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Why is Boohoo investigating its supply chain?

TAGS: News
In light of recent news involving online retailer Boohoo, Phil Reuben, executive director at SCALA, explores why closer retailer-supplier relationships might be the key to avoiding business backlash.

Phil Reuben - SCALA.jpgA recurrent theme of the past few months has been just how strongly a companies’ ethical values can affect its stakeholder reputation.

Business partners, shareholders and customers have been quick to turn on businesses that do not meet their expectations of ethical values, and this is particularly damaging in today’s social media-driven age, wherein we all now have the ability to declare our outrage instantly to a wide audience, rather than just our immediate friends and family.

The most recent business to fall foul of this is fast fashion giant Boohoo, which is now the subject of allegations that certain factories in Leicester that supply the brand are guilty of widespread worker exploitation, having paid their staff below the minimum wage and also failed to provide adequate protection throughout the COVID-19 outbreak.

Following these allegations, which have included major investors severing ties with the brand, Boohoo has been quick to respond, ordering a full independent review into its supply chain operations and promising to terminate relationships with any suppliers that were found to be non-compliant with the brand’s code of conduct. While this is a welcome move, the brand has already suffered significant, and avoidable, damage to both its share price and overall brand reputation that could have been avoided.

Let’s take a closer look at how closer collaboration across the supply chain, as well as an increased focus on building resilience, are the key to businesses avoiding a similar fate in future.

Why has Boohoo come under fire for the actions and working practices of, what is presumably, just one of many suppliers it has in its supply chain?

Simply enough, if a supplier’s practices relating to human rights, labour standards or environmental protection are found to be sub-standard, it is the customer company that will be held to account.

After all, when customers buy from Boohoo they are buying from the brand itself, not the manufacturer, and customers will ultimately associate the businesses they buy from with the products or services delivered.

So, if it is discovered that products contain unsustainably-manufactured parts that have come from an external supplier – or, in this case, that the supplier’s working practices are not up to standard – it won’t be the supplier that faces the backlash and suffers the consequences, but the business itself. 

Why transparency and responsible sourcing is key

Supply chains, especially those run by larger, worldwide businesses, can be extremely complex and multi-tiered, with many moving parts to keep track of simultaneously. Subsequently, it is almost impossible for businesses to fully control the practices of every third party they deal with throughout the supply chain. In this instance, the backlash towards Boohoo may be exacerbated by the fact that it is a UK factory – ostensibly closer to the end consumer, and therefore more easily-monitored by Boohoo itself – that is the subject of the allegations, rather than further afield.

If businesses understand who their suppliers are and who they’re effectively doing business with, they can therefore investigate if all parties are complying with their ethical codes. Subsequently, this gives greater visibility over the supply chain network, ensuring businesses are best-placed to avoid a nasty surprise further down the line.

When considering who to do business with, brands should work to ensure that, wherever possible, they only partner with companies that share the same goals, ethical values, and environmentally-conscious supply chain processes as themselves.

Auditing and identifying the right sourcing partners is a critical piece of the puzzle, and it requires businesses to enforce the same high ethical standards that they hold themselves to. Establishing and communicating expectations through a supplier code of conduct is one effective way for businesses to involve suppliers in their sustainability efforts.

Working more closely with suppliers

Of course, working in closer partnership with suppliers is not just invaluable from an ethical standpoint – it can also be extremely commercially beneficial.

Particularly given the turbulence of the past few months, which have been characterised by widespread disruption, empty shelves and volatile consumer demand, greater supplier performance management can make supply chains more robust, facilitate shared innovation, and paint a clearer picture of the challenges suppliers face, creating greater transparency and understanding across the supply chain.  

This was referenced in our recent 2020 Annual Supply Chain Debate, which asked key supply chain thought leaders from across the FMCG and home appliance industries how disruptions such as COVID-19 would impact supply chain operations moving forwards.

A recurrent theme was the need for organisations to work more closely with their supply network. One noted speaker also suggested implementing initiatives such as pivoting from a more conventional vertical supply structure, to a more agile horizontal structure with multidisciplinary teams, citing Zara as a pertinent example of a business that has achieved this well.

Building more resilient supply chains

Adverse business impact can come about from problems in a number of areas, such as at the manufacturing source, in transportation or routing or, as we have seen here, in the manufacturer’s supply chain. Failure of one or more aspects may present a major or even existential risk to the company – as Boohoo has already found.

If recent business scandals, as well as major supply chain disruption such as that caused by COVID-19, have taught us anything, it is that collaboration between the customer and their supply network is key. Collaboration between retailers and suppliers - working together to decide how disruption can be best handled - and greater communication throughout the supply chain are crucial in order to enable the quickest response possible.

Supply chain resilience is also likely to play an ever-greater role moving forwards. While supply chain resilience may not have been on everyone’s radar, the effects of COVID-19 should incentivise businesses to recalibrate of thinking, review their processes and take the necessary actions from there – for which the consultative view of an expert partner can be invaluable.

After all, while some businesses actually prospered during COVID-19, a great many others  suffered, with sales revenues reduced or even wiped out altogether. However businesses fared, what should have become apparent to all is the need to bring resilience and robustness to the supply chain to safeguard against the effects of both future pandemics – an all-too-real possibility – as well as more localised crises. 

However businesses choose to go about this, there is liitle doubt that working towards greater transparency, resilience and ethical standards throughout their supply chain will be crucial for success in the years ahead. Through this, businesses improve their own CSR credentials, while boosting their reputation, profitability and ability to handle any crisis; all of which will set them in excellent stead for the challenges the coming months will no doubt bring.

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