October 3, 2008

Greening the Apparel Supply Chain: Tapping the Power of Collective Leverage

True or false? “Until corporate environmental best practices are considered as confidential as other company IP, they are clearly not driving competitive advantage.”

I once held this assumption. Indeed, the strategy and management literature frequently points to the need to keep one’s “cards close to one’s chest” on everything from a potential product breakthrough to a forthcoming marketing campaign. As a logical extension, I saw it as a positive step that, as an environmental strategy consultant, I was increasingly asked to sign Non-Disclosure Agreements before any internal ideas were shared.

However, in the past few years, experiences in the apparel sector have made me question this assumption. The apparel industry faces a potent combination of slim margins, fluctuating trade rules, relatively low barriers to entry, and quickly shifting consumer demand. Indeed, any MBA student could paint it as the perfect demonstration of Porter’s 5 Forces. In such an intensely competitive industry, surely it would be wise to avoid sharing anything with competitors, right?

Yet, when it comes to the most critical part of their environmental footprint – the supply chain — apparel companies are doing just the opposite. From the Restricted Substances List Management Group to the Apparel Water Quality Group to the Outdoor Industry Association’s Eco Working Group, corporate environmental leaders are sharing experiences, tools and even software to green the industry’s supply chain. Unlike in many other industries, they regularly confer with their counterparts at competitor companies, sometimes on a weekly basis.

This is because they have discovered the power of collective leverage. Indeed, with the exception of mega-buyers like Wal-Mart, few companies in the apparel industry wield a significant degree of control over their direct suppliers. Orders are typically spread across numerous contract manufacturers, meaning that any one buyer’s influence is diffused. This is even more pronounced as one moves upstream to dye houses and sundry suppliers. And in a market demanding faster and faster turnaround of product lines, it becomes harder to justify long-standing, high-touch relationships with select suppliers.

In China, the world’s largest textile and apparel producer, these suppliers are not subject to the same environmental regulatory or stakeholders pressures experienced by the brands themselves. Many struggle to comply with even the most basic of environmental regulations. And, unlike the customer-facing brands, suppliers tend not to become the targets of growing scrutiny over industry’s role in China’s environmental crisis.

As the well-known Chinese environmentalist, Ma Jun, told me, “in a country with a dysfunctional court system, where protests are frowned upon, and empirical research is often dismissed, multi-national companies will play a key role in China’s move towards pollution control”. And indeed, we are seeing this play out, with companies encouraging provincial Environmental Protection Bureaus to consistently enforce wastewater effluent and air emissions standards. The May 1st passage of China’s first public environmental disclosure law will presumably shed further light on such opportunities.

In apparel, where dedicated or wholly-owned manufacturers are rare, corporate leaders have seen the need to join forces, thereby increasing their level of influence with suppliers and agencies, as well as harmonize their requests of suppliers for environmental reporting. This approach also insures against a scenario whereby non-compliant suppliers are suddenly rejected and pushed out of business. Instead, suppliers are given the incentive of working with a group of current (and prospective) buyers to improve their performance through sharing of best practices and technology transfer.

The apparel industry has demonstrated that, even in an intensely competitive industry, where collective leverage is necessary, it is expedient to “show your cards.” Or at least, one or two…

Emma Stewart, Ph.D., is an environmental strategy consultant to Fortune500 companies and leading non-profit organizations, combining expertise in environmental trends analysis, policy and metrics design, and management consulting. She can be reached at emma.paschall.stewart@gmail.com.

ADVERTISERS

CUTTING COMPLIANCE COSTS-CAN YOU AFFORD NOT TO?

Implement a cost effective compliance management program. Find out how. >>

ENTERPRISE EHS COMPLIANCE SOLUTION

Globally manage EHS initiatives - locally execute compliance programs. >>