Patagonia

Outdoor-apparel giant Patagonia is building a more transparent supply chain — and you can too

By Alyssa Hurst

Photography courtesy of Patagonia and Tim Davis

In 2013, more than 1,100 people were killed, and 2,000 more were injured, when an eight-story building that housed clothing factories collapsed in Dhaka, Bangladesh. Despite visible cracks in the building and employee concerns, some workers say they were forced to enter the building anyway, or risk losing their jobs.

PatagoniaJust months earlier, in November 2012, a garment factory outside Dhaka caught fire, killing more than 100 workers and injuring hundreds more. The factory had an insufficient number of exits, as well as other poor fire-safety measures.

In the aftermath, brands like JCPenney, Benetton and Walmart, whose supply chains were connected with these disasters, found their practices, reputations and ethics called into question. Though these tragedies stand out as landmark supply chain failures, the conditions that caused such large-scale losses of life aren’t unique to these factories, and the consequences of a poorly managed supply chain can wreak havoc on any brand.

Hidden abuses

The problems that can lie hidden in the depths of a company’s supply chain are many, and as manufacturing has increasingly moved overseas and into areas like Bangladesh, India, Vietnam and Indonesia, upholding strong business ethics is becoming more difficult as well. “Now you have what you had in China 10 years ago, which is very low-cost production, and some of the same issues that came along with that, just in a different geography with different cultural issues and perhaps even less developed infrastructure around reporting, accountability and governance,” says Robert Kuhn, senior director and principal advisor at Kuhn Associates Sustainability Advisors, LLC.

From child and slave labor to poor working conditions, low minimum wages, human health and safety issues, and environmental impacts, supply chains abroad and even in the U.S. can put companies at risk, both in terms of reputation and the bottom line.

Of course, most in the business world know these issues exist. “But my view is that the accountability structure we currently have is broken,” says Kuhn. He explains that most businesses send suppliers self-report questionnaires, conduct yearly audits or employ independent auditors to do onsite auditing. “And that’s supposed to send the signal that, ‘hey, we are watching you’ — we are letting you watch yourself, but we are watching you,” says Kuhn. Plus, things like bribes and leaked review dates spoil the accuracy of audits.

How Patagonia gets it right

Some companies have thousands of links in their supply chains that span the entire globe, so “what can we do other than put in hard dollars … to improve the performance on social and environmental and ethical issues with our suppliers?” says Kuhn. “We can mentor them. We can do onsite training. We can build in incentives for quantitative improvement.”

There are plenty of good actors out there managing their supply chains in increasingly more responsible ways, says Kuhn. One example is Patagonia, an outdoor apparel company and certified B Corp. based in Ventura, CA. As Patagonia sees it, suppliers aren’t just another link in the chain, but are instead treated as partners.

“I parallel it to a human relationship,” says Rachel Cantu, VP of global supply chain at Patagonia. “Once you’ve decided that you want to be friends with somebody, to maintain that friendship, you continue to cultivate that relationship and you continue to get to know each other better on a deeper level. Then maybe you can partner … in certain goals you might have.”

Patagonia

Workers at a factory in Agalawatta, Sri Lanka that helps produce Patagonia’s products.

For Patagonia, the process of bringing a new partner into the supply chain is known as “4-Fold.” The system aims to put four factors (sourcing, quality, social and environmental) into balance. Once the company is sure a potential supplier is financially viable, capable of producing the needed product and in line with company goals, Patagonia’s team or an authorized third-party auditing firm conducts an onsite evaluation before committing to the long-term partnership. From there, the company places an emphasis on consistent communication to not only learn about potential issues, but also to help suppliers improve and keep them informed about the business. “We are communicating with most of our suppliers, as a company, on a daily basis,” says Cantu. “If we didn’t have that fairly constant contact with our supply chain, we could easily get out of touch with what they are doing. Even with that constant contact, we can’t possibly know everything.”

Part of what makes Patagonia so strong in terms of responsible supply chain management, says Cantu, is the fact that the individuals who sit on the company’s 4-Fold team are the same people who work directly with suppliers, often face-to-face. “The group of people who are working on the overall lifecycle management of our suppliers is not a separate group from the ones who are doing daily business with our suppliers. It’s one and the same,” says Cantu. “That responsibility for working in this way is embedded in the roles of everyone in supply chain at Patagonia. With that, the relationship building is very consistent.”

The importance of culture

Cantu is quick to point out that Patagonia’s supply chain is not always squeaky clean. “Although we are seen as an example of good practices, we are by no means perfect and haven’t been in our history,” says Cantu. “This is a learning experience for everyone, and no one is going to do this perfectly from the beginning.”

When an issue with a Patagonia supplier does arise, the company works to get to the bottom of the problem, even if it takes time. “We are big on seeking first to understand and then to be understood,” says Cantu. Sometimes, Patagonia learns that the problem is a culture-based one. “That understanding doesn’t change the perspective we have, or the beliefs we have around responsible supply chain, but in order for us to be effective and successful with that goal, we need to understand the various cultures we are working with,” says Cantu.

Cultural barriers are a common problem for companies working to maintain responsible operating conditions within their supply chains, says Kuhn. “Our judgement is that children shouldn’t work in a Bangladesh factory, and the Bangladesh view is that the children can either work in the factory, or they can sip water out of the street,” he says. “Those are different views of what’s ethical or appropriate. But if we are intent upon having our suppliers abide by a Western code of conduct based on our ethos and values, then we have to have them understand that we mean it, and we have to have an accountability structure.”

For Patagonia, remediating supply-chain problems isn’t as simple as kicking a company out for one indiscretion. “Our first choice is always to work with the supplier in partnership to improve,” says Cantu. “Sometimes those improvements take a long time, but if the supplier is fully committed to that, then as a partner, we stay in business with them.”

This, says Cantu, is a responsible way to operate, not only in terms of preserving the resources it would cost to replace the supplier, but also in terms of improving the supplier community for all businesses. “We are building the basis for a very responsible supply chain, not only for us, but for other brands to tap into as well,” she says.

Technology and transparency

Patagonia

Hewage Madusha Priyanthi, a supervisor at the factory in Sri Lanka.

Much of what is changing in the realm of global supply chains, both positive and negative, is due to technology. On one hand, technology has greatly increased the need for rapid production and created significant pressures for suppliers, while at the same time allowing companies to keep suppliers at arm’s length. “You have these processes that, in the old days, would have been more visible because the relationships were less attenuated with people you had done business with. You knew them. They were local — and you had more time. People met with each other, they visited factories,” says Kuhn. “We would not be able to fulfill consumer demand, improve people’s lives and give them choices without the advances we’ve made, but at the same time, that has come at the cost of impact on humans, communities and the environment.”

Kuhn says that the rise of technology and the internet improved processes and placed a focus on quality, but it also threw supply chain management off the rails for a period. Today, says Kuhn, we are playing catch-up, and technology is driving that as well.

Patagonia is currently working on developing a cloud-based system to serve as a supplier portal for lifecycle management, and Kuhn is following the development of an app that would allow workers in supplier factories to snap real-time video and images of the conditions in their workplaces, both positive and negative.

“Technology is wonderful for bringing transparency to the supply chain and for telling the story and getting information out,” says Cantu. Patagonia dedicates a large portion of its website to increasing transparency in its supply chain, particularly through its Footprint Chronicles initiative, which informs consumers about where and how Patagonia sources things like wool, down and cotton. It also addresses important supply chain issues such as living wages, fair trade certifications and climate change. Further still, Patagonia’s interactive supply chain map allows consumers to dig into the details of each of the company’s suppliers.

That’s important because the increased level of transparency that technology provides has bred an entirely different kind of consumer, and this is a powerful driving factor behind some of the efforts to improve supply chains on a larger scale. “The ability to get information at our fingertips immediately is something I think has contributed to this higher level of consumer awareness,” says Cantu. “A consumer can vote with their dollars in accordance with what they believe. … When the consumer starts expecting something, that’s what really activates companies that may not have thought about this before.”

What’s more, those “conscious consumers” can easily turn into top assets for companies in other ways too, says Drew Greenblatt, CEO of Marlin Steel Wire, a company that prioritizes sustainability in its supply chain and manufacturing of wire baskets. “People are more interested in collaborating with a company that is a good steward of the environment than one that could care less. … They can get fired up and engaged with that type of company.”

This interest in good stewardship “is not just a passing fancy,” says Greenblatt. “Over time, some of the older paradigms are going to wither away. It takes time, but it’s growing all the time and we are feeling it.”

Get started on improving your supply chain

For Patagonia, cultivating a commitment to supply chain started with the first seeds of the company: its mission.

“It really just starts with knowing what you believe and what you want to accomplish as a company,” says Rachel Cantu, VP of global supply chain at Patagonia. With that simple idea in mind, the company structured everything else around its commitment to corporate responsibility and the environment. “Having those responsibilities embedded within the traditional roles that any company would need to have in order to operate is really the way to go,” Cantu says. “It doesn’t cost a lot more money and it just brings a consistency to the conversations. … We are becoming a larger company, and we are showing that managing a supply chain in this way is scalable.”

But not all companies have the benefit of starting from scratch with a deeply rooted commitment to these ideals. For those companies, it is important to remember “you don’t have to reinvent the wheel, and you can’t [always] afford to,” says Robert Kuhn, senior director and principal advisor at Kuhn Associates Sustainability Advisors, LLC. “The first thing you should do is the easiest, simplest materiality analysis you can find.” That materiality analysis will help a company find an issue to focus on “based on the intersection between stakeholder concerns and impact on the business,” says Kuhn. “If you see that child labor is both a big concern for stakeholders and has an effect on the business because you are in an apparel company … that’s where you want to work.”

With a clear focus in mind, Kuhn says the easiest way to start the work is by reaching out to a wide range of resources. This includes frameworks like the one created by the Sustainable Purchasing Leadership Council (SPLC), which offers category-level guidance on a number of issues, and ISO’s corollary framework, ISO 20400. “Look into your industry or across industries or in public resources — nonprofits too — to try to find issue-related solutions,” Kuhn recommends.

One of the most significant ways businesses can improve their supply chain is by coming together and sharing ideas. “If brands can agree that we all have similar goals and similar requirements we want to meet, then why multiply that across all the brands?” says Cantu. “A lot of us are working with the same factories and the same mills, so the more we can share information, the better.”

This mentality has proven particularly successful when it comes to the SPLC. “The members of that organization are institutional purchasers who represent over $1 trillion worth of spending annually. The thought there is to leverage that spend to create a demand for more environmentally and socially responsible goods and materials,” says Kuhn.

Companies are coming together to work on sustainability problems in other ways too. “Subaru is a really special company because they welcome other companies to come and learn about their techniques. They are not hoarding that information,” says Drew Greenblatt, CEO of Marlin Steel Wire. “Normally people are sensitive about not sharing secrets, but in an effort to protect the environment, Subaru has opened up its factory to competitors.”

Says Cantu, “You can’t eat the elephant in one bite. Start somewhere, have progress and move on to the next thing.”

Alyssa Hurst is the associate editor of SmartCEO. Contact her at ahurst@smartceo.com.