There is little doubt that 2013 is when supply chain management – or rather a lack thereof – made global headlines and became an escalating concern not only for sourcing professionals, but for consumers as well.
Just take a look at the Rana Plaza tragedy, in May 2013, when a factory collapse in Bangladesh took the lives of a reported 1,129 people.
There were many other prime examples, says Sebastien Breteau, CEO at AsiaInspection, a leading quality control service provider for businesses importing from Asia, Africa, southern Europe, and Latin America.
For instance, the horsemeat scandal in Europe, he says, and similar food safety horror stories in China that dramatically raised awareness globally on the need for stricter end-to-end supply chain management.
“The common situation when a Western buying officer does not know precisely where the products they purchase are manufactured and what’s going on in their outsourced factories is coming to an end,” Breteau says.
He adds that major household brand names, like H&M, Apple, and H&P, have since published the list for all or part of all approved suppliers.
“We will see more of such initiatives with major brands taking back full control and enforcing visibility over their suppliers,” Breteau says. “Expect 2014 to be the year transparency becomes a reality in global supply chains.”
His organization’s fourth-quarter barometer details why this transparency is not just needed, but greatly required, in the months ahead.
CHINA VERSUS THE REST OF THE WORLD
The primary focus of the barometer, according to Mathieu Labasse, Vice President at AsiaInspection, is to find greater insight as to what’s happening within manufacturing in Asia as a whole.
“We try to provide testimony on what’s going on throughout Asia,” Labasse tells Leo Rommel of Industry Today. “At the end of the day, our inspectors are on the ground, every day, visiting factories all over the region, making us a firsthand witness of what’s unfolding in Asian manufacturing.”
When the latest quarterly barometer’s results were tallied and scrutinized, two noteworthy trends stood out, according to Labasse.
The first was despite fears that China’s competitiveness would be eroded largely by wage inflation and the appreciation of the renminbi (RMB), China’s exports continues to set new highs.
“When you think about sourcing from Asia, China is obviously the top name on the list,” Labasse says. “We know that there are, on a regular basis, reports about brands and retailers moving out of China in the wake of rising costs, or even quality issues, and so we really keep an eye on that.”
Such concerns are doing little to derail China as the manufacturing king of the continent, the barometer reports.
In fact, China’s exports were up 12.7 percent in November compared to 12 months earlier, and the period between January and November last year showed a 9.3 percent increase compared to same span one year prior.
That, according to Labasse, puts China on track to report the largest annual trade surplus since 2008.
“What we see is that all of the Asian countries are booming, in terms of manufacturing, and in terms of demand for inspections and audits from overseas buyers,” Labasse says. “However, what we highlight is that this has to be put in perspective, and the fact is, we really don’t see China giving up its leadership anytime soon when it comes to manufacturing in Asia.”
AsiaInspection’s inspection numbers mirror this viewpoint with a 17 percent increase in ordered inspections in China in 2013 compared with 2012. Furthermore, China remained by far the largest sourcing region used by the organization’s clients in 2013.
To put it in perspective, Bangladesh exports amounted to a mere 1 percent to that of China.
“Look at the infrastructure, China has four times the number of international container ports doing five times the amount of container traffic compared to any other country in Asia – we don’t see any major shifts happening in the short term in regards to China’s status in global manufacturing,” Labasse says.
What officials at AsiaInspection see instead, he adds, is that neighboring regional countries are growing faster than China. In terms of percentage growth, 2013 confirmed the developing trend for new sourcing regions, with Africa seeing a 47 percent increase in the second half of next year.
Vietnam was up 71 percent and Cambodia doubled despite protests over wage concerns. “In India, we saw inspection demand grow over 40 percent,” Labasse says.
It also depends on the industry, he adds.
“You have to put things in perspective, and look at the total size of the markets,” Labasse says. “When talking with international buyers, it may be the case that for some very labor-intensive, basic products, countries like Cambodia makes more sense, for them, in terms of overall costs.
“But China is still by far the best when you mix together labor costs, infrastructure, and maturity of the supply chain. We don’t see China giving up its leadership in the next five years, at least.”
SOCIAL ACCOUNTABILITY ON THE RISE
The other noticeable rise stemming from the report is the enlightened awareness of social auditing.
Labasse attributed this more groundbreaking newsworthy trend to the challenging year that was 2013.
In addition to the Rana Plaza disaster, Bangladesh experienced countless strikes and riots in factories of all sizes from workers demanding higher wages. Other neighboring countries suffered similar outbursts, including India, Cambodia, and Myanmar.
In Bangladesh, the minimum wage is half of that of China. Cambodia’s minimum wage is current $90 per month, increasing to $95 this April.
“What happened last year in Bangladesh and in other Asian countries really put a big spotlight on social compliance issues, when buying and sourcing from Asia,” Labasse says. “What we saw with our clients, when talking about their financial plans, is how these incidents forced brands and retailers to react and look more closely at their supply chains.”
Case in point: Figures for AsiaInspection show brands and retailers upped audits in Asia some 61 percent in 2013 compared with 2012. Buyers also took to securing their supply chain in all sourcing regions, with audits in Bangladesh up 47 percent year over year. Increases were also reported in China and India, by 58 percent and 112 percent, respectively.
“Social issues in factories in Asia are nothing new, but what we feel is that until 2013 there was in ways an uncertainty whether it was really worth it, for big brands and retailers, to invest in social compliance programs,” Labasse says.
Consequently, news emerged of buyers starting to look for alternatives in the region, particularly in light of the Bangladesh incident and its predominant apparel-manufacturing sector.
AsiaInspection’s ordered inspection figures illustrate this hike.
Inspection orders in Bangladesh, the largest exporter for apparel in volume after China, were up 36 percent year over year. India, meanwhile, saw a 44 percent increase, while Vietnam experienced a 71 percent increase and Cambodia a 114 percent rise.
“It also underlined the unanswered question that is, ultimately, is the customer ready to pay more for a product that is produced in a socially compliant way?” Labasse says.
But by keeping manufacturing operations in Asia, what risks are companies taking with the economic value of their brand?
Here’s another problem, highlighted in the AsiaInspection’s quarterly analysis: Child labor is back in the spotlight, courtesy of a report by the U.S. Department of Labor published in October. The report claimed that 78 million children – those aged 17 or younger – are engaged in child labor throughout the Asia and Pacific regions.
It’s an extremely delicate topic that U.S. consumers and companies are particularly sensitive about, Labasse says, even if other global regions are not. “It’s a very complex issue,” he adds.
All of the above are examples that emphasizes the importance of detailed auditing, Labasse says.
After all, supply chain have become increasing complex, thus making it progressively harder for a variety of manufacturers of differing sizes and industries to retain visibility of where their merchandise is made – and by whom and under what circumstances.
Now, the unfortunate events of recent years have made them question this flawed process.
“What we see is that there is a real issue with the transparency of the supply chain,” Labasse says. “We think this is the focus that U.S. brands and retailers nationwide will take with regard to sourcing in Asia in the coming months and even years.”
He adds: “The key to imposing transparency, enforcing social compliance and proper factory conditions, is that it must come from the brand, and that’s what we’re starting to see.”
AsiaInspection is a leading quality control service provider that partners with international Brands, Retailers and Importers to secure and manage their global supply chain. With unique web-based quality control management, AI offers Product Inspection, Factory Audit and Laboratory Testing services for more than 3,000 clients worldwide.