Global Supply Chains: It's Time to Decide on the Way Forward

By Dr. Maximilian Martin 

As we start using our new holiday gifts this year, it is too easy to ignore the miraculous supply networks that allow us to enjoy the products of human labor and ingenuity around the world. Sustainability is increasingly viewed as a strategy for enduring in a world of scarce resources and unlimited needs; but we seem to be locked in an endless cycle of merely reacting to deep-seated economic and social problems. It is now time to decide on the way forward: do we want to make supply chain upgrading happen across the board and reap the benefits, or continue using half measures and band aids?

Perhaps more so than other industries creating value through global supply chains, the textile and garment industry illustrates the crossroads we are at. A three trillion dollar industry that encompasses the manufacturing and selling of textiles and garments, apparel has long been considered a source of economic progress around the world and has historically served as a catalyst for national development and industrialization. The inverse of this growth and the accelerating production of fashion has been a broadening and deepening track record of poor working conditions and heavy pollution. The collapse of the Rana Plaza factory in April 2013 in the Bangladeshi capital Dhaka jolted to life widespread and increasingly prolonged scrutiny of the industry. It has brought to the forefront longstanding questions over how to bridge the gap between economic viability and social and environmental performance. To the credit of many buyers involved, attempts to address the social and environmental issues plaguing the apparel industry in Bangladesh (and elsewhere) are being made—the European buyer-fundedBangladesh Accord on Fire and Building Safety and the US buyer led Alliance for Bangladesh Worker Safety are just two of the high profile efforts underway. But the New York Times also just published a piece reporting how clothing companies like Mango have declined to contribute to a landmark $40 million compensation fund for victims of Rana Plaza disaster. And as we are just entering the New Year, in Cambodia, where apparel is the country’s most important industry, a special military unit in riot gear dissolved a garment worker demonstration for higher wages on January 2, 2014, using force.

How can we graduate to a new normal where next level sustainable value creation is the standard state of affairs? To help address this need, Impact Economy—a global impact investment and strategy firm—has just issued my report, Creating Sustainable Apparel Value Chains, so industry stakeholders can begin to build a common way forward. The key insight is this: systems created this situation, and a systemic solution is now needed to address it. The good news is: there is ample value creation potential. A redesign of production processes paired with better infrastructure and training can save up to 20 percent of chemical inputs, up to 40 percent of energy, and up to 50 percent of water. Building humane working conditions, an improved environmental footprint and staying competitive need not be at odds.

The report offers a framework that links greater resource productivity with an ambitious agenda to improve working conditions and environmental footprints. This framework includes four key levers that need to be pulled in order to achieve industry transformation, including: (1) fostering total resource productivity and transparency across the supply chain; (2) upgrading the industry infrastructure by (impact) investing; (3) improving working conditions with a new level of ambition; and (4) studying and replicating the best practices of leading producers.

Of course, no one actor or lever is a panacea unto itself. But the framework presented in the report offers a more comprehensive way to consider the issues influencing the development of the industry, and to design effective responses to them. And the apparel industry is far from unique. Fragmented approaches to industry transformation, which otherwise prevent a fundamental and systemic shift to sustainability, are widespread.

Take the commodities industry. In 2012, the value of the global metals and mining industry approached $1 trillion. In 53 mining countries, three-quarters of whom are low or middle income, extractive industries are a cornerstone for millions of people. They often face a unique set of social challenges due to the high impact nature and close proximity to environmentally sensitive areas. Geostrategic tensions result from attempts by the world’s main powers to guarantee their preferential long-term access to vital commodities.

The electronics industry is no different. Covering everything from computers, mobile phones, and televisions to name just a few consumer products, the global electronics market is set to reach $1.4 trillion by 2015, according to Global Industry Analysts, Inc. Yet again, electronic waste due to the use of toxic chemicals and difficulty of recycling is a growing issue.

Growing trends such as green growth and energy efficiency, the rise of the LOHAS (“Lifestyles of Health and Sustainability”) consumer, and rising demand for affordable products and services at the base of the pyramid (BoP) will only serve to emphasize the need to determine how global supply chains can be harnessed to drive inclusive value creation—in all industries, and for stakeholders and investors alike.

As we go about using our electronics and fashion gifts in the New Year, let us not forget that the opportunity for sustainability has the potential to be great. But Rana Plaza type disasters won’t be avoided, and the impact of progress will increasingly worsen unless we attempt a bolder strategy. To achieve industry transformation, we need to step up the game. It is now time to decide on the way forward.

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Maximilian Martin, Ph.D. is the founder and global managing director of Impact Economy. Before creating the brand Impact Economy and founding the firm, he served as founding global head and managing director of UBS Philanthropy Services. Dr.Martin also created the first university course on social entrepreneurship in Europe. His work, and more than one hundred articles and position papers, have helped define the trajectory of market-based solutions and the impact revolution in finance, business and philanthropy. He was invited to write the primer on the status of impact investing for G8 policymakers in 2013, which considered the potential and development options for this new USD 36 billion branch of the financial industry.

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