Why do suppliers subcontract? [...]
28 Oct 2020


This week’s main podcast episode is based on an interview with Mr. Lin, a Chinese subcontractor based in Phnom Penh. In the episode, we question conventional wisdom that better oversight is what leads to better human rights outcomes for people working in subcontracted factories. Kim’s also penned an article to go along with it, that you can find a link to in the show notes for this week’s main episode. So we thought it would be appropriate to address a question about subcontracting in this week’s edition of Loose Threads too.

It’s a pretty simple question, but actually has a pretty complicated answer.

So without further delay, here’s the question:

“Why do suppliers subcontract?”

The first answer we got goes like this:

“Classic question! What happens is, normally, none of the brands occupies an entire production facility. We have seen ‘compliant’ factories with a capacity of 100,000pcs basic denim pants producing for as many as 11 different brands. Unless a factory combines brands, it is nearly impossible to maintain a smooth balance in production.

Timing is a challenge. When factory ‘A’ is in rush, the majority of market will be in rush. Moreover, when I’m working for a brand, I can’t simply say no to additional 3,000pcs because my capacity is lacking. Even just 3% over my capacity…Seems doable, right? But multiply it by the number of all the brands and you are left with a huge chunk with almost identical delivery date.

Despite knowing the rush seasons, factories can NEVER plan ahead because the materials and accessories take time to finalize and we’re waiting for approval from brands. It’s normal to get the buttons of April’s jeans approved in March. (Thanks to the vicious trend of ‘Fast Fashion’!) Therefore, to meet the delivery, only way is to subcontract.

Only ‘non-compliant’ factories would have available capacity. The only job usually given to subcon is sewing-finishing-packing (not cutting). That means the subcon is not involved at all in the ordering and sourcing of raw materials and is only given a small time to sew and finish 3,000pcs goods. By ‘small time’ I mean 7-10 days (out of the whole order lead time 30-40 days, except shipping). How is it feasible to ensure ‘rights of people’ when the window is this little?

Probably factories would like to avoid subcontracting if they could: Subcontracting adds significant expenses (often more than the original prices). Then there are issues of quality, rejection and short-shipment.

Then there are other hurdles to complicate it even more: When a factory is having capacity issues, brands don’t support them to do the production elsewhere simply because it adds to brand’s cost of following up one more factory atop existing ones. In terms of relationships, When a factory subcontracts an order, the brand also feels factory is giving it less priority.”

In the main podcast episode this week, On Subcontracting with Mr. Lin, Kim shared some of her own experiences with subcontracting. She makes the case that at the prices and lead times the industry expects, many suppliers depend on subcontracting to stay in business.

Fundamentally, the fashion industry (as it exists today) needs a workforce capable of cheaply expanding and contracting to cope with variable demand and the low prices the industry has come to expect.

To put it differently: the livelihoods of workers in better regulated facilities depend on the existence and persistence of more precarious livelihoods elsewhere in the supply chain.

This doesn’t mean that human rights abuses are justified, it means we need to address the way the fashion industry relies on cheaply flexible labor to cope with variable demand.

In response to this point of view, one supplier shared:

“I listened yesterday to the Podcast of Mr. Lin’s story and I do want to share one other recent experience we have as a supplier. As we moved into the production of Facemasks (Fabric) we were confronted with a sudden and significant demand. We designed, tested and made the mask completely in house, so it was ‘our’ product.

That changed the whole game. We immediately had big orders from a couple of brands. we insisted on 50% pre-payment, no problem. At a certain moment we needed to outsource due to different circumstances and we communicated this with the brands. And they agreed, so all in full transparency.

So depending on the ‘demand’ and the power you have as a supplier in a certain circumstance with your product, the rules of the game can change easily and without a problem. Showing that this is a clear ‘demand’ driven behavior and we might have to come to the conclusion that in general there is also an oversupply of suppliers, thus creating the stage for brands to negotiate tough deals. Price and lead time are critical in this subcontracting, but the fact that it is a buyers’ market overall allows brand to force these conditions?”

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