Purchasing Practices at a Glance

Purchasing Practices at a Glance

by Kim van der Weerd last modified 2022-07-13T14:56:24+07:00
When do brands pay suppliers for the goods they’ve produced? How are prices negotiated? Are technical specifications agreed before production is due to start? Here's a short overview of the issues.

What are Purchasing Practices?
“Purchasing Practices” is an umbrella term that refers to how buyers engage with their suppliers. For instance: when do brands pay suppliers for the goods they’ve produced? How are prices negotiated? Are technical specifications agreed before production is due to start? The Better Buying Institute, a research organization that has long analyzed brand purchasing practices, breaks the term down into seven key practices and reports annually on the industry’s progress.

Seven key Purchasing Practices that impact working conditions:

  • Planning and forecasting
  • Design and development
  • Cost and cost negotiation
  • Sourcing and order placement
  • Payment and terms
  • Managing the purchasing process
  • Win-win sustainable partnership (formerly CSR harmonization)

Research has linked poor purchasing practices to adverse human rights outcomes. For example, if a brand or retailer unexpectedly cancels an order this can make it difficult for their suppliers to make payroll on time. A 2019 report by Human Rights Watch documents how apparel brands’ purchasing practices drive labor abuses. This report by ILO also links purchasing practices to wages on the production floor.

What drives Purchasing Practices?
In order for a brand or retailer to be successful they must sell clothes that people want to buy.  Particularly in the ‘fast fashion’ segment of the market, satisfying consumer requirements typically means brands must respond rapidly to changing trends to deliver an abundance of styles at cheap prices. These imperatives -combined with often narrowly defined shareholder expectations- can create incentives that lead to social and environmental investments being deprioritized, and to issues like low pay, wage violations, and excessive overtime emerging on the factory floor.

How to change the incentives?
The ultimate financial risk to anybody in the fashion industry – whether buyer or supplier – is products not selling. Under the current predominant sourcing model, suppliers typically incur a disproportionate share of that risk, since they often have to make irreversible financial decisions on staffing and raw materials before final orders are confirmed.

Faced with sunk costs and very few guarantees about how many pieces they’ll sell, many suppliers seek to keep their own costs and obligations flexible, by using short-term contracts, low wages, and subcontractors, for example.  These practices can adversely impact on labour rights and working conditions on the factory floor.

Inequitable distribution of risk stems from an unequal balance of power in the supply chain. Many brands and retailers are much larger than their suppliers and are able to leverage their size to dictate terms of trade.  Hence, while they can manage uncertainty by passing the financial risk on to suppliers, those suppliers often lack the negotiating power and financial reserves to shoulder that risk.

Transforming the incentives by rebalancing supply chain risk and addressing the resulting adverse social and environmental outcomes is a key goal of many organizations and initiatives working to improve global purchasing practices.

Why have Purchasing Practices become such a pressing topic?
Though poor Purchasing Practices have long been a barrier to sustainability objectives, brands’ sweeping order cancelations in the wake of the pandemic put purchasing practices at the center of the sustainable fashion story. In March 2020, Remake launched a petition demanding brands to #PayUp for cancelled production orders. The campaign accrued over 270,000 signatories. The pandemic also marked the first time that suppliers came together to collectively advocate for improved Purchasing Practices, producing a joint statement on Responsible Purchasing Practices amid the COVID-19 Crisis - STAR - Sustainable Textile of the Asian Region.

What is the industry doing about poor Purchasing Practices?
Which practices are included within the term “Purchasing Practices” and what constitutes good practice are some of the most pressing questions facing the industry.

  • The Sustainable Terms of Trade Initiative, which consists of 13 industry associations from nine countries, recently went through a consultative process resulting in 12 key recommendations for improved Purchasing Practices.
  • The Industry We Want, a multi-stakeholder initiative working to connect key actors across the supply chain to drive industry-wide progress, and has partnered with the Better Buying Institute to produce a 15 question Partnership Index, available for all suppliers to rate their buyer’s purchasing practices. The aggregated results will be presented in an annual purchasing practices score, which aims to act as a yearly ‘temperature check’ and will be updated until at least 2025.
  • One of the separate but interconnected efforts that has been 'spotlighted' by TIWW is the Common Framework on Responsible Purchasing Practices, which is a reference point to provide a common language and alignment on what constitutes responsible purchasing practices. This framework has been written by the MSI Working Group on Purchasing Practices and amended based on a stakeholder consultation. The MSI Working Group includes representatives from ETI, Ethical Trade Norway, Fairwear, the German Partnership for Sustainable Textiles (PST) and the Dutch Agreement for Sustainable Garments (AGT/NGA). In 2022-2024 this group are convening a 'Learning and Implementation Community' (LIC) of companies committed to improving purchasing practices, to work together in a peer-learning environment to implement practical changes.
  • Transformers Foundation, the unified voice representing the denim industry and its ideas for positive change, put forward Eight Ethical Principles for Jeans & Denim Purchasing to govern brand and retailer behavior.

Legislative frameworks designed to strengthen corporate accountability seek to hold companies accountable for their social and environmental impact – both within their own operations and their supply chains. This includes provisions specifically designed to address purchasing practices. Learn more.

Check out the Asia Garment Hub’s page on Purchasing Practices for the latest industry news, ways to get involved, and relevant resources.

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