Covid-19 outbreak crisis has greatly shaken up worldwide fashion industry in recent days. Apparel manufacturers & their backward linkage supply chain (raw material producers, service providers, garment manufacturers, shipping agencies, banks etc.) are struggling to survive as billions of dollar worth orders are hold/cancelled/rephased as well as payment blocked or rescheduled by the clients. It is becoming worst with different percentage of discounts applied by buyers on goods ready for shipment. Because of various exisGng set rules / pracGces in the business, manufacturers dont have any bargaining or negoGaGon power to protect themselves from this catastrophe. Recently I have published an arGcle how manufacturers are dragged into such discounts & overall helpless situaGon. Post Covid-19 era will not be same as it is now, and current and exisGng business norms need a complete overhaul. Hence, I have put my thoughts together on what changes must come to establish a sustainable fashion supply chain worldwide:
1. True Partnership: RMG manufacturers surely have competitive disadvantages in current business structure. The most important & desired point is the partnership & trust between the clients and the manufacturers. It is important that the manufacturing side of the supply chain is treated as actual "partners" instead of being pressurized by clients, and the only way is to be stronger together rather than weaker apart.
2. Change in payment terms: In the name of saving bank charges, almost all brand/retailers have stopped working through irrevocable letter of credit which is usually called the Master LC. Instead, they have started the practice of using a Sales Contract or some clients even work through only Purchase Orders both of which has no legal validity. Irrevocable LC on the other hand is the financial instrument used by banks to guarantee a buyer's obligations to a manufacturer. It is irrevocable because the letter of credit cannot be modified unless all parties agree to the modifications. That means if a manufacturer fulfills the terms & condition mentioned in the master LC and deliver the goods on time, the bank of the client is bound to pay the money on time. We must have some changes in existing pay terms as well as in the pay terms for material suppliers which o\en are nominated by the client. Many material suppliers who are nominated by buyers accept only TT in advance or ask for LC at sight. That means the garment manufacturer has to pay the money far before they receive the payment from the client. Hence all raw materials payment must come under one common pay terms which should aligned with the clients pay terms. In the name of Fast Fashion, to reduce lead time from order placement to goods arrived in the high street stores, clients have been practicing delay in LC, even no LC as mentioned above. This has to be stopped and the fashion industry needs to accommodate the required lead time for eliminating such financial risk. There should No Fast fashion without complying & ensuing the financial risk that the manufacturers undergo.
3. Insurance for situations like Covid-19 outbreak: Government may implement a clause that all orders placed in Bangladesh will be under international insurance for any natural cause specially for situations like Covid-19 outbreak. The insurance should cover the cost of raw materials, production overheads and transportation of the delivered goods up to buyers port.
4. BGMEA registration for buyers: All brands & retailers are currently conducting their manufacturing /order placement individually to manufacturers where they have their own and separate terms & conditions and payment rules which the manufacturer is obliged to accept without any room for negotiation. There is absolutely no provision for objecting clients purchasing practices. And moreover, a singly manufacturer is not strong enough to take any legal action individually against a USA/ EU retail giant if any conflict arises. Hence, all brand, retailer, importer working with Bangladesh must come under Bangladesh Garment Manufacturers & Exporters Association (BGMEA) registration process by which we can ensure a combined safeguard structure for the manufacturing community. This should ideally cover: i. Checking clients terms & condiGons, supplier agreement, payment terms etc. ii. Establishing and ensuring compliance of ethical purchasing practice of the clients. iii. Enforcing barrier for manufacturers that no one is allowed to manufacture any goods which dont meet the centrally agreed norms & terms. iv. Handling all legal disputes by central a Legal Cell in case of any conflict.
5. Involvement of Govt. to regulate business: Suggested changes mentioned above shall require involvement of the Govt. to change & enforce relevant practices and rules. A single manufacturer or the association of the manufacturers may not be able to ensure all these changes unless there is a strict & combined national policy. We have been in for fear for last 40 years that the client may leave if we do not comply with whatever their demands. But the Covid-19 situation has illustrated it vividly that this industry may not survive despite of acquiescing clients requirements blindly. Other production hubs around the word like China, Vietnam, Cambodia have set their own examples and rules for the same business. In it is time to step out of our fear zone and formulate a strong national policy.
6. Strong association of manufacturing hubs: Effective & strong association of inter country manufacturers can play a vital role in sharing experience and to set combined effort to keep the supply chain sustainable.
7. Neutral supreme authority: One single supreme authority (like WTO) for setting up the business rules & solving disputes in apparel business worldwide shall be very beneficial for the whole supply chain.