How to Pay Living Wages - A 3rd Party Edition
For many years the discussion has raged on the feasibility of paying living wages within the supply chain. Supply chains are not static entities, they are living and changing organisms. Spreading further and wider than you could possibly comprehend. They are more akin to a mycelium structure than a chain. And to be able to grapple with that concept is the first thing we need to do in order understand how we tackle fair pay for fair labour. But to keep this relatively short, we are just going to focus on the cut and sew aspect of garment production. Otherwise you’ll be here all week!
If you own a part of your own supply chain, or you employ people to sew your products, I highly recommend this report on implementing living wages in your organisation from Marcus Feldthus and Oscar Haumann. Which can be downloaded from their website. This is a great guide for how you can structure your business to ensure financial resiliency, and to scale without losing the transparency. With some great advice on communicating and tracking whether you are paying living wages if you’re working on a piece rate system.
But the biggest challenge comes from working with a 3rd party supplier, where you aren’t the one controlling the wages. Over the last 2 decades trust between supplier and brand has been destroyed as brands compete in a race to the bottom. Once upon a time open costings meant that you could work with a supplier to understand how to adapt a product in order to hit a target price point. Instead it is now used as a bargaining chip, playing suppliers off against each other. Which only results in a supplier taking a reduced margin in order to avoid holes in their capacity. Most recently we’ve seen Boohoo use this same playbook while telling us it ensures transparency for fair pay. The good news is that both the BBC and The Sourcing Journal have worked to uncover exactly how open costings were used to pressure suppliers.
A photograph of Boohoo’s Thurmaston Lane factory.
Unfortunately, if there is no trust between you and your supplier you aren’t ever going to be able to know if they are paying living wages. And it does impact your ability to be resilient, which I spoke about last year. While you can work with great organisations such as Fairwear, there are many audit companies who do not hold positions of trust either. Just look at the lawsuit being bought against Tesco and Intertek. It’s no longer a credible risk assessment to bring in external auditing teams and not visit the suppliers yourself.
Before we dive into how you use your product costings to determine whether a living wage is paid, it’s helpful to know what the living wage is. There are many organisations that can help, including the Asia Floor Wage Alliance, Labour Behind the Label and The International Labour Organisation to name but a few. A living wage is determined by how much it costs to live in an area. It covers housing, food, education, healthcare, transportation and a small amount of savings. Minimum wage is a government set minimum that people should be paying and it’s based on a living wage versus what will make a country competitive. In a country the minimum wage can be more than a living wage in some areas of the country, and a lot less than living wage in others. It can be helpful to know what percentage of the living wage a minimum wage is. When you average the data some EU countries have come out with the biggest gap between minimum and living wages compared to Asia.
It’s important to know whether your supplier uses local workers or migrant workers. A living wage should be determined based on where the supplier is based, not where the workers are from. If the factory has a dormitory in order to make themselves more appealing to migrant workers, this should not form part of the living wage calculations, or be deducted from their pay.
Understanding product costings and your factory line set up should be mandatory for anyone negotiating product prices. As an example, I’m going to be using the costings I did for the BBC Panorama documentary. There were several dresses costed for the BBC, and to ensure a fair comparison only minimum wage was used as the wage cost, there was no supplier profit included, and there was no tax applied. In short, it only just met legal obligations and is in no way an indication of ethical prices. The prices I gave came out between 11% and 26% more expensive than Boohoo were paying their Leicester based suppliers. But more importantly they were in line with the prices estimated by Chris, the other supply chain expert consulting on the BBC project, who has worked with major UK retailers on their supply chains.
But if you know the basics, you can use it to work out whether what you are asking for is reasonable.
A stack of papers with a photo of a woman in a red dress, typed description and written notes.
When it comes to sewing you need to know how many operations in takes to complete a garment. Take this red dress; there are 3 different machine types most likely split across 4 jobs.
1 - shoulder seams together with 5 thread overlock.
2 - binding around neckline and armholes with binding machine (can be separated into 2 jobs).
3 - Side seams together with 5 thread overlock.
4 - Hem with cover stitch.
Based on a longer stitch length than we would advise, we estimated we could complete 50pcs per hour which would give a garment sewing cost of £0.71 per item. Once you add in cutting cost (based on 2000pcs over 7 different colours), QC and packing, thread, labels, rent, electricity and water, plus back office staff at minimum wage, the total CM cost comes to £3.55 per piece. Which doesn’t include fabric. This dress was sold by Boohoo for £11 at full price. The average fabric consumption for an item like this is around 1.4m per dress. If they were paying the CM cost we estimated, they would have had to pay less than £1/m for fabric.
So if you aren’t able to work with open costings with your suppliers then knowing how long it should take to make your design is a really good starting point. And the best way to know that information is to observe a production in your facility. However this should not be used as a cost reduction exercise, because each facility is different. Some will bunch production units together around sewing threads to reduce the change over times. Some will bulk production together based on certain machines such as bonding / laser etc. Instead this is a guide to understand whether it’s possible your supplier can pay the living wage. Or how far out you are likely to be.
If this is an area you would like more information on, then please do click on the contact button. Or drop us a message on any of our socials.
