What is a Supply Chain?

The global supply chain of a “simple” white cotton t-shirt. 

This includes:

  •     what is a global supply chain
  •     what is supply chain management
  •     ethical issues in supply chain management
  •     clothing companies with ethical supply chains
  •     the benefits of an ethical supply chain

We’re going to use the production of simple white t-shirt as an example to help illustrate how a supply chain works and how complicated they can be. Production of a simple white t-shirt often spans the globe, with numerous companies and potentially hundreds of workers involved in the process. This process of production is known as the supply chain: the steps – and the network of individuals, organisations, resources, activities and technology – that bring a product to the consumer. 

 

Infographic: supply chain

The “simple” cotton T-shirt

Like the infographic, this article uses the pathway of a cotton t-shirt from field to shelf, to show how complex supply chains often are.

For a cotton t-shirt the supply chain begins with a farmer, in this example, in India as is often the case,. India, the world’s largest producer of cotton, is estimated to grow 6,205,000 metric tonnes each year.

The farmer will plant their seeds between March and May and harvest the cotton in November. Cotton is grown by a mixture of big plantations and smallholder farmers. Big plantations rely on a hired workers, including additional, seasonal labour at harvest time; whilst smallholders rely mainly on family members, but also other members of the community, occasionally hire some extra hands but often labour using exchanges. Once the cotton has been grown and harvested, it is sold in wholesale markets.

Next the cotton is purchased by retailers, who will take it to a ginning and pressing mill to be processed. Here, the cotton will be removed from its pods, and turned into cotton lint for shipment overseas.

Cotton exporters will transport it to China, where it is again sold on and passed between spinners, to dyers and then to weavers to be turned into fabric. By this stage, the cotton is ready to be sewn into garments for wearing.

This t-shirt is going to be tailored in Bangladesh, so fabric exporters will again ship the material overseas where it will be purchased for use in factories. About 10% of the UK’s clothing is imported from Bangladesh each year.

Even these garment factories are often not owned by the t-shirt brand itself, which will instead contract local suppliers to make the different designs. Tailors will sew the garment following specifications sent by the t-shirt brand. This stage determines the ‘Made in’ label – so the t-shirt will say ‘Made in Bangladesh’. Then it is shipped for sale in the UK.

This account is a linear version of a supply chain – from cotton field to shelf – but the reality is of course far more complex. Big companies won’t just use a single person or supplier at each stage: multiple cotton farmers will grow the raw material that the cotton spinner turns into yarn; just as multiple spinners will provide the yarn for weaving into fabric.

In fact, the explanation given above hasn’t even considered the non-cotton elements of the t-shirt’s design: for example, the origin of the dyes or the thread that are also part of its production. Or all the inputs that are used, for example to grow the cotton, such as pesticides or fertilizers and their supply chains. It is usually more accurate then to think of a supply pyramid than a chain, with multiple elements, people and locations contributing to a final product.

While the brand that we recognise is responsible for sale and design, they may not oversea any of the production themselves. Each stage can be outsourced to other companies known as their suppliers.

What is supply chain management?

The oversight that companies themselves have in terms of their supply chain will vary greatly. Some will have spoken to every supplier involved, from the smallholder farmer to those that sew the products. Others will just collect the finished garment from the contracted factory, never knowing where the fabric, let alone the cotton came from.

Due diligence is possible and there are lots of measures that companies can put in place to monitor their suppliers, this monitoring of supply chains is know as supply chain management. Companies can write fair treatment of workers into supplier contracts. They can ensure that those in their supply chains are able to complain if treated poorly. They can work with a multitude of unions and NGOs to establish best practice and make sure that this is monitored in the factories and work places that they rely on.

These measures are what our Supply Chain Management rating assesses, in terms of workers’ rights. For every company we look at:

  • supply chain policy, and whether it covers six basic human rights criteria: prohibition of child and forced labour; respect for freedom of association; no tolerance of discrimination; and an expectation for reasonable working hours and payment of a living wage.

  • stakeholder engagement: whether the company has an adequate system in place for ethical complaints; whether it works with NGOs and other independent parties for verification of audits; and whether it is a member of a multi-stakeholder initiative tackling workers rights.

  • auditing and reporting: whether the company has a plan for checking its factories and whether it pays for and publishes the results from such checks.

  • difficult issues: whether it acknowledges and tackles high risks in terms of workers’ rights in its supply chain, for example countries where unionisation is illegal, suppliers that employ outworkers, and the possibility of audit fraud.

Small companies (turning over under £10.3 million a year) that have other clear measures to protect workers’ rights in place – for example where all products carry the Fairtrade or organic label – also receive our best rating for Supply Chain Management.

The best companies are already taking responsibility for their supply chain in these ways.

Ethical Consumer would like to see companies do more in two key areas of supply chain management:

  • Transparency – reporting by companies of issues found within supply chain
  • Collaboration by companies to address issues – i.e. by joining multi-stakeholder initiatives
Image: Fairtrade Know the Origin
Know the Origin's production process is completely transparent.

Ethical Issues in supply chain management

Abuses can happen at any point within the supply chain or pyramid. Deforestation might occur in the process of clearing cotton plantations, pollution from toxic chemicals during the dying process, or forced labour in the factories making the finished product.

The brand profits from, funds and relies on this supply chain. But because it outsources so many of the processes required, it stands at a remove from the abuses that they too often involve.

For this reason, supply chains often only become public once forced into the lime light by disaster.

For example Primark was forced to publicly discuss its links with the Rana Plaza complex in 2012, after its suppliers’ factory collapsed.

There can also be problems with supply chain management policies the fact that they don’t necessarily translate into change on the ground for workers. For instance:

a) companies have different definitions of workers’ rights therefore suppliers are expected to adhere to different standards

b) Audit fraud can take place if companies don’t keep on top of things

c) lack of action by companies to actually achieve standards set in their code of conduct. For example we know that garment workers are not paid a living wage therefore just because a company states they want suppliers to do this doesn’t mean it happens

d) country laws and regulations can conflict with policies – especially with regard to freedom of association

Image: Rana Plaza
Rana Plaza factory collapse

Companies with ethical supply chains

Companies that score Ethical Consumer’s best rating for Supply Chain Management in the ethical and high street clothing guides:

Alternative clothing shops:

Know the Origin, Earthmonk, Beyond Retro, MUD, Greenfibres, Where does it come from?, Kuyichi, People Tree, Thought, Cock and Bull, Fashion-Conscience.com, Living Crafts Clothing, Outsider, Rapanui, Nudie, Annie, Greenabelle, Komodo, Nomads, Brothers We Stand

High street clothing shop:

ASOS, H&M, Uniqlo, Burton, Dorothy Perkins, Evans, Miss Selfridge, Outfit, Topshop, Topman, Wallis, Pull & Bear, Whistles, Zara, Marks & Spencer, New Look, Next, Primark

Image: cotton production know the origin
Credit: Know the Origin

What are the benefits of an ethical supply chain?

Ethical supply chains work for people and the environment in two basic ways.

A company with an ethical supply chain will choose suppliers that respect the environment and their employees and reward suppliers pursuing good practice and incentivise others to do so.

On the other hand if a violation is found. Companies often wield a huge amount of economic power. So by making it clear they will not buy from those abusing workers’ or environmental rights, they can force reform within a sector and prevent the disaster from happening again.

Suppliers can no longer afford to allow a disaster such as serious pollution, deforestation or a factory fire, if they risk losing customers. So they will ensure greater due diligence and care.

Benefits of an ethical supply chain for workers

In many countries, national laws protecting workers’ rights are very weak: much weaker than international human rights laws or conventions demand. Child labour from the age of 14 is in some places permitted, unionisation banned, or certain forms of bonded labour allowed. Even when suppliers are actually breaking the law, many governments lack either resources or the impetus to enforce penalties.

For workers, then, ethical supply chains are not just beneficial but vital. At the very minimum, they protect human rights. At their most effective, they incentivise suppliers to go beyond the baseline: for example providing child care, paying a decent wage, or giving education and training.

Image: Know the Origin

Benefits of an ethical supply chain for the environment

The same principle applies in terms of the environment. Many practices that cause serious environmental harm are legal or the authorities will turn a blind eye. But ethical supply chains alter the economic incentives. They make environmentally unsustainable practice economically unsustainable too. For example: if companies with ethical supply chains all selected green energy suppliers, coal and oil companies would increasingly lose out. The fossil fuel industry would become unviable.

More effective ethical supply chains will again go above and beyond this. They will disincentivise processes that put a long-term strain on the natural world, such as the ongoing use of agrochemicals.

This pressure can have a ripple down effect: if companies ask suppliers to have ethical supply chains too, respect for workers’ rights and the environment will spread through the pyramid as a whole.

How companies benefit from an ethical supply chain

But it is not only the environment and workers that win. Aside from the ethical obligation not to fund abuses, companies themselves can benefit.

It is increasingly normal for companies to consider ethical and reputational ‘risk’ in financial projections for the following year. This shows that abuses in a supply chain come with a real financial cost. If NGOs or national press discover problems in a company’s supply chain, that company can take a real hit. Ethical supply chains protect companies from losing their reputation in this way, and all of the customers and profit that go with it.

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