How purchasing practices influence wages

Purchasing practices of fashion brands have an immense impact on wage levels in garment production countries. A study by the International Labour Organisation (ILO) shows that irresponsible purchasing practices can negatively impact hourly wages by up to 22%. 

Purchasing practices are all activities relating to how fashion brands (ie. buyers) interact with their suppliers. This includes but is not limited to price negotiations, payment terms, contract terms, order specifications, product design, and delivery times. Most of those practices have an impact on working conditions and wages in production countries. Some scholars refer to purchasing practices of global garment brands as predatory, explaining the "ability of buyers to play one supplier off against another in order to lower costs." 

One practice that in particular hinders fair salaries is a price squeeze, meaning unfair price setting by buyers. Often, prices offered by buyers do not cover the production costs of suppliers. This is made possible due to immense power imbalances in global supply chains and tough competition in production countries. For example, Bangladesh alone counts more than 4000 supplier factories.

Brands are directly negatively influencing working conditions by paying low prices with the most apparent impact of a price squeeze being a decrease in workers’ wages. Production costs and prices are being kept low to keep contracts with foreign buyers. This happens at the expense of workplace safety and human rights. Thus, prices are too low to increase wages or pay a living wage. 

Besides this price squeeze, garment factories are also confronted with a sourcing squeeze, meaning a reduction of lead time and short-notice changes in order size or product specifications. Similarly to the price squeeze, the sourcing squeeze has negative impacts on working conditions and wage levels in global supply chains. Shifts in the technical specifications of a product are quite common in global supply chains and have an indirect impact on wages.

A survey conducted by labour and employment relations scholar Mark Anner in Bangladesh shows that 26% of interviewed suppliers “report that buyers ‘often’ change order specifications after production starts, and 55% report that buyers ‘sometimes’ change order specifications after production starts.” Inaccurate specifications and changes of specifications lead to time and costs spent on sampling which is often not covered by the buyer. 

Wages are often squeezed as a result of a price and sourcing squeeze, as they are an adjustable variable once other fixed costs are covered.

Payment terms and cash flow also have a potential impact on workers’ wages. Suppliers are often not paid immediately, diminishing their ability to start a new production cycle without taking on loans. This also results in a delay of wage payments, risking workers to go into debt. 

Unfair purchasing practices grew even worse during the recent Covid-19 pandemic. Order cancellations, the refusal to accept shipments, extended payment terms, expected price discounts, or refused payments lead to increased pressure on suppliers and garment workers. As a result, “tens of thousands of garment workers have been fired since 2020, suggesting 37,637 workers have been deprived of around $40 million in legally mandated compensation owed by multinational firms.”

Other purchasing practices with a direct impact on wage levels are order placement and lead times. The Bangladesh survey indicates a trend in lead time reduction, showing a decrease from 93.4 days to 85.83 days, thus, 8.14%, from 2011 to 2016. During the Global survey, 56% of interviewed suppliers explained how insufficient lead times lead to increased costs of production, resulting in increased pressure on wages. Inconsistent and unreliable order placement caused by the concept of fast fashion and unsteady buyer demand planning also has a negative influence on workers’ wages.

Risks are shifted to suppliers due to no commitment to long-term sourcing, thus, even if relationships last several years, there is no guarantee for long-term partnerships. Often suppliers take orders beyond their actual capacity, leading to outsourcing to sub-suppliers which complicates monitoring. Therefore, buyers often do not have visibility of the whole supply chain, thus, cannot influence working conditions in the field, which leads to an increased risk of poverty wages and a blurring of accountability. 

Consequently, workers are not able to meet their and their family’s basic needs resulting in other issues such as working excessive overtime to compensate for the insufficient pay, cutting down on nutritious food due to the shortfall, or taking their children to work. 

Help us to hold fashion brands accountable by signing the Good Clothes, Fair Pay campaign to stand in solidarity with garment workers worldwide, prohibit unfair purchasing practices, and demand living wage legislation at the EU level.

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References

• Vaughan-Whitehead, D., and Pinedo Caro, L. (2017): Purchasing practices and working conditions in global supply chains: Global Survey results, Inwork Issue brief no 10, ILO, Geneva.

• Anner, M. (2019): Predatory purchasing practices in global apparel supply chains and the employment relations squeeze in the Indian garment export industry, in: International Labour Review, Vol. 158, Issue No. 4, pp. 705 – 727.

• Anner, M. (2020): Squeezing workers’ rights in global supply chains: purchasing practices in the Bangladesh garment export sector in comparative perspective, in: Review of International Political Economy 2020, Volume 27, Issue 2, pp. 320-347.

• Chen, L., et al. (2022): Supply Chain Fairness, p. 5.