By Matt Smith, Founder, ICIX
While the importance of brand protection is not new to the apparel industry, customers' increasing access to information requires even greater focus by companies to protect their brands and work to maintain and build customer trust. This customer trust is a foundation upon which companies live. And without customer trust, companies fail.
Customers' belief in your brand – whether that is the quality, value, principles and ethics, safety or other characteristics that define your company and products – strongly correlates to their willingness to continue to open their wallets and wardrobes to your products.
It's no surprise, then, that brand protection is a regular hot topic at industry events, and the news reminds us on a continual basis of its importance. No company wants to be in the headlines for the next Rana Plaza disaster or an unsafe product. However, many companies still lack the sophistication to effectively collaborate with their trading partners to truly know where and how their products are made - and this is where significant risk lies. The lack of oversight makes it very difficult to manage product safety, compliance and corporate social responsibility (CSR) programs. The lack of supply chain transparency exposes companies to significant risk and continues to be one of the core issues facing both apparel retailers and manufacturers.
In a survey conducted at an apparel industry conference this past year, 44 percent of companies indicated that they only have visibility to their Tier 1 suppliers. In other words, they know who they cut a check to, but do not have visibility or control over where and how their products are made. Even more surprising, 77 percent of companies indicated that their current compliance, safety and CSR programs are either "not effective" or have "limited effectiveness."
Today's supply chains are more complex than ever. It is here — with the companies that source the material, that make the products you sell and help get them to market — that significant risk lies. Many of the ethical and social issues, such as forced labor, unsafe conditions and corruption, arise at the factory location or can occur in the sourcing of the product and material components. Poor manufacturing processes can lead to lower quality and even unsafe products.
Without supply chain transparency, effective compliance programs and proper control, companies may be exposed to significant negative brand risk. These issues are intensified by the ever more informed consumer. Customers demand transparency, and negative information spreads incredibly fast in today's socially connected world.
I recently came across another reminder of the importance of brand protection issues while en route to the International Consumer Product Health and Safety Organization's (ICPHSO) annual conference this past month. The front section of that Sunday's San Francisco Chronicle contained a full-page ad from Lumber Liquidators. The ad, which also ran in several other leading newspapers, attempted to clarify the status and safety of its products and reiterated Lumber Liquidators' focus on its customers and their customers' trust. An expensive and necessary task, repeated in many venues as the company attempts to repair the damage that had been done.
Lumber Liquidators lost half its market cap the first week after a "60 Minutes" story last spring outing the company's use of a toxic formaldehyde in its products and is down roughly another two-thirds over the past year. While not an apparel company, this is one of countless examples of the tremendous negative impact to a company's brand, and value, from supply chain issues.
During the ICPHSO conference, two separate speakers in different sessions each quoted Warren Buffett's statement that "It takes 20 years to build a reputation and five minutes to ruin it." In today's connected world with an increasingly informed consumer, you could argue that it may take only five seconds instead of five minutes.
Importantly, the next line in Buffett's quote was "If you think about that, you'll do things differently." I hope companies do think about that, and do commit to doing things differently. Companies must have strong programs to manage their supply chains, to manage the safety and compliance of their products and trading partners, to ensure the ethical and social responsibility of their programs.
Companies need greater transparency and control. They need programs that help manage their trading partners and their products more effectively. While the industry is working through many of these issues and defining best practices, companies themselves must embrace technology to help automate these processes and support their teams. The right technology streamlines these processes, enabling what are typically understaffed departments to manage by exception. Such tools can then release compliance teams to focus on those critical items that need the most attention and get ahead of issues before they become serious.
Companies must employ an effective combination of technology and processes to help enforce their standards and expectations across their trading partners and ensure compliance with their policies.
Effective programs enable companies to build upon the hard earned trust that has been developed with customers. These initiatives drive brand reputation and customer trust, and are so critical that every executive and every employee has a responsibility to help ensure their success. No company can afford to ignore the risks facing its brands. Those controlling those risks will best position themselves for success.
Matt Smith is the co-founder & chief strategy officer of icix, which helps many of the world's largest companies manage risk across their global supply chains.To read more about icix, Click Here.
This blog post was originally published on Apparel.