Case Study: When Tragedy Strikes Your Supply Chain

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Laura Cronenberg, the CEO of Tots & Teens, sipped her black tea in the lounge of Shahjalal International Airport and took some time to collect herself before her flight departed. The past few days had been a whirlwind, and she was still trying to make sense of how her work life had transitioned so abruptly from celebration to crisis.

On Monday she’d been feting T&T’s employees in acknowledgment of the company’s fiscal-year performance. The New Jersey-based children’s clothing retailer had increased its profits by 5%, and Laura had gathered everyone at headquarters for a champagne toast. But then T&T’s chief operating officer, Jim

had pulled her aside to tell her the shocking news: A garment factory in Bangladesh that produced and packaged merchandise for T&T and other retailers had collapsed in the middle of a workday. She and Jim booked flights right away, landed in Dhaka the following morning, and took a car to the disaster site.

It was a horrible scene. Bulldozers were clearing large debris, rescue workers were searching for survivors, and a group of mothers sobbed and held up pictures of their missing sons and daughters. The area looked like the aftermath of an earthquake. According to news reports, the building had been constructed quickly and cheaply with substandard materials on a filled-in pond. More than 2,000 workers had perished, and many more were injured.

Surveying the wreckage, Laura felt queasy. The human loss was devastating, and as a mother herself, she didn’t want to imagine what the parents of the dead and injured workers were going through. But she had to stay strong; she had a job to do. The company would have to find a way to support the victims and their families and to tighten up oversight of its supply chain. Even more pressing, it needed to find a replacement facility. The fall line, which typically accounted for 80% of T&T’s revenue, was scheduled to go into production in two weeks. Laura had to quickly decide if another Bangladesh contractor could do the work or if she should shift to a factory they were already using in China.

Pros and Cons

She and Jim spent the rest of the day touring other facilities, and the next morning they returned to Shahjalal, en route to Shenzen, where they would visit one of their Chinese contractors. Now Jim joined Laura in the lounge carrying two bottled waters and an extra-tall coffee. He looked as haggard as she felt.

“That was rough yesterday,” Laura said. “I can’t stop thinking about the rubble — and the sobbing.”

“Yes,” Jim replied, nodding. A Texan and a former Marine, he could sometimes be taciturn.

“What’s your view on keeping operations in Bangladesh? Can we be sure this will never happen again?”

“I’m not sure,” he said. “Of course, there are pros and cons. A few years ago, when we decided to stop carrying other brands and create our own, we chose to manufacture in Bangladesh for the cost and convenience. Labor and transportation are cheap, quality is relatively good, and all the factories are clustered in a small area. The other pro is that Bangladesh has duty-free access to the European Union, which China and the African countries don’t have.”

Laura nodded. T&T’s five-year strategic plan called for expansion into the United Kingdom, France, and Spain, and the tax breaks would be helpful. “What are the cons?”

“Well, obviously, even though Bangladesh has established worker safety laws, standards, and regulations, they’re often sidestepped or ignored. We had no idea this factory was in such bad condition, but clearly the owners didn’t care, and the inspectors looked the other way for far too long. The facilities we saw today appear to be up to snuff. But there are no guarantees — especially when we and other retailers create so much pressure for fast turnover. There’s also a lot of corruption and chaos.”

“Can we change things for the better? What about the effort that’s under way to pull together an industry coalition for worker safety?”

“That won’t be easy or quick,” Jim said. “Moving everything to China would be more expedient and less risky. But I worry about what will happen if we just pack up and leave. I think—”

Interrupted by their boarding announcement, he broke off. “That’s us,” he said, picking up his bag.

But Laura knew exactly what he meant. If T&T exited, and others followed, where would that leave Bangladesh and its workers? She’d seen the stats. Work from the fashion industry had helped cut poverty in the country by a third and now accounted for a third of its GDP. A mass exodus would be devastating to its economy. But what if T&T stayed, and nothing substantial changed? They might have to face another disaster.

When Laura had decided that T&T should launch its own clothing lines and engage more directly with the supply chain, she’d never imagined that anything like this could happen. Now, as she and Jim walked down the tunnel to their plane, she was at a loss. In her five years as CEO, she’d successfully managed stock market crashes, layoffs, a recession, strikes, downsizing — but nothing had prepared her for this.

Costs and Risks

“We can expand operations, no problem,” Kevin Chen, the owner of the Shenzen factory, told them.

A graduate of Wharton who spoke fluent English, he was a gracious and gregarious host. And he’d been a great partner. Tots & Teens was currently producing 36% of its merchandise in China and had never had any problems there. The hangarlike factory — full of humming sewing machines and workers wearing face masks — was both pristine and efficient. Still, Laura wondered whether Kevin could execute on the promises he was making.

As she and Jim were chauffeured to their hotel in downtown Shenzhen, she picked Jim’s brain again. “Kevin says they can ramp up their operations, but do you really think they can do it as fast as he says?”

“I have no reason to believe otherwise,” Jim replied. “But I suppose there’s no guarantee.”

Laura wasn’t satisfied. “I need more than that.”

“We already use China for a large percentage of our manufacturing, and so far we’ve been happy,” Jim said. “They’ve been doing this for a long time, and they’re good at it.”

“But with an increased production load, will they be able to handle quick turnarounds?”

This was a big issue for T&T. Formerly, it took about six months for the company to design a piece of clothing, send it into production, and get it into stores. But now, because of competition from fast-fashion retailers and the capricious demands of buyers, many T&T lines were restyled every four weeks. The Dhaka factory had manufactured those products.

“I think so,” Jim said, but without his usual confidence.

Laura’s phone pinged with new e-mails. She saw a note from T&T’s head counsel, who was drafting language for the worker-safety coalition, and one from the company’s communications chief to alert management that a protest group had announced plans to assemble outside T&T’s headquarters the following afternoon.

Laura sighed. She could answer those when she got to her hotel room. She turned back to Jim. “And the cons?”

“The cost of labor in China is significantly higher and rising. But my main concern is risk. Right now we’re spread out among China, Bangladesh, and, to a lesser extent, Vietnam, Cambodia, and a few other countries. If we move more of our manufacturing into China, we’ll have 50% of our production there and we’ll be…”

Laura finished his sentence: “Exposed.”

Jim nodded. “I worry about what will happen if costs spike further. We can’t afford to have the margins drop on half our merchandise. Even worse, there could be a worker strike — or a natural disaster — which would mean half our goods delayed or destroyed.” The same scenarios had already occurred to Laura.

The car pulled up to the hotel entrance. After checking in, parting ways with Jim, finding her room, and replying to e-mails, Laura called room service for a hamburger. But by the time it arrived, she realized that she’d lost her appetite. All she wanted to do was lie down and close her eyes.

A Son’s Question

Laura had never been so happy to see the Newark airport. A 15-minute taxi ride later, she was at home in Summit and surprised to see her son, Devon, a sophomore at Columbia, sitting at the kitchen table eating chips and guacamole. “I took the train down,” he said. “Dad told me you could use some cheering up. And I was sick of dining hall and takeout food.” He grinned.

Laura asked about his classes; Devon was a political science major with a focus on international relations. Soon the conversation turned to the disaster in Bangladesh.

“The whole thing is messed up,” Devon said. “My professor says that U.S. companies are exploitative and care only about themselves. He says they’re trying to shirk their responsibilities. Is that true? I can’t believe T&T is involved in this.”

His words stung, but Laura understood. Devon reminded her of herself as a college student: passionate, idealistic, confident, and, well, naive. If only life were so simple…

“I’m sorry, Mom,” Devon said quickly. “I didn’t mean to freak out. I know this isn’t easy for you. If it’s any consolation, I’m sure you’ll make the right decision. You always do.”

Laura smiled. Unfortunately, the “right decision” had never before seemed so elusive. What would be best for the company? For T&T’s employees and customers? For the people who made its dresses, shirts, and sweaters all over the world?

Question: Should T&T relocate its production from Bangladesh to China? 

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