Ten Keys for Responsible Purchasing Practices

We don’t always think of our purchasing decisions in world political terms, but sourcing managers sometimes have to.

          With Responsible Purchasing Practices (RPP) we have a tool for acknowledging that how we spend our footwear and apparel dollars can have both positive and negative effects on faraway families, communities, and suppliers.  Striving to create positive change through dollars spent is a useful way of understanding RPP, and every ethically focused organization can wield its power in supply chain and sourcing decisions.

RPP plays a dynamic role in a supplier-buyer relationship.  Within the compliance departments of every major brand and retailer, managers and executives are faced with requests to improve factory worker conditions – often at the same time their buyers are placing orders that are in direct conflict with these requests.  

International legal and regulatory requirements specific to our industry are at an all-time high and rising, and once again the pressure of risk is on the brand and retailer – and ultimately, on suppliers as well.  Remember it is the supplier who must demonstrate and document that fair working conditions are being met. This administrative factor has also energized RPP and corporate compliance departments, which face a multitude of new regulations enacted worldwide to ensure fair working conditions in the supply chain. These include the Dutch Child Labor Due Diligence act of 2019, along with France’s Corporate Duty of Vigilance standard, the UK’s Modern Slavery Act, and the California Transparency in the Supply Chains Act.

As sourcing strategists, we are asked to consider the United Nations Guiding Principles on Business and Human Rights (UNGPs), which stresses the importance of acting on Human Rights Assessments findings … “across relevant internal functions and processes with Brands.” If purchasers fail to consider how their buying decisions might interfere with a supplier’s ability to comply with labor rights standards … “the enterprise risks contributing to adverse human rights impact.” *** Guidance from the Organization for Economic Co-operation and Development (OECD3) highlights how to perform due diligence in responsible supply chains.  Its Approval section recommends that businesses … “implement control measures to prevent contributing to harm through their purchasing practices”.

Brands and even small labels and importers must comply with a blizzard of requirements within this regulatory framework, formal and informal.

Responsible purchasing means purchasing in a way that enables positive change for the supplier and workers, so that every part of the supply chain benefits.  RPP requires a trusting, direct, and honest relationship between buyers and suppliers to negotiate transparently and share risks equally.

Conventional Purchasing Practices – such as aggressive price negotiation, inaccurate forecasting, late orders, short lead times, and last-minute changes ­– put suppliers under intense pressure, and may lead directly to poor factory conditions and low pay for workers.

With RPP we encourage suppliers to be transparent, and part of this is informing and educating buyers about operating constraints and their big challenges, including political ones (for example, Myanmar).  As well, an understanding of cultural norms between buyers and suppliers will help to create open dialogue and clear communications.

Here are 10 keys to help support an open dialogue between suppliers and buyers.  Using this approach can help improve purchasing practices, on-time delivery rates and working conditions in your supply chain.

1/ Contract – Make sure a supplier-buyer contract is in place and includes agreements on the company’s ethical standards.

2/ Payment Terms – Buyers are moving more and more to extended payment terms. Through contract negotiation, make sure all parties understand any extended terms, and be transparent that costing will factor any carry costs of financing.

3/ Integrated Scorecard – Most brands have a scorecard by which suppliers are measured. Request a balanced scorecard and be sure it includes all performance metrics including ethical practices.

4/ Costing Process – Transparent costing promotes ethical costing. By providing cost breakdowns that include yields, wastage, CIF, SAMs, and minute rates, both suppliers and buyers have tools they need to negotiate fair pricing.

5/ Product Development Specifications – Accurate and detailed specifications, or “tech packs”, support strategic resource planning.  During the product development phase, suppliers rely on tech packs to raise any concerns or questions and thereby ensure all products are developed for ease in manufacturing.

6/ Adoption Rate – Monitor and discuss adoption rates for new styles and ensure that embedded costs to develop seasonally are adequate.

7/ Go-To-Market Calendar – Most buyers follow a calendar that defines timelines and delivery dates etc.  This calendar should be published so all suppliers understand the cadence of the development and bulk process. This is a great tool that puts the spotlight on late approvals and changes and promotes solutions for orders that fall out of calendar deadlines.

8/ Sourcing Allocations – Before a season begins, publish the final list of styles allocated to each supplier.  This step allows for the detailed planning of development resources going forward.

9/ Capacity Forecast – For planning purposes, compare your supplier’s stated capacity alongside your corresponding seasonal forecast. Discussing any anticipated forecast variations at this time alerts the supplier, who can then plan accordingly.

10/ Lead Times – Confirming adequate lead times is an essential step that supports on-time manufacturing.  Inevitably new orders are placed outside of agreed-upon lead times.  Therefore, it’s best to discuss options in advance. Solutions here may include delaying some orders to pull others ahead, overtime, and subcontracting.

          Planning and executing a profitable sourcing strategy have never been more challenging. The right tools, such as these 10 keys, can help a lot – along with an understanding of global politics.   

*** - https://business-humanrights.org/en/un-guiding-principles