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.