The recent Rana Plaza factory collapse in Bangladesh that killed more than 1,100 people highlights the serious risks that labor conditions can pose not only to workers, but also to organizations’ reputations, supply chains, and bottom lines. In its latest Marsh Risk Management Research report, Bangladesh Factory Collapse: Lessons in Risk for the Retail Industry, Marsh provides an overview of the wide range of risks retailers face and risk mitigation advice 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. “Retailers and suppliers should use this tragedy as a catalyst to more fully identify and understand their operational and supply chain risk exposures, reform and 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. Many of the world’s largest suppliers and retailers have experienced widespread negative attention regarding their sourcing of textile goods as a result of the following Rana Plaza incident, Marsh noted in its report.
In addition to carefully considering their approach to reputational risk, crisis management, and supply chain resiliency, Marsh recommends that retailers focus on improving compliance efforts and transparency by further standardizing factory audit processes for and contract language with suppliers. This could include: more frequent and unannounced inspections, greater worker engagement in factory audits, and stricter penalty clauses for failure to meet workplace safety requirements.