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What Price Fashion? Is it Possible to Create a Labour Costing Model that is Transparent, Workable and Equitable for All?

What Price Fashion? A Labour Costing Model that is Transparent, Workable and Equitable for All?

Professor Doug Miller

‘In all buying, consider first, what condition of existence you cause in the production of what you buy; secondly, whether the sum you have paid is just to the producer, and in due proportion lodged in his hand’ John Ruskin

In an attempt to provoke debate and offer some guidance for retailers re constructing a formula for sustainable labour pricing, this paper asks four key questions;
- How is labour currently costed?
- Is there a relationship between costing and social compliance?
- How can we improve current practice?
- What preconditions are needed to implement a sustainable Labour costing system?

A full copy of Doug’s paper ‘Towards Sustainable Labour costing in the Global Apparel Industry: Some evidence from UK Fashion Retail’ presented at the Textiles Institute Centenary Conference can be found on the right.

Context

The global fashion industry continues to be marred by the payment of poverty wages and wage defaulting in the Asia region in particular. Whilst there has been much research effort to define a ‘living wage’, little attention has been paid to the issue of how this might be achieved in a multi-buyer make to order environment. The challenge for all stakeholders in this respect was thrown down by Neil Kearney, the late General Secretary of the Global Union for Textile Clothing and Footwear workers:

“A sustainable system would see the employer being responsible for the payment of a living wage and the buyer being responsible for making the payment of a living wage a contractual obligation, paying prices that enable the supplier to fulfil that obligation, and supporting suppliers in bearing the risk of paying higher wages for instance by providing greater stability in orders.”

(ITGLWF response to Transfer’s proposal to pilot Fair Trade Certified apparel for the US market. 4.2.2009)

In considering how we might pay prices which enable a supplier to fulfil a living wage obligation we began by examining sourcing behaviour and in particular the negotiation of a manufacturing price (CMT cost) between buyers and suppliers. We discovered from a preliminary literature trawl and survey of UK high street fashion retailers that buyers neither accurately determine the labour cost nor itemise this separately in their commercial price negotiations with their suppliers.

Why is this?

The Buyer Perspective

In the hey-day of branded manufacturing, companies developed their own in house industrial engineering expertise to calculate labour cost. Three approaches emerged to determine a ‘standard time’ for assembling a garment: – bespoke time study, historical estimates, and what is known as PTS or pre-determined time standards. All three forms of work measurement normally made provision for relaxation, contingency and an opportunity to earn bonus, particularly in factories where incentive schemes were negotiated by trade unions. This kind of costing model provided protection not only for the employee but also for those in charge of manufacturing and production.

As international outsourcing has increased however, and new retailers and supermarkets have entered the global apparel market, they have been ill equipped to incorporate the complexity of production processes and prevailing local conditions in their costing practice. As a result, more emphasis has been placed on negotiating key brand differentiators such as fabric with an overall ‘ball park’ manufacturing figure having to satisfy wages, overhead and factory profit. Understandably, in many factories of the world, wages have been at the bottom rather than the top of the priority list.

The Supplier Perspective

The General Secretary of the Garment Manufacturers of Cambodia (GMAC) succinctly summarises the suppliers’ perspective:

''The buyers nowadays come to us with the specifications of the garments they want produced.......what generally happens is that the factories are given a CUT, Make and Trim (CMT) price as a lump sum value and the factories are left to manage it as they like. In this case, there is some haggling and negotiations about providing a longer standard time in order to get a higher CMT price.

In most cases however, there is just a negotiation to obtain a higher CMT price without much reference to the standard times. We are left to manage our own costs and the buyers generally adopt a take it or leave it attitude when it comes to the price they provide to us.''

Consequently, suppliers may end up selling to a buyer at a cost that is later found to be unachievable, resulting in either a reduced wage bill or profit margin or both and an unachievable delivery schedule based on the existing available capacity.

This in turn can lead to low wages and excessive overtime – the former to protect reduced profit, the latter to ensure that delivery is made on time, regardless of the social consequences of long working hours. Others will have the work undertaken in another factory –a move likely to constitute a breach of the commercial contract or code of conduct provision.

What We Did

Having identified this gap in sourcing behaviour by a literature review and a survey of Corporate Social Responsibility Staff from 7 leading UK high street fashion companies, we had our hypothesis confirmed in a range of interviews with former fashion buyers and representatives of manufacturers in supplier countries.

We then approached General Sewing Data - a leading consultancy with a global reputation in labour costing methodology for a set of quantitative data on basic fashion items.

This data formed the basis for constructing a labour costing model which might be used to assist buyers to cost a living wage in the price they pay to their suppliers.

Using the example of a five pocket western style jean made in Cambodia, and data from the work undertaken in Cambodia by Nathan Associates and Werner International (2007), we have calculated the additional living wage cost, allowing for factory efficiency on a consignment of jeans.

We then discussed the implications of implementing such a model on buying practice and on factory production management and explored the range of options open to buyers for financing such a marginal increase.

Who will benefit

If such a labour cost can be ring fenced in commercial contracts and paid into a dedicated wage fund then this could offer some protection against the twin evils of poverty wage and wage defaulting. Workers will thus be the prime beneficiaries providing they are allowed to organise to negotiate how these increases will translate into the pay packet.

Manufacturers will also benefit because they will be forced to address the issue of factory efficiency.

Buyers will benefit if they can make the system work to bring their code of conduct wage aspirations into line with reality, and thereby enhance their reputations vis a vis the consumer.

Impact

For such an approach to work, strategic partnerships between buyers and their suppliers are going to be crucial, involving a high degree of transparency and openness between sourcing companies and their suppliers, However, progressing this model is dependent on removing the blind spot in relation to freedom of association and collective bargaining which continues to exist across much of the industry.

It is hoped that further development and trial implementation of this model will lead to wage improvements in the developing world and a removal of the democratic deficit which continues to exist in substantial parts of the fashion supply chain today.

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