Our key takeaway: Buyers in the apparel, footwear and textiles industry are making progress on their practicing purchases: based on feedback from 1,200 suppliers in Better Buying’s Purchasing Practices Index, buyers are increasingly taking care to improve their forecasting and cost negotiation. At the same time, many suppliers reported that they are still feeling the squeeze from procurement departments. The index finds that buyers, suppliers and workers benefit when companies apply principles of responsible procurement, resulting in greater process efficiency, less unutilised capacity, predictable timelines and contracts, a more stable workforce and better wages. There are a few key ways for companies to take action. For one, they can adjust prices to reflect rising inflation, a higher cost of inputs and the need to pay higher wages to meet the cost-of-living crises. They can also aim to put in place longer term contracts that allow suppliers to stabilise their workforce and reduce the need to use contract labour, while improving efficiency and planning.
Better Buying published its Purchasing Practices Index for 2023 (January 2024) which examines the purchasing practices of 26 large apparel, footwear and household textile companies based on the feedback of over 1,200 suppliers producing goods for these brands:
- Building supplier resilience through responsible buying practices: The index found that buyers overall are improving their procurement practices from the perspectives of their suppliers, especially in areas like paying fair prices and cost negotiation, and in setting fair payment terms and paying on time—although these practices are not universal. The report recommends that all buyers meet responsible buying practices by committing to cover 100% of the costs of compliant production and paying all bulk production invoices on time, “as this is critical to ensuring living wages, safe and healthy working conditions, and supplier financial sustainability.” Buyers should also ensure that payment terms are sustainable for suppliers; for example, one supplier reported that their “buyer changed payment terms during the Pandemic, from 75 to 90 days. The Pandemic is over but the payment terms remain the same, other brands have payment terms between 30 to 60 days, which is more reasonable.” Any samples that buyers request from suppliers should also be fully paid at a “reasonable price,” as suppliers reported they spend a lot of time and effort to produce multiple rounds of samples for approval. The index also found that almost half of suppliers are still using negotiating practices that put significant downward pressure on suppliers, despite some improvement from the previous year’s index. When negotiating on costs, the report recommends that buyers consider the changing circumstances of suppliers, including inflation, the need for wage increases and the increased cost of goods like fuel and other raw materials as a result of conflict, climate change and other economic shocks.
- Establishing formal commitments with suppliers: The index points out that longer term, formal commitments of at least three years can help both buyers and suppliers manage production needs more sustainably: “These commitments are not merely a contractual formality; they signify that a buyer shares responsibility with the supplier for the payment of better wages, improving working conditions, reducing environmental impacts, and optimizing production quality and speed.” With increased stability and predictability of contracts, buyers can refocus their efforts onto improving management activities, improving working conditions and ensuring the payment of fair wages to workers. However, the report finds that multiyear commitments are still “rare” in the sector, with more than 72% of suppliers reporting commitments on less than one year. According to one supplier, despite improved forecasting from their buyer, “[a]t the end of the day there is no reliable long-term perspective .… Ideally, the buyer would provide formal commitments in the form of multiyear framework contracts/multi-year blanket orders.” This also represents a risk for buyers, as suppliers may look to partner with companies willing to offer them longer-term contracts.
- Taking a holistic approach and promoting responsible practices throughout the value chain: The report recommends that buyers implement other practices that reduce pressure on suppliers, including using advanced forecasting tools and supply chain management systems that “can enhance accuracy, reduce uncertainties, and lead to cost savings in the long term, benefiting both buyers and suppliers.” This should be coupled with regular communication with suppliers about orders. One supplier said, “We recommend increasing the frequency of communication (minimally, having a status call every 4-8 weeks),” depending on the needs of the buyer. Better forecasting and communication can help both buyers and suppliers avoid “unutilized capacity” that leads to production inefficiencies and may force suppliers to lay workers off or rely heavily on contract labour, thereby increasing worker vulnerability to loss of income. These practices should be integrated throughout the buyer’s operations and value chain, including in stages like design and development of products and planning and management of the procurement process.