Can there be fair rules for the ‘purchasing practices’ game?

I’ve just been debating what, if any, rules exist around company purchasing practices at the annual OECD Forum on Due Diligence in the Garment and Footwear Sector in Paris, writes Martin Buttle, ETI’s Apparel and Textiles Lead in this long-form blog post.

As part of two days of discussions, the OECD’s annual garment trade forum debated recent progress in the commercially sensitive area of purchasing practices.

We participated in the debate, which also included ACT, ILO, ITKIB (Istanbul Garment & Textiles Exporters Association), Flamingo Fashions (DBL Group) and Better Buying.

I make no apologies for saying that this was a serious, heavyweight conversation on an issue of huge importance to suppliers and their workers. And of course to buyers.

Companies, in particular, should therefore find the following summary and recommendations – or should I say potential rules – useful.

But to begin with, I want to set the scene with a quote and a reference to a blog post.

First, the quote from ex-Hungarian world champion fencer, Jenő Kamuti, President of sport’s International Fair Play Committee.

"Fair play gives sport the character of beauty. Fair play is a common language, the cement of sports that is capable of gathering together the whole sports world. There are many champions, but the champion of champions is the one who trains, competes and lives in the spirit of fair play." 

Now, read our recent blog on Arcadia to find out about an incidence of what we regard as “unfair play” in the business environment – Arcadia’s unilateral decision to pay its suppliers 2% less on both existing and future orders.

Joint ETI/ILO purchasing practices survey

Our OECD discussion started with Daniel Vaughn-Whitehead from the ILO presenting findings from last year’s joint ETI/ILO survey on purchasing practices.

Contributed to by Ethical Trading Initiatives of Denmark, Norway and the UK, this clearly summarised the links between poor purchasing in global value chains and the ability of suppliers to uphold good labour standards.

The ILO’s accompanying research paper is here, but I want to draw attention to three key points that buyers need to address urgently:

• Unwritten contracts are usually more difficult to enforce and may lead to serious consequences, including financial losses, performance issues and also lack of job security for workers (yet in Bangladesh, for example, 38% of suppliers said they had unwritten contracts).
• Only 17% of suppliers considered their orders to have enough lead time; the majority reported that more than 30 to 50% of their orders had insufficient lead times. Worryingly, lead times are getting shorter and suppliers must produce more rapidly, which they increasingly do by resorting to overtime, casual labour or outsourcing of production in order to meet deadlines.
• Price is one of the most important criteria for buyers, who, according to many suppliers impose extreme pressure on suppliers’ price quotes. Significantly, 39% of suppliers reported having accepted orders where the price did not allow them to cover their production costs. In the apparel and textiles sector (my area of expertise) this outcome is reported by 52% of suppliers.

As speakers from Turkey and Bangladesh attested, these have very real impacts on suppliers’ businesses and their ability to invest in good labour and environmental standards.

Turkish suppliers back up findings

Turkey, in particular, is a fast fashion hub where its ability to produce fashion quickly is part of its USP.

As part of ETI’s Turkey platform we have a working group on purchasing practices, which is chaired by ITKIB. Its Ahmet Şişman shared the outcome of a survey of their members, which charted the top 10 purchasing practice “asks” of buyers from suppliers in Turkey:

• Provide sufficient details about the technical specifications of the product to the exporter (supplier) in the product development and design phase.
• Improve communication in the sampling phase.
• Share cost structures through open-cost calculations.
• Be careful to guarantee and not change payment terms.
• Reward good practice in terms of ethical trade.
• Set out longer term contracts with suppliers and treat them like long-term partners.
• Stop changing production quality and quantity specifications after order placement; And…
• In relation to the above, do not place any cost difference on the exporter.

Additionally, although it is not often referenced, changing technical specifications such as the colour of a garment late in the production cycle can cause environmental damage if dyehouses have to re-dye fabrics, as was shared by Zahid Ullah, Head of Sustainability of Flamingo Fashions Limited.

ETI’s practical guidebook

My role in the discussion was to talk about our Guide to Buying Responsibly, published by the Joint ETIs of Denmark, Norway and the UK.

Launched last year, this combines the business case for buying responsibly with practical steps to create an enabling environment for better purchasing practices through the procurement cycle.

Supported by the joint ETI/ILO survey findings, expert insights and case studies, the guide is intended as a toolkit of practical ideas and step-by-step actions for achieving best practice.

While it focuses predominantly on manufacturing supply chains, our guidance also shares many practices that are applicable for all sectors.

A key recommendation is the creation of a buyer code of conduct to mirror the more normal supplier code of conduct.

A Buyer Code of Conduct would be a mutually agreed code with clear obligations for both parties, which could be integrated into contractual agreements and clearly define which buyer behaviours would support quality and productivity, as well as how suppliers can promote good working conditions.

By agreeing and implementing supplier-buyer codes of conduct, buyers stand to strengthen global supply chains and improve the wellbeing of millions of people whose livelihoods depend on them.

Better Buying: understanding the supplier perspective

The panellists emphasised the need to hear clearly and respond to the concerns of suppliers.

Marsha Dickson of Better Buying spoke about the Better Buying model – a tool for suppliers to anonymously rate their buyers.

This model has been developed after long consultation with suppliers.

Better Buying is coming through its first rating cycle – Marsha Dickson reflected that Better Buying is about better working conditions, but it is also about better business.

Increasingly Better Buying, Marsha said, is having a different tone of discussion with CEOs and decision makers.

ACT on living wages

ACT is a collaborative effort to support living wages in the garment supply chain by reinforcing industry-wide collective bargaining underpinned by brand purchasing practices commitments.

In the last year ACT has moved forward significantly and what they’re doing is important.

Under its purchasing practices workstream, ACT has developed a Purchasing Practices Self-Assessment tool (PPSA covering 64 different aspects of purchasing practices in 16 areas). It has been completed by 833 respondents from 14 brand and has helped ACT to identify and analyse the common weak purchasing practices in the industry.  

Frank Hoffer and Christina Hajagos-Clausen from ACT revealed the six purchasing practices commitments that ACT brands will have to deliver on to support the living wage initiative:

• Make pilot countries a preferred destination for sourcing and investment for a defined period of time.
• Exclude unfair competition by transitioning towards exclusive sourcing from suppliers/manufacturers in pilot countries that implement the living wage strategy based on industry wide collective bargaining.
• Based on the purchasing practice self-assessment and the feedback from suppliers, change purchasing practices that are an obstacle for suppliers to move towards a living wage.
• Brands and suppliers should ensure their purchasing practices support long-term partnerships with manufacturers which enable and reward their progress to paying a living wage.
• Brands must agree to incorporate the higher wages as a cost item in their purchasing practices calculations.
• ACT members (brands and trade unions) will work with governments to promote the idea that the full respect for freedom of association and the implementation of a living wage is supported through different government policies.

Fair rules for the game

So why did I mention sport’s Fair Play Initiative at the start of this blog?

At the end of the debate, Frank Hoffer made the following point in regards to purchasing practices.

“For too long we have expected brands to play fair in a world without rules, what we need is to transition to a world where there are agreed fair rules for the game.”

It is encouraging that the OECD Due Diligence Guidance for responsible supply chains in the garment sector, launched last year, has been endorsed by business, trade unions and civil society.

In that guidance, the OECD made clear that purchasing practices are a key element of effective due diligence and businesses must prevent contribution to harm.

And that they should do this through buying responsibly.

Hopefully we are all at last in the process of creating fair rules for the purchasing practices game.

Download our Guide to Buying Responsibly outlining the five key business practices that influence wages and working conditions.