Supply Chain Managers to Pay Closer Attention to Humanitarian Sourcing Strategies

AsiaInspection, (AI) a leading provider of quality control services for businesses importing from emerging Pacific Rim nations, observes that 2013 was a challenging year for brands and retailers.

For example, strikes and riots erupted throughout the year in factories across India, Bangladesh, Cambodia and Myanmar with workers demanding higher wages. In Bangladesh – where the collapse of a garment factory took the lives of 1,129 people – the minimum wage is half that of China.

Figures for AI reflect brands and retailers are taking action, showing a +61% increase in audits in Asia for 2013 compared with 2012. While Bangladesh was in the spotlight, buyers took to securing their supply chain in all sourcing regions, with audits in Bangladesh up +47% year over year, China +58% and India +112%.

Furthermore, child labor was put back in the spotlight when a report was published by the US Department of Labor late last year reporting 78 million children are engaged in child labor in the Asia and Pacific region.

China continues to dominate toy manufacturing with 80%+ of all toys sold in western countries. With another Christmas season behind us – when up to 70% of all toy sales occur – consumer safety was high on the agenda last quarter.

In November, 200,000 dolls made in China were seized at US ports for containing high levels of phthalates (a banned chemical used in plastic). The same happened this December in France with 30,000 non-compliant Chinese toys destroyed by customs. Concurrently, a US Public Interest Research group analyzed 50 toys and found lead 29 times the safety limit, banned phthalates, excessive levels of cadmium and choking risks.

AI data on the toys & recreational industry shows a worrying trend with the number of failed toy inspections in Asia rising from 27% in 2012 to 33% in 2013. While most failed inspections were for minor non-life threatening issues, more than 4% of toy testing by AI did not pass safety standards.

Despite fears that China’s competitiveness would be eroded by the appreciation of the RMB and wage inflation, China’s exports continue to set new highs. November was up 12.7% compared with a year earlier, and for the period of January to November 2013 showed a 9.3% increase compared to 2012. This puts China on track to report the largest annual trade surplus since 2008.

AsiaInspection’s inspection figures mirror this with a +17% increase in ordered inspections in China in 2013 compared with 2012. In 2013, China remained by far the largest sourcing region used by AI clients. To put it in perspective, Bangladesh exports amounted to a mere 1% to that of China.

In terms of percentage growth, 2013 confirmed the trend for new sourcing regions with Africa seeing a 47% increase in the second half of the year. Vietnam was up by 71% and Cambodia doubled despite protests over wage concerns.

It is important to note that 2013 was the year when logistics and supply chain management – or rather the lack thereof – made headlines and became a concern not only for sourcing professionals, but for consumers as well.

“The common situation when a Western buying office does not know precisely where the products they purchase are manufactured and what’s going on in their outsourced factories is doomed,“ says Sebastien Breteau, CEO of AsiaInspection.

“Major names like H&M, Apple and HP have published the list for all or part of all their approved suppliers,” he says. “We will see more of such initiatives with major brands taking back full control and enforcing visibility over their suppliers.

AI analysts say managers may expect 2014 to be the year transparency becomes a reality in global supply chains.

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