AMSTERDAM – 13 global textile industry bodies have published a new white paper setting out minimum commercial standards they expect from fashion brands and retailers.
The paper comes in the wake of ongoing frustration by garment suppliers in sourcing hubs such as Bangladesh, Indonesia, China and Turkey that buyers are continually squeezing them on price. This issue came to a head during the cancelled orders crisis of 2020 when many suppliers took a huge financial hit.
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The new paper was published by the STAR Network, the International Apparel Federation (IAF) and the Better Buying Institute, and supported by GIZ FABRIC. The Star Network consists of 13 industry associations from nine countries facing similar challenges regarding purchasing practices in the textile and garment industry.
In the paper, they point out that the buyer-supplier relationship remains firmly stacked in favour of retailers. The paper outlines in detail some of the issues this power imbalance creates. These include:
– Manufacturers effectively finance the business of buyers for many months due to huge delays in payment and long lead times
– Quality and lead time shortcomings are often misused in order to reduce or avoid payments by buyers
– The mindset of buyers is that they set the terms, while all resulting costs and risks, even if caused by the buyer or by buyer-designated material suppliers, are to be covered by the supplier
– Frequent revision of terms occur after an order has been negotiated. Even when an agreement to do so is formally made bilaterally, the power relations in the supply chain are such that in practice, most changes to terms are made unilaterally by the buyer
– Contracts are not precise enough, contracts are too one-sided, contract terms are ignored by buyers.
– Buyers define contractual relations, but adhere to them loosely, and only when the terms remain in their favour
– Increasing the level of services to buyers does not generally command better prices.
The white paper attempts to set out a ‘line in the sand’ in terms of core principles around purchasing practices which suppliers do not want to see breached by fashion brands. It also suggests ways in which manufacturers might collaborate to apply commercial compliance in the apparel sourcing business.
The white paper also establishes commercial compliance as a leading principle for the manufacturer’s perspective on the improvement of purchasing practices. STTI defines commercial compliance as “purchasing practices that do not cause obvious and avoidable harm to manufacturers.”
In addition, the white paper lists ‘key recommendations’, defining what purchasing practices manufacturers consider to be breaches of their definition of commercial compliance.
“The associations participating in the initiative recognise that the breaches of these key recommendations seriously impair their ability to run a commercially viable business, let alone to contribute to stronger and more sustainable supply chains,” said a statement from the Star Network.
The new white paper also contains a research agenda aimed at finding out how purchasing practices can adhere to commercial compliance and be further improved while “maintaining the flexibility and commercial independence that is to the advantage of both buyers and suppliers, as well as their customers and workers.”
A phase 2 of the initiative is set to start within weeks. In this phase, two major and interconnected approaches will emerge. The initiative will seek structural dialogue with buying brands and retailers and some of the MSIs in which they participate on the inclusion of the concept commercial compliance in purchasing practices codes. Secondly, the initiative will aid the creation of a system of improved transparency regarding commercial compliance.