Green apparel, lead-free toys, biodegradable packaging, conflict-free diamond jewelry and recycled paper products are just some of the demands that consumers are putting on the brands that they admire. According to public information supplied by the U.S. Consumer Product Safety Commission, (USCPSC), in one month alone a whopping 3.5 million units of products were recalled due to quality issues. The items ranged from stepstools, toys, casseroles and other products sold at reputable retailers such as Target and Macy’s. To top this, every other day, we hear about retailers being investigated by consumer bodies for their products being produced in sweat shops in third world countries under inhuman conditions.
This is a situation like never before; the pull from consumers for high-quality products produced under better social and environmental compliance standards is making brands re-think the ways in which they do their business. Reducing cost is not the only objective now, being quality conscious and socially compliant has also assumed a greater importance in the last decade in the retail industry. In fact, today, some companies have taken the route of being socially responsible and leaders in quality as a potent differentiation strategy in the marketplace. The ability to provide consumers with products certified for quality, environmental sustainability and free from child or forced labor is a certain advantage. Suppliers who believe in green initiatives and robust quality systems are being lured by brands that leverage such initiatives for marketing their brands to gain higher consumer acceptance.
Today, brands are interested in real results from the products they develop and sell and are not complacent with just a public image of their company being seen as “green”. In his book, “The Wal-Mart Effect,” Charles Fishman describes a seemingly trivial decision by Wal-Mart to get rid of cardboard boxes used to keep deodorant bottles that ultimately changed the world. Every box used to cost a nickel and added to that were the costs of shipping the boxes and putting the deodorant bottles inside. The consumer would take out the deodorant bottle and throw away the packaging. But this action of removing the packaging saved millions of trees, stopped the manufacturing of acres of cardboard only to be discarded by users and reduced landfills of approximately one billion deodorant boxes each year. This saving of $10 million across the United States due to one small decision taken by Wal-Mart more than a decade ago might have gone unnoticed by consumers but the change and the savings are recurrent and permanent for the world’s environment and the whole population.
Retail, footwear and apparel
The roots of quality and socio-environmental compliance lie in the choice of the consumer. Not driven by “needs” but by “wants,” the preference for high-quality merchandise that is sourced “the right way” becomes even more pronounced in the retail, footwear and apparel (RFA) industry. The consumer demands quality goods produced by ethical means, the brands have to endorse it as their business strategy and the suppliers are left with no choice but to conform to the standards set by their clients.
With the information age we live in, this equation is becoming more and more powerful and potent by the day.
The needs of quality and compliance for consumers, brands and suppliers of products in the RFA industry are interrelated and work as push-and-pull forces as shown in Figure 1. Consumers are becoming increasingly aware of the quality, environmental and social aspects of the RFA trade and they demand action from retailers in return for their loyalty to the brands. Brands in the RFA industry represent to a great extent what an individual stands for—a person’s self image, hopes and aspirations, belief systems and overall place in the world. The level of emotional connect is high with the brands they wear and they see themselves as endorsing the actions of what their favorite brand does in the marketplace. Hence, if a brand is seen as engaging in unethical practices or overlooking quality parameters, consumers not only shun the brand but also turn to activism to bring positive changes in the retailer’s or brand’s business operations. This level of “ownership” is not seen in consumers of home appliances or commodities.
Realizing the above phenomenon, brands react to the consumers’ actions in many ways, foremost they demand the same from their supplier base manufacturing the products that they sell. To gain favor from their markets, brands also see quality and compliance as an opportunity for differentiated positioning in comparison with their competition. In business parlance referred to as the triple bottom-line—economic, social and environmental—becoming green or adherence to the highest standards of quality have finally started making commercial sense to corporations. The interesting thing is that we have seen this trend being led by the brands and retailers in the RFA segment.
Suppliers, on the other hand, are dependant on the marketers or distributors of their goods and so they do not have a choice when it comes to adhering to quality and compliance norms created by brands. A RFA retailer or brand does not consider a supplier as a long-term partner if commitment to quality and compliance certification is compromised. Even after getting them on board, noncompliance to standards leads to suppliers being dropped from the retailer’s active list. A positive outcome of the above is that those suppliers who are seen as capable, clean and green not only get additional business from a diverse client base but are also able to command a premium in pricing. To a large extent, this has helped in consolidation of the manufacturing bases for RFA retailers – those who caught the trend and responded survived and grew while the others simply succumbed to the pressures of low margins, economic downturns and shifting competitive advantage.
Development of quality and compliance
Retailers such as Target, Gap, Tommy Hilfiger, Marks & Spencer, H & M, Timberland and others are forging long-term strategic partnerships with suppliers who not only have robust compliance systems but who also have their internal quality systems in place. This, in their view, reduces the risk to business for all stakeholders in the value chain right from design to recycle. The quality and compliance paradigm has multiple facets in the RFA business as listed in Figure 2.
Any quality or compliance program has standards keeping the end result in mind and thus outlines the deliverables that brands and suppliers have to execute in tandem. While the quality standards are based on the product being manufactured, the compliance standards are all-encompassing in nature. The quality of a product evolves along the value chain and at every stage, assurance programs are built in whether it is the approval of lab dips and samples or standardization of fits and measurements. A techpack, which is seen as a crucial element for making a product, is perhaps the most important document in the RFA industry as far as product development is concerned. Similarly, every reputed brand has its own set of compliance codes based on its country of origin or country of retail as the case may be.
Generally, if a supplier adheres to the local laws of the country for compliances to social and environmental concerns, it is deemed compliant for all retailers it works with. RFA brands audit suppliers on quality and compliance through their own resources or third party firms like BVQI, SGS, TUV, Ecocert and others. Retailers like Wal-Mart employ both internal resources and external parties to audit and measure supplier’s performance.
While the adherence to quality is checked for every production lot or purchase order, the compliances are audited on a periodic basis. A failure on the quality front may lead to immediate rejection of the merchandise in question but the supplier may continue to be on board for other running programs. However it’s different in the case of ethical compliance where suppliers are generally given two to six months time to improve on risk issues. Both for quality as well as compliance, there are high risks areas for RFA retailers which are non-negotiable between suppliers and brands. Some of these are usage of child labor, forced labor, usage of toxic chemicals and life threatening safety issues in products. Once the screening of merchandise is done on quality parameters and of production centers on compliance parameters, the decision makers have a choice to either continue with a product or supplier or to drop them and look for other places to get their products from. In all cases, the decision maker has to refer to standards and internal documents to make informed decisions for the entire ecosystem comprising consumer, brand and supplier. Needless to say, that this is not always an easy task.
Quality and compliance using PLM
Incorporation of quality and compliance tasks into PLM helps the retailer as well as the supplier to mitigate issues and risk which may arise in the future, thereby leading to financial damages. By creating a single version of truth, RFA organizations might be able to leverage the information which would otherwise be scattered and even hidden or invisible.
To elaborate, let us see how exactly PLM ensures Quality and Compliance:
· It enables incorporating quality and compliance requirements in the product development cycle using bill of materials feature resulting in Techpack having comprehensive info for production.
· It helps in correct interpretation of compliance norms across geographies. For example, packaging requirements for children’s apparel for the U.S. and UK might be different.
· PLM helps to achieve quality consistency as all information from raw material quality to measurement specifications is clearly captured.
· The library feature helps to create and store compliant products/materials and also allows users to replace non-conforming products with substitutes.
· The line plan allows creation of products for multiple markets incorporating the quality and compliance norms specific to a particular country/geography.
While most PLM systems today have recognized the need for quality and compliance to be inter-woven in the product development process for RFA operators, they have somehow overlooked the execution aspect of this important piece. PLM systems address the need for quality and compliance standards to be part of the development process in RFA industry but they lack when it comes to simple logical steps of scheduling audits and tracking the results.
Therefore, any future development in this area will certainly help the RFA industry cope with this urgent need.
Rajnish Kumar is Global Practice Leader at ITC Infotech and has more than 14 years of experience in Manufacturing, Sourcing & Retailing. His responsibilities include leading a team of business process consultants for FLEX PLM that helps organizations in their product development initiatives. His global team works directly with customers in the Retail, Footwear and Apparel industries, to map their current processes and offer future state solutions that drive business strategy goals. Prior to joining ITC Infotech, Kumar worked in Wal-mart’s Global Procurement team as merchandise manager for five years.