Rethinking Relationships in the Global Garment Supply Chain

April 24, 2013, was a tragic—and pivotal—day for the world’s garment industry. On that morning, a multistory building that housed five garment factories in Bangladesh collapsed, killing more than 1,100 people and injuring thousands more.

Because the factories produced goods for major North American and European retailers, the tragedy helped fuel consumer concern over the garment industry’s often appalling working conditions. As Associate Professor Susan Goldstein explains, the building’s collapse—along with the resulting consumer awareness of the situation—also jolted corporations into action. “Consortiums of North American and European retailers began to examine their global supply chains,” she says. “They also worked together to fund inspections of more than 1,600 garment plants.”

And that made Goldstein and her colleagues, including Professor K.K. Sinha and two Carlson School PhDs, curious. Did any of the working condition risks that the consortiums found make a tangible impact on supplier-retailer relationships?

For answers, they analyzed the inspection reports, looking at building structural integrity, fire risks and electrical safety issues. The short answer: “Risks identified during inspection do appear to affect the likelihood of retailers using certain factories,” she says, adding, however, that not all potential hazards seemed equal. “We found that fire and electrical risks led to decreased supplier trustworthiness, while structural concerns had only a marginal effect.”

Structural issues aside, the development represented a major shift for the retail garment industry, which has long used product cost and quality as its main factors in choosing suppliers. Just as importantly, it also showcased the remarkable and far-reaching power of consumer sentiment when it comes to supply chain transparency. “This study provides evidence that we have influence, both as consumers and as businesses,” Goldstein says. “We can make a positive impact around the world for the millions of people who are working in less-desirable conditions than we see here in the West. What’s more, those conditions can be improved through smart management of global supply chains.”

There are a lot of characteristics that retailers look for in suppliers, including low costs and product quality. But this study shows that they also look at reducing their own risk by examining the working condition risks in their supply chains.