use them would be contravening our guidance.”
Textilbündnis told brands they should pay for already produced goods “as well as goods that are currently being produced or for which material has already been purchased.”
The guidance was released to ETI members last week and ETI is monitoring the response of its member companies. During these testing times it remains vital that business plays a full role and that companies are transparent about the measures they are taking to minimise the impact of the crisis on workers in their supply chain. McAllister further stated, “ETI understands that many brands are facing huge challenges throughout their supply chains and within their own business during this period.
Equally, we know that many suppliers and manufacturers are feeling the impact and will also be concerned with business continuity, however, in the long run, we all depend on each other and ultimately, workers.
Therefore, we expect that when difficult decisions are taken, the impact upon workers and suppliers is fully assessed and action is taken in collaboration to minimise this as much as possible.”
He said, “We will be monitoring the response from our members and we will want to see evidence that they are doing their utmost to mitigate the impact on workers, not just during the worst of the crisis, but in the medium to long-term too. Workers are in a desperate situation at the moment, and they need our solidarity and support more than ever.” ETI anticipates that there will be three main scenarios when orders may need to be cancelled, and has issued guidance under each scenario:
Future orders where no costs have been incurred by suppliers or factories
It is reasonable to cancel these orders without any further obligation, but ETI suggests there should be dialogue with suppliers about post-Coronavirus orders and support to retain capacity where possible. Ideally this could include a commitment to return with a commensurate order in future.
Ongoing orders where some costs have already been incurred, but more would be expected with a continuation
Here, ETI suggest members to have an inclusive dialogue with suppliers to fully assess the costs incurred so far with the aim of agreeing a reasonable way to share them. For work already completed, salaries need to be paid in full by suppliers and for members to work hard to minimise the ongoing impact upon workers who will already be facing difficult circumstances.
This will mean understanding the capacity of the factories to support their workforce and making extra efforts where necessary and possible. While there may be some brands that can accommodate this individually, ETI is working with others to seek sector-level support for immediate emergency assistance.
Completed orders with full costs already allocated
Payment for completed orders should be honoured and within reasonable time. Brands should consider early payment and not withhold payments to suppliers as workers need money for medication, food or to survive periods of isolation. Brands should also avoid using Force Majeure provisions in contracts for economic reasons or summarily terminating contracts.
Brands have been asked to work with their suppliers to ensure workers continue to receive salary payments to bridge the time of technical unemployment and work with suppliers to ensure that workers receive compensation packages in line with national and international standards.
Social insurance, health protections and unemployment funds
Peter McAllister continues, “This crisis has demonstrated more powerfully than ever the need for a long-term sector-wide improvement programme to establish permanent protections for workers in sourcing countries. These must include employment injury, paid sick leave and unemployment benefits. We understand ILO and Better Work are leading on this and we are keen to support their leadership on this initiative.”
He said that ETI will work with other MSIs, trade unions and industry organisations to develop a practical programme involving international financial institutions such as the World Bank Group and International Monetary Fund.
Guidelines are being flouted
The new COVID-19 guidelines are however being flouted by members, Primark and C&A – both of which risk being expelled. The pair are under fire for refusing to honour cancelled orders with suppliers, many of which are partly complete or ready to ship. According to experts, “Expulsion for C&A from either body would leave Laudes Foundation – previously C&A Foundation – in an embarrassing situation. The body was set up just this year to inspire industry to harness its power for good.”
The Better Buying issues good purchasing practice guidelines
The Better Buying Initiative has also issued guidelines for retailers and brands for partnering with suppliers during these times. The Better Buying initiative, established in 2018, provides clear, relevant, transparent, and timely information and analysis about good purchasing practices that will change relationships between multinational brands and retailers (buyers), the suppliers responsible for manufacturing their products, and other intermediaries up and down supply chains.
Better Buying is a unique system for suppliers to communicate with their buyers about purchasing practices that are working well and those that need improvement, without risking their business relationship.
Better Buying allows suppliers to anonym Better Buying has published guidelines based on surveys and discussions with suppliers about the challenges they are facing in relation to Covid-19.
Retailers and brands are called on to communicate closely with their suppliers, and to address the challenges together in order to ensure mutual benefit and shared responsibility. The guidelines look at what retailers and brands can do both in the immediate term, and during the recovery period.
Short-Term Crisis Management: Supporting Supplier Cash Flow
- Collaborate in true partnership with your suppliers;
- Secure the cash your company needs in order to cover its contractual obligations, including accounts payable with suppliers;
- Discuss with suppliers their financial health and whether they have the cash/liquidity necessary to retain workforce for at least three months;
- Accept and pay all existing purchase orders for goods that have been shipped, are ready or in progress, or are cut. Do not resort to outright cancelations
- Rationalise current assortment plans and reconfigure orders to continue producing viable products.
- Engage suppliers to manufacture masks and other needed personal protective equipment for workers on the front lines
- Extend delivery dates/accept shipping delays, as necessary
- Pay a portion of orders that have not been cut and future orders that are affected by changes in volume, have delayed shipping deadlines, or are on hold
And during the recovery period
- Keep human rights/sustainability/ compliance staff intact to support recovery that is socially, economically, and environmentally sustainable
- Work closely with suppliers to plan and secure capacity needed and provide updated forecast
- Obtain the cash necessary to pay upfront or upon delivery for new orders
- Work closely with suppliers to plan needed development and production time and time-and-action (TNA) calendars allowing mutually agreed shipping deadlines. Expect and accommodate transportation delays
- Closely coordinate with nominated raw materials and other suppliers to align lead times, deliveries, and payment terms with Tier 1 suppliers’ needs
- Make efficiency a high priority in corporate operations and day-to-day business with suppliers
- It is to be noted that these are only guidances and guidelines that brands and retailers need to voluntarily follow to accept shared responsibility.
Brands, retailers, suppliers must work together
The world’s readymade garment manufacturing industry has sustained retail operations of global brands for the past century.
When governments declared lockdown for societies due to health and safety reasons, global brands’ had to close down retail stores all around the world. As a result of losses in sales, volume and revenue, brands then turned to their suppliers with a number of defensive measures which have severely harmed the garment manufacturing industry in Asia, Europe, South America and elsewhere.
A large number of brands declared to the manufacturers that there will be no future orders until further notice. This will oblige manufacturers to cover labour and overhead costs on their own for an indeterminate period of time. Some brands called for the suspension of production in the pipeline and yet in some rare cases, solicited discounts or cancellations for goods that are in the pipeline.
Lastly, some brands request an extension on the payment terms for shipped goods that are on their way to distribution centres or already in the stores.
A halt in high volume production at the beginning of the season means that large quantity orders are creating massive inventories for the factories. Along with the inventory cost, manufacturers bear full liability for materials nominated by brands on their own, which constitutes an existential threat to companies most of which operate within one-digit margins.
If brands do not help their suppliers finance the minimum liabilities, suppliers will not be able pay their employees’ salaries and secure their livelihood. Retail businesses firmly uphold workers’ rights at all times and claim integrity, trust, commitment and sustainability to be sine qua non for their operations.
Failing to recognise, own and act on their own share of responsibility would mean contradicting their established core corporate values. Advocating workers’ rights, and sustainability would become mere buzz words. Manufacturers acknowledge the difficulties faced by retailers in trying to retain their liquidity needed to keep them afloat.
As long as the requested delay time is reasonable, manufacturers may bridge the gap by benefiting from relief programmes or monetary funds provided by the various governments. Global brands should do the same and benefit from loans pledged by their own governments of European and American countries.
This crisis presents an opportunity for retail businesses and manufacturers to reinforce their dialogue, and continue to communicate with mutual respect and understanding to maintain a healthy and sustainable supply chain.
However, if some retailers and brands prioritise short-term gains at the expense of other stakeholders in the supply chain, the word “sustainability” loses its credibility as the guiding principle for them and becomes an empty promise for the next generations.
Businesses should remember that once the pandemic is over, they will be looking for long-term strategic partnerships that are kept intact; and true partnerships are those that yield long term benefits for decades to come.