What I wish I knew.
Margin. One word that has so much impact. A word that connects the strategies and goals of a company to the outcome of a supplier. A target that often determines the final product appearance and even placement at a factory.
For years, I sat through meetings - sourcing trips, costing, proto reviews, production trips - at the local office headquarters, at a subsidiary location, and even at factories where negotiations were part of the process synonymous with margin goals. Trained as a designer at various companies and roles through the years, margins were always a part of the equation. I obliged, designing products with fabrics that met the cost parameters and watching as elements of the product I created were stripped away to meet the goals.
In the earlier years of my career, my creativity felt threatened by margins and frustration ensued so much that the ability to get lower costs without product changes felt empowering. I remember vividly meeting in Hong Kong with suppliers “hammering” out costs while attempting to preserve as much of the garment as possible, a bit of game theory. We all knowingly or perhaps unknowingly participated, rolling up to an overall margin based on projections per categories that had their own targets.
On the other side the pressures mount for suppliers to pay workers and overhead costs. Of course, not all adverse impacts on workers can be traced back to brand practices as some suppliers do quite well, much like brand owners and executives, but we should acknowledge that negotiating as a tactic perpetuates a lack of transparency which now some seem to demand as a solution.
It wasn’t until further along in my career, when I traveled more, established relationships with suppliers, had continuous lines of communication that I realized the error of my ways - the impact of it all. We are positioned to bring products to life that are free from defects, at all costs but there is a cost. The cost in question can sometimes mean the difference between a supplier’s ability to afford stability to its workers, childcare, sometimes food, and even keep the lights on, let alone the ability to transition to efficient energy sources. Our methods to drill down pricing can impede efforts made towards a ‘Just Transition’.
This is one reason I often debate whether executives understand that setting sustainability targets - which impact their value chain - can bring adverse effects without shifting internal practices regarding supplier engagement. They promote sustainability and social responsibility goals often illuminated in their sustainability reports. They hire sustainability experts, although many at the manager level often don’t have the vantage point and/or influence over internal practices; and create KPIs to achieve their sustainability or dare I say, ESG, targets. But the procurement process (often at odds with the design vision) still seems to remain with negotiations at the helm, and research has shown that it’s embedded into the relationships between brands and suppliers. What’s troubling is when negotiation tactics lead to actions such as discounting, order cancellations, liabilities, holding goods/orders, delayed payment which we think we are doing to meet our goals, when in fact we are doing the opposite – being counterproductive to the overall goal. And when margins goals are continuously set to be static or increased, but energy costs and/or living wages increase, therefore supplier costs are higher, the impacts can be felt and pressures mount on both ends.
Embedding sustainability goals into internal operations are vital and educating the next generation of designers, merchandisers, production partners, even sales should include the impacts of negotiating, that “winning” can be costly when other lives are at stake. That cancellations and order changes have consequences, and that margins can’t always be the driver. I certainly wish I was aware and hopefully this can serve as a wakeup call for those that are still driven by just one word, without heed.
Bio
Chana Rosenthal is the principal and founder of reDesign Consulting, an apparel focused sustainable business advisory firm. She works with clients on thoughtfully created strategies and frameworks that shift internal business operations to be more sustainable and drive impact across the supply chain. She's done extensive work with the NYU Stern Center for Business and Human Rights and the NYU Stern Center for Sustainable Business, as well as other organizations and businesses. Prior to consulting, she had a long career in apparel denim design with significant roles at several well-known brands like Ralph Lauren, Michael Kors, American Eagle/AEO.
She also serves on the associate council for Delivering Good, a non-profit that distributes excess inventory to those in need through a network of community partners. Chana has an Executive MBA from NYU Stern, specializing in Sustainable Business and Innovation, and Supply Chain Management, and is based out of Brooklyn, NY.
