24 Years. Since January 1996.
Supply chain vendor compliance should apply to ALL supply chain vendors.
The 2013 Rana Plaza tragedy where 1,100 factory workers – mostly women – perished in a building collapse, woke the world to the realities of the garment industry: the apparel goods that we purchase are manufactured in crowded, questionably unsafe buildings using very low-paid labor in sometimes inhumane conditions.
According to a NY Times article in the March 2, 2020 expanded digital edition of the Miami Herald, 4.5M people work in 4500 garment factories in Bangladesh alone. This averages to 1,000 people per factory, nearly matching the disaster count of Rana Plaza which is considered to the deadliest in the history of the garment industry.
What happened in Rana Plaza forced popular Western retailers and brands to confront the safety violations in their supply chains. (Sadly, it took human death to bring the ongoing suffering to light, but isn’t this typically the case?) The result was that factory owners were forced to improve building structures, better the electrical systems, install fire extinguishers, implement sprinkler systems, and ensure unimpeded access to working fire safety exit doors.
But there is something of a dichotomy afoot here, as there are diametrically opposed forces at work: there are the factory owners who are rich and powerful and politically connected, and there are the Western brands who are conscious of their reputations in the views of consumers. Unfortunately, the health and safety of millions of garment workers are caught in the middle.
Before the Rana Plaza disaster, factory safety compliance was essentially performed like the fox watching the hen house: either the Western brand or the factory owner themselves were self-monitoring. Poor treatment and worker deaths were commonplace but otherwise considered to be in the course of business.
After the Rana Plaza disaster, and the visibility it received, two agreements on safety were put in place: the Accord on Fire and Building Safety in Bangladesh (mostly for European brands) and the Alliance for Bangladesh Worker Safety (mostly for American retailers and brands). Both were set in place in 2013 and established for 5-year terms. Independently funded safety monitors were used and were effective in improving factory conditions.
As these accords wind down, the Bangladesh government – with the powerful garment factory owners pushing from behind and within – do not want continued outside interference or influence in safety monitoring: they want to do this themselves.
One issue is that safety compliance costs money. With outside competition from other countries such as Ethiopia, Bangladesh garment factory owners are feeling the pressure to keep costs low to remain competitive. Over 1,100 factories in Bangladesh are behind schedule in safety remediation efforts, and 45% of factories still lack adequate fire alarm systems.
Proposed building codes for Bangladesh would eliminate automatic fire alarms and allow the use of fire extinguishers instead of installed sprinkler systems. The American alliance group mentioned above has disbanded.
US retailers have done – and continue to do – a formidable job of penalizing vendors within their reach on multiple myriad of supply chain vendor compliance infractions from the small to the large. But when it comes to the other supply chain vendors that they own and are responsible for, retailers look away. So much for their lofty value statements and claims of ethics and principles. Bah!
Companies have responsibilities for their supply chains, and this includes their suppliers’ suppliers. Retailer vendor compliance manuals regularly state prohibitions against child labor use by their vendors, but I guess when it comes to their own supply chains it is a slippery slope for safety violations and inhumane conditions.
American and European brands have the power to do better and still keep prices of their over-priced merchandise affordable. It comes down to planning, limiting buys, setting consumer expectations, and establishing price points that make goods fly off the shelves.
Vendor compliance should apply equally, uniformly, and fairly to ALL supply chain vendors. Ethics, morals, values, and principles should apply to all supply chain partners and participants, buyer and seller alike.
Coronavirus fallout: Who do you trust now?
The coronavirus pandemic has certainly upended and inverted some of the even most nuanced traditional and run-of-the-mill aspects of our lives. But according to a Los Angeles Times article in the May 6, 2020 digital edition of the Miami Herald, it has apparently also shifted the balance when it comes to who we trust: corporate CEOs versus government.
Per the article, according to Edelman, a communications firm, trust in CEOs has fallen from approximately 50% to the current level of 29%. Almost 75% of respondents supported government restrictions on movement as a response to the coronavirus crisis, and 61% of respondents were willing to disclose personal health and location data to support virus spread containment.
Edelman’s annual survey was conducted between April 15, 2020 and April 23, 2020. The survey gathered answers from 13,200 respondents across 11 countries, including the United States.
Here at home (the United States) we have seen examples of corporations behaving badly and receiving a good amount of public backlash for it. Notably, corporations with solid market capital who were caught taking stimulus package paycheck protection funds – a.k.a. taxpayer dollars – were shamed into returning those monies. Loopholes were exploited, and the perpetrators were caught.
Or, in other words, just because something is legal to do does not equate to that something being ethical to do.
Corporations – and governments – are not mindless, soulless automatons. Corporations are legal entities and governments are public organizations that are both led by people who can – we assume and hope – think and feel and rationalize.
It is both amazing and regrettable that certain people have found their way – by luck, by favor – into positions of leadership but fail to make good decisions that inspire trust and confidence and yet still empower executive execution. These are not mutually exclusive but are actually mutually beneficial.
Some of these bad-acting companies – notably the sports franchises – will not suffer much if any harm for their greedy money grab. Other companies may find that public memories are not as short as they would like when it comes to consumer choice as the economy opens back up and shoppers decide who is deserving of their business.
Behavior starts at the top, the “tone” of the enterprise as it is known for those of you familiar with COSO’s good governance aspects, is guided by the actions of its leaders who are people, and defines the culture of the organization.
It is just one aspect, albeit perhaps the most important, of how an organization executes, and is a contributing factor in determination of its overall success or failure.
How will the coronavirus pandemic change retail floor-ready requirements?
As retailers get ready for their resurgent reopening this month after being shuttered due to the coronavirus, there are many questions, few answers, and still more mysteries. My own thoughts drifted towards how retailers were going to handle the floor-ready requirements and if any changes were going to be implemented through their supply chains.
Retail floor-ready requirements define the mandates a vendor must follow to ensure that the goods shipped are prepared, packaged, and ready to be placed on the sales floor upon carton opening. From proper pinning to hangar specifications to tag requirements to polybags to minimal fill material, retailers require vendors to remove any impediments in going from carton to floor, and want to minimize any waste for their inventory and sales staff to take the time to clean up.
I know all of this from my 25+ years of supply chain vendor compliance experience and my four years as the supply chain consultant to the retail industry trade association. The latest hangar specification I could find released by GS1US dated March 2017 is 57 pages long: that’s a lot of pages just to describe hangars and their use, but the retail industry is quite specific on this subject. The most recent guideline document for floor-ready requirements by GS1US is dated March 2018 and is 88 pages in length, with many of the pages containing multiple drawing examples of where item tags should be placed on various merchandise. Again, the retail industry is fairly detailed when it comes to the topic of floor-readiness.
Will retailers have vendors shift merchandise on hangars to polybags for protection? Possibly, because shoppers might be reluctant to purchase a garment that has been hanging in the air and exposed to the environment and people touching it, regardless of whether or not a shopper knew that it had never been fully tried-on before. Or conversely, if the coronavirus is more resilient on poly-plastic then fabric, would there be a shift away from bagged apparel? Either would require vendors to reconfigure their operations at the final stages and invest in new equipment and supplies. Given that this would mostly affect apparel vendors and that most apparel is manufactured overseas, this would certainly take time to ramp up, involve expenses no one wants to incur, and one wonders what is to be done with the merchandise already in the stores right now.
(However, shoppers at grocery stores buy fruits and vegetables seemingly with no problem, picking through the piles of edibles and selecting the ones they want knowing full well that other shoppers before them have done the same thing. Why garment and footwear shoppers would be fussier than fruit and vegetable shoppers would be an intriguing study. Is there a difference, real or imaginary, between picking through a pile and the contact made in trying on clothing and footwear?)
If shoppers are concerned about coronavirus-contaminated goods, will simply returning merchandise to the sales floor a day or so after someone has tried the items on be enough to satisfy customer concerns? Should garments that have been tried-on be labeled as such? Will retailers attempt to discourage trying on clothes to minimize in-store write-offs? Can retailers perform a sanitation process on tried-on apparel and footwear without damaging the goods that will safely return them to be available for sale with consumer confidence?
Or, will retailers just seek to consider these goods damaged and enforce the damaged goods clauses of vendor compliance contracts, which typically have 5% deduction limits? The truth is that this contract clause should only be used for when the goods are actually received in a damaged state and the damage is caused by the vendor (e.g. manufacturer or distributor) and not by the retailer’s transportation partner or the retailer’s distribution system or the retailer’s store staff or customers, but it is too often abused by retailers to the detriment of the vendors.
If retailers do enforce different or more stringent floor ready requirements upon their vendors, how will this added cost burden by the vendors be absorbed, and by who? Will retailers permit price hikes and ask consumers to pay more in the name of safety and greater confidence in their stores and merchandise? Or will vendors’ profit margins be squeezed even tighter, potentially putting some of them at risk of failure themselves?
No doubt there is a lot of uncertainty as stores begin opening up, welcoming back customers, and retail supply chains begin back into motion. I think that Jamie Nordstrom, president of stores for Nordstrom, said it best in a May 13, 2020 New York Times article reprinted in the digital edition of the Miami Herald: “We have this idea of what it’s going to look like when we open the doors. We’ll be wrong about half of it.”
Is it conventional – or unconventional – wisdom that will remake retail?
In his September 2019 DC Velocity Outbound editorial, Group Editorial Director Mitch MacDonald states that the retail apocalypse of 2017 slowed down in 2018. 2019 saw some brick-and-mortar stores open and traditional players thrive where, as he writes, there seems to be a survival-of-the-fittest scenario playing out. Clearly, some retailers are getting it while others are not.
Mr. MacDonald then cites a “recent” International Council of Shopping Centers (ICSC) study that produced the following output: Millennials (those now between the ages of 23 and 38) prefer to shop online, but Generation Z (those now between the ages of 7 and 22) prefer to shop in a physical store. The ICSC study statistics are that 75% of Gen Z respondents prefer to shop in a physical versus online store because of the ability to socialize, touch-and-feel the items, and immediately acquire the items.
To me this seems all well and good on the surface: Generation Z is apparently the savior of brick-and-mortar retail. But are they really?
My take on this is that it is the savvy retailers who have pulled it together and have found a way to attract buyers back into their stores are the ones who deserve the credit here. I think it took a generation – Millennials – for retailers to struggle to find their way, and thus those caught in the wave were likely conditioned to shop online versus had any incentive to go into a store.
I have long been writing about the draconian vendor compliance programs by retailers that can inhibit innovative products from reaching consumers. Poorly constructed and implemented vendor compliance programs are the real cause of supply chain disruptions and lack of inventory visibility. It is incumbent upon the retailer, not the vendor, to lead the way. Certainly, one failure of the omnichannel environment was treating brick-and-mortar differently and separately from online. If retailers have learned anything, it is that these two business models should have been treated as one.
Even back in 1993 when I first entered the realm of retail supply chain vendor compliance, I was mastering both B2B fulfillment and B2C drop-ship. Nothing has really changed other than the means by which things are done, e.g. the proliferation of the smartphone.
Likewise, just as back when I was a kid, we went to a department store for everything, from concert tickets to auto repair to eye glasses to … you name it. Retailers are now re-learning that they have to give shoppers a reason – an experience – to walk in to their stores aside from just item shopping.
I am not convinced that the ICSC conclusions are completely correct. I think that the retail apocalypse was a wake-up call to retailers and shopping malls that shoppers need an experience to enter a physical location. And part of this experience is the need to be presented with new and exciting merchandise on a regular basis. This is where vendor compliance cannot stand in the way. Vendors want to sell their products, and will find the path of least resistance (and cost) to do so. For the retailer that can break away from the traditional trappings and see clear to truly collaborate with its current and potential vendors for brick-and-mortar and online, it should do more than just survive, it should certainly succeed.
Causing versus Predicting future events with incorrect information.
As part of his December 19, 1973 show opening monologue, famous late-night host and comedian Johnny Carson rattled off the following line: “You know, we’ve got all sorts of shortages these days. But have you heard the latest? I’m not kidding. I saw it in the papers. There’s an acute shortage of…of toilet paper!”
Though a comedian, to Carson’s 20 million television viewers, he also had credibility. And because of his dual-reputation, over the course of the following days, the country experienced a toilet paper shortage as legions of his fans bought up loads of toilet paper and news of the buying spree hit the newspapers, going viral.
Carson’s December 19, 1973 show was just before the holiday break, during which time Carson would realize the unfolding panic his joke would cause. It was not until after the holiday break and Carson was back on the air that he would issue an apology for causing the ensuing chaos that his pre-holiday show monologue joke resulted in.
The use of an enterprise’s data is evolving from its hindsight perspective (“what happened?”) to its insight perspective (“what is happening?”) to its potential to predict what may happen (“what is going to occur?”).
However, if information does not have at its foundation accurate data with complete integrity, instead of foretelling what might occur, a future forecast could actually cause a disaster and negatively impact a company and its stakeholders.
Upcoming technologies like blockchain and artificial intelligence (A.I.) have lots of promise and great potential. But they both rely on solid foundations of accurate data, even more so than the technologies of today like ERP and EDI where we still accept human intervention along the operational pathway and when something goes amiss with the data.
If enterprises are going to place their trust in emerging technologies like blockchain, AI, and ERP 4.0, then the foundational technologies – most notably ERP 3.0 which is what current day companies are (or should be) running – need to have spotlessly clean data with buttoned‑up integrity and granular governance.
Because for those of you who think that your job is tough now due to data issues, adding emerging technologies on top of questionable data and gap-infested software implementations and integrations will only exemplify and amplify already existing problems. And how would you know that it was a problem if you are so willing to trust the technology?
Implementing advanced technology also requires additional checks-and-balances to be in place to ensure that information integrity exists, and that these “intelligent” systems of the future are making subjectively the right decisions in the best interest of the enterprise at the right time the decision is being made.
If not, your next decision might be the result of trusting a questionably reliable source’s recommendation to buy lots of toilet paper, and causing a panic purchase for no good reason.
Sometimes, oftentimes, you can over-tech a solution.
An interesting article in the January 8, 2020 edition of the Miami Herald digital edition which pulls in content from other McClatchy publications.
It seems that farmers in the US Midwest are ditching newer and pricier software-laden tractors for 1970s series John Deere models, but not because of the nostalgia factor that might have been one’s first guess.
Modern-day tractors can cost approximately $150,000 to $250,000 and are fully software-driven. As such, if these tractors break down in the field, the farmer is unable to fix them because it now takes a software engineer, not just a mechanic, to get these machines working again. Instead of the farmer being able to fix them themselves or have their own mechanic perform the maintenance, the farmer is left to the whim of an expensive (e.g. $150 per hour) technician who must fly in and service the tractor that is left to side idle, for who knows how long, where it broke down. The farmer’s productivity is left idle also, and this is an added cost burden.
The old “iron horse” tractors can be retrofitted with automatic steering and can be run on biofuels to reduce their carbon footprint. So, between the lower starting cost and lower maintenance, the farmer is saving money by reducing their reliance on technology, at least when it comes to the traditional tractor.
(Farmers are certainly benefiting from modern technologies like satellite imaging and drones.)
The point here is that sometimes, too much technology over-complicates a solution.
Supply chains rely on 40-year-old technologies to move the goods we purchase and use every day. The ubiquitous linear barcode and Electronic Data Interchange (EDI) are the backbone technologies of retail, grocery, pharmaceutical, medical products, and other supply chains. Integrated to a company’s Enterprise Resource Planning (ERP) system, another tried-and-true technology that is several decades old, these three technologies are the foundation that comprise what a company requires to engage in business within a supply chain driven industry. With well-run operations and good data governance, and a quality-based sellable product, the company has a good chance of success.
Before your company even thinks about blockchain or artificial intelligence, can it get ERP and EDI done right? And how happy are you with the quality of your data?
But unfortunately, companies that toss too much technology into the picture, or unproven technology on top of a shaky foundation, cause chaos because they forget that technology is supposed to be a tool to solve a business problem. If technology is the decision leader, the project likely has the wrong perspective and the business problem will not be properly solved. Or worse, the business problem may very well become exaggerated and the users exasperated.
The technology perspective is an important one, but it should not be the only one, or I would submit, the leading one, when it comes to solving business problems.
Functionality, business capability, needs to be considered first-and-foremost.
Just as these smart Midwest farmers discovered, building upon a tried-and-true foundation provided the best return on investment. Companies need to consider what their business problems are and how best to solve them without getting caught up, and potentially trapped, in the latest technologies hitting the market.
Retailers have algorithms, not altruisms.
With the holiday season still in our recent memories, I can still play on the theme a bit for my February newsletter.
In which make-believe fantasy are you more ready to believe in: that a jolly old man in a big red suit with a fluffy beard delivers holiday gifts in a sleigh pulled by eight flying reindeer, or that retailers – whether they be online or brick-and-mortar – actually feel empathy and sympathy for their vendors?
Newsletter readers: the safe and secure fantasy to bet on between the two is that Santa Claus is alive and well and delivering holiday gifts, including yours, regardless of religious background or belief.
Returning back to last month’s January 2020 newsletter, there was something else about that consumer product company that I had been helping last year which I wanted to mention.
A belief among the management staff related to the financial penalties (chargebacks) the company was – and in all likelihood still are – receiving is that retailers have some kind of altruism when it comes to waiving the financial penalties that they assess for supply chain disruptions. I don’t really know where my client has come up with this fantastical idea, but I had repeatedly stated (and proved) to the management there that this is not the case. For whatever reasons retailers waive financial penalties – e.g. if overall purchase order performance is above a certain percentage, such as 90% or 95% – it is not out of outright altruism.
Retailers deploy cryptic, competitively sensitive, and often rarely understood (even by their own employees) software and algorithms in their role as judge, jury, and executioner of their vendors’ performance. Rarely, if ever, acknowledging their own flaws or possibility of error, retailers assume vendor guilt before innocence in stark contrast to a foundation concept of the US legal system’s innocent until proven guilty.
Vendors bear the burden of not just getting it right the first time, but ensuring that they have and retain the operational and technical evidence to prove themselves right in the retailer’s kangaroo court of vendor compliance when the chargebacks come.
The end-of-the-year holidays are a time to believe in a lot of things: goodwill towards all; that the following year will be better than the current one; that we will stick to our resolutions.
But believing that retailers are – or ever have been – as fair to their vendors as they are to their customers is just a pure fantasy. I have been on the vendor side of supply chain vendor compliance since 1993. If there is one thing I do believe (or rather, know) – and this is backed up by industry statistics – it is that the relationship between retailers and vendors can and should be better. But it is the retailers who need to be the leaders and start by treating their vendors as if they were truly as valuable as their customers. Until that happens, the real collaboration that is supposed to exist between these two necessary supply chain entities is just going to be a fairy tale.
For those of you who want more detail, please download the peer-reviewed, statistics‑supported journal article I wrote from my vendor compliance web site at:
Complacency causes chargebacks.
This newsletter could also have been titled my 2019 year in review.
I spent all of last year assisting a consumer product company in digging its way out of a $1,000,000 – that’s one million dollars – hole it had found itself in at the end of 2018.
The company had amassed this million-dollar damage from a single customer – its largest – in supply chain vendor compliance chargebacks. (So, its overall total chargebacks in 2018 were greater than $1M.) Notably, in retail, but also in other industries like pharmaceutical and medical products, chargebacks are assessed when vendors/sellers fail to comply with operational and technical requirements mandated by a customer/buyer organization.
I happen to be an expert on these matters with experience dating back to 1993, and having authored the first and only book on supply chain vendor compliance in 2015. So, the company knew they were getting a uniquely qualified expert to help them out of their situation when they brought me in to help.
Using deep data analysis, conversations and collaboration with their contract manufacturers, defining performance metrics, and examination of their order processing and Electronic Data Interchange (EDI) software systems which sometimes included reviewing program code, as the year went on the technical and operational gaps that were left open to allow the monetary losses were eventually discovered and, for the most part, closed.
But how did this all happen in the first place?
The company got to where it found itself at the end of 2018 due to its own complacency.
Its strength in a stable staff is also a weakness in that no new ideas, no appropriate expertise, and no modern management styles are being brought in. As such, while the world changed around it over the past 15 years, the company remained stagnant in its methodologies and mindsets.
Its aging order processing and EDI software systems should have been fully replaced a decade ago and are still being patched today. As I have witnessed at other companies, people actually become emotionally attached to software systems, or they develop political agendas and use software applications that they control as pawns in their destructive schemes.
The company lacks a true supply chain perspective. There is no apparent, let alone effective, comprehensive supply chain strategy or collaborative conversations on supply chain that I am aware of. Not until I started consulting there and developed customer performance trends and contract manufacturer metrics had anyone at the company done so previously.
Vendor companies cannot rest on their laurels and believe that their customers will not seek business elsewhere from non-disruptive vendors or continue to bury vendor compliance chargebacks in the cost of goods sold or some other general ledger account.
For the vendor companies like this one that have truly yet to pull back the shades and realize that the world outside has changed, it is past time but it is, hopefully, not too late. For other vendor companies out there struggling to make sense of your customers’ requirements, make a New Year’s resolution to get the help you need now before compliance chargebacks gobble up your profits like hungry relatives at a holiday feast.