BTS: Thank you for joining us Mark, we know you’re a busy man. We also know you’ve researched working conditions in global supply chains for over two decades. Can you tell us a bit about your research?
MA: Absolutely, thank you for having me.
The first garment factory I ever went into was in El Salvador in 1998. We were doing a tour, talking to workers, talking to management. And as we were touring, the owner came in and I started talking to her. She explained that the minimum wage had just gone up by 10%. So I asked her, ‘what did you do about it’? And she said she called the lead firm that was providing her with her orders – she was making little girls’ dresses at the time – and she told them that she was going have to adjust her prices to reflect the fact that she now had to pay a higher statutory minimum wage. This was important because we now know that about 80% of her overheads were labour costs.
So if they were doing 1000 operations a day, sewing arms or sleeves, they now had to do 1100 to keep their jobs.
So what happens? She calls the lead firm and says ‘I’m sorry I can’t do the job at this price point any more because the minimum wage just went up’. And the lead firm paused for a moment and said, ‘no, you don’t understand, that is the price point. There’s only one question and that question is, “can you do it at this price point?” Because if you can’t, with one or two phone calls we can move this to Haiti’. To which, of course, she responds by quickly saying, ‘No no no, take it easy! I’ll figure out a way to do it at that price point’.
‘So what happened then?’, I asked her. She said she got on the mega-phone and basically told the workers that they had to work 10% faster. So if they were doing 1000 operations a day, sewing arms or sleeves, they now had to do 1100 to keep their jobs. That is the core of the supply chain problem. There are dynamics in the supply chain that start at the top of the chain – how pricing and sourcing is done – and these directly impact labour conditions at the bottom.
BTS: That’s a powerful story Mark, thank you. But can you elaborate a little more on these kinds of lead firm practices and the consequences they have for decent (or more commonly indecent) work in supply chains?
MA: Well there are two fundament dynamics that really matter here – pricing and sourcing. Pricing is about the price paid per unit to make a particular item. Sourcing, while about many things, is crucially about lead time, i.e. how much time you as a supplier are given by the buyer to do the job.
There are two key problems. One is that the price point is always low and it’s getting lower over time. We have data to show this. I was doing some research on it in Bangladesh only a couple of months ago. I had an example of a t-shirt, which two years ago was being made for $2. The factory making it had figured out how to make it and turn a profit at $2. But now, the same factory has been told by the multinational buyer that it has to produce the same t-shirt at the same quality, only for $1.60. That’s the price squeeze. And it goes all the way down to the workers in terms of very low wages.
The lead time issue is about how much time a supplier is given to make whatever they’re being contracted to make. And there are two problems here. One is that the lead time is getting shorter and shorter and the other is that it fluctuates. Let’s say you have a factory that is designed to produce 100 units per month. You don’t have only one buyer firm to sell to as you can’t trust their orders and so collect orders until you’re roughly at your productive capacity of 100. And then, out of nowhere, one of your buyers says: ‘hey, you know we originally said that we needed you to produce this order in two weeks? Well actually we need you to do it in a week, because this particular t-shirt is selling more quickly than we expected. We need to shorten the lead time’.
That’s when you as a supplier factory get into forced overtime. We have masses of evidence on this – I’ve seen it myself all over Asia, and in America. Bosses get on the mega-phone and they say, ‘sorry folks, you can’t go home just yet, you’ve got to stay in the factory until we get this order shipped’. So there’s no stability, no reliability in lead times. And that has an impact.
BTS: What do you think could change this?
MA: The answer begins at the top of the supply chain and will require lead firms being forced to change their practices in a couple of key ways.
First, regarding pricing, we have to start with greater transparency and we have to have sustainable pricing, fair pricing. The prices lead firms pay have to cover at least the cost of a minimum living wage, social security benefits, overtime, the cost of safe buildings, a national tax base that provides something to society at large.
Second, regarding lead time and sourcing, we need lead firms to be forced to ensure stable production practices. Right now, corporations don’t care about stability because they can get away with not doing so. But there has to be a standard on how much notice you as a buyer have to give your supplier before changing the lead times on any given order. We have to have some sort of binding mechanism that ensures that buyers have to stay with suppliers for longer periods of time. In short, we’ve got to get basic rules in place that govern how business is done.
BTS: Are these the kinds of things that you’d like to see included in any forthcoming convention on decent work in supply chains?
MA: Undoubtedly. It’s so important. Thankfully, we’re now on the long road towards a convention, even if we’re nowhere near one yet. But these are the kinds of things that need to be included. Pricing of course is tricky to regulate in a free market. But a convention could demand pricing transparency and we could govern pricing by setting a standard for prices. It’s legitimate for law in a free market to say that the price paid for ‘x’ or ‘y’ has to cover the basic cost of production, of living wages, benefits, and so on.
BTS: What role should ILO play in all this, going forward?
MA: The ILO is critical. It has the decent work agenda, which is becoming a defining element of the organisation. It is ideally positioned to address the issues that supply chains raise, and I’d like to see it at the heart of market governance in the 21st century.