Supply Excellence — The Gap: Corporate Grinch or Globalization Victim?

The Gap: Corporate Grinch or Globalization Victim?

October 31st, 2007 · by Tim Minahan · No Comments · LCCS and trade, best practices, supplier management, supply management, supply risk

Earlier this year I questioned the viability of The Gap’s (RED) Program, which nobly donated a portion of profits for certain products to fund vaccinations against AIDS, tuberculosis, and malaria in poverty-stricken regions of the globe. (The Gap even doubled-down on its charitable actions by sourcing the cotton for these products from local farms in Africa.) Unfortunately, the hip retailer misjudged the level of premium consumers would pay for socially or environmentally responsible products. The result: dramatic markdowns on its (RED) product line and lower profits and, subsequently lower funding to this charitable cause.

The Gap found itself in another imbroglio this week when news broke that some of its Christmas line was manufactured using Indian children as young as 10 years old putting in 16-hour shifts in unsavory working conditions for little or no pay. (SpendMatters blogmaster Jason Busch beat me to the punch on this issue. But the real hat tip goes to CNN, which interrupted my lunch with the news.)

News of Gap’s use of child labor may be surprising, but not fully unexpected. I’ve had the opportunity to witness The Gap’s supplier vetting and performance management activities in the past. The company was ahead of the market in its use of fair-labor and sustainable criteria when evaluating suppliers. It also was an early adopter of supplier performance management software to monitor ongoing supplier actions and performance. And its supply chain team has 90 people dedicated to doing supplier audits and relationship management in-country around the globe.

This current mishap is an unfortunate risk inherent in globally distributed and outsourced supply chains. As it expands into emerging markets, the Western world will need to come to grips with the fact that practices like youth labor and kickbacks are widely accepted business practices in certain areas of Asia and the Southern Hemisphere. (Just consider the challenges of getting your cargo shipped in tact from Brazil if you don’t have local agents and an open wallet.)

That’s not to say that supply managers should condone such behavior. Nor should they turn a blind (or winked) eye to it. Instead, they should do exactly what The Gap and other retailers have done: thoroughly evaluate supplier capabilities and labor and environmental practices — including assessing the practices of their sub-tier suppliers. And ruthlessly monitor the supply chain for any changes in performance or ethics.

To its credit, The Gap has done just that. Case in point: in 2006, the retailer ceased business with 23 factories around the globe due to labor and working conditions violations. And it will continue to do so, as its cancellation of business this week with the Indian vendor at the center of this recent issue.

Purchasing and supply chain leaders have a responsibility not only to drive bottom line cost savings; but to do so ethically. As globalization grows, we can expect to hear more of stories of social and environmental abuses in the supply chain rather than fewer — in large part because of the diligence of supply managers uncovering — and correcting — fair trade and labor practices violations among emerging market suppliers.

In your role as global supply chain leader, you are the wards of ethical business practices. And not just for nobility sake. But because it makes good business sense. (The brand damage alone of a mishap like The Gap’s or KMart’s before it should be motivation enough to do so.)

And, while it may currently seem impossible to get repressed economies to adopt an ethical approach to business, consider this: during the Industrial Revolution, stories about horrid working conditions and child labor were written about factories in the United States. (And anyone that has picked up a Charles Dickens novel knows that working conditions in the U.K. weren’t much better.) In this new era of globalization, the U.S. and Western Europe have the opportunity raise both economic and ethical standards in emerging markets through continued business and unwavering scrutiny of social and environmentally responsible practices in those regions.

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