A report from Marsh on the recent Rana Plaza factory collapse in Bangladesh that killed more than 1,100 people cites the “serious risks that labor conditions can pose not only to workers, but also to organizations’ reputations, supply chains, and bottom lines.”
The report — Bangladesh Factory Collapse: Lessons in Risk for the Retail Industry — provides an overview of the range of risks retailers face when sourcing textile goods from Bangladesh and other low-cost markets.
“Even though major retailers and suppliers have sourced from Bangladesh for decades and have worked to improve labor conditions in the past, the Rana Plaza incident clearly reinforces to organizations that labor-related globalization risks require robust oversight efforts, greater visibility, increased vigilance, and continuous improvement,” said Tracy Knippenburg Gillis, Global Reputational Risk and Crisis Management Practice Leader for Marsh Risk Consulting.
Gillis said retailers and suppliers should use this tragedy as a catalyst to more fully understand their supply chain risk exposures, strengthen workforce safety practices, and improve supply chain and reputational risk resiliency.
Bangladesh’s textile industry plays a key role in the retail industry’s supply chains due to its low-cost production capability. But while the country may be home to the world’s lowest minimum hourly wages, according to Maplecroft’s Working Conditions Index, it also ranks as the eighth-worst country for industrial working conditions — resulting in significant reputational, compliance, and supply chain risks for retailers, according to the Marsh report.
Many of the world’s largest suppliers and retailers have experienced widespread negative attention regarding their sourcing of textile goods following the Rana Plaza incident.
In order to avoid the fallout from tragic events like the building collapse in Bangladesh, the report’s authors urge retailers and suppliers, who source their goods in the country, to carefully consider their approach to reputational risk, crisis management, and supply chain resiliency.
Marsh also recommends that retailers focus on improving compliance efforts and transparency with more frequent and unannounced inspections, greater worker engagement in factory audits, and stricter penalty clauses for failure to meet workplace safety requirements.
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