From SCDigest's On-Target e-Magazine

- Nov. 20, 2014 -

Supply Chain News: Levi Strauss Expands Ethical Sourcing Program to Offer Low-Cost Loans to Offshore Vendors

Partnership with World Bank Arm will Offer Even Lower Rates to Top Performers in Labor Practices, Safety and the Environment

SDigest Editorial Staff 

Iconic bluejeans maker Levi Strauss & Co. is putting some financial muscle behind its on-going ethical sourcing plans, announcing this week a program in which it will partner with the World Bank to offer low cost financing to its vendors offshore.

The company announced on Tuesday that would begin providing lower-cost loans to its 550 or suppliers worldwide, with those who perform best on a series of labor, safety and environmental measures receiving even lower interest rates.

SCDigest Says: The 2012-13 incidents, exposed a lot of questionable practices in the soft goods supply chain. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

The special financial program is being rolled out in conjunction with a private sector arm of the World Bank, called the International Finance Corporation. Under the rules of the program, loan rates will be determined on a kind of sliding scale. As suppliers improve conditions for employees and improve environmental performance they will be rewarded with lower interest rates on for the loans, which will provided through a special IFC facility.

The Levi's program began to developed after a series of deadly fires and other accidents at apparel factories in Bangladesh and Pakistan in 2012 and 2013, most notably the 2013 collapse of Rana Plaza factory building in Bangladesh, which left more than 1,100 dead across five companies operating in the facility.

This disaster prompted great scrutiny of international supply chains in the apparel sector, and led to separate programs by groups of largely European and then US retailers and brand companies designed to promote safer working conditions at factories in the region. These programs were planned to offer loans or other financial assistance to those suppliers to improve operating conditions - as well as promises of increased vendor inspections. (See Walmart Announces Own Plan; Bangladesh Tragedy Quickly Results in New Sourcing Rules, as Europe Leads Way While US Retailers Pursue Different Path.)

It is not clear how well those programs have in fact played out since then.

Regardless, Levi's is in a sense now also going it alone with this new program, which is designed to provide even greater incentives to improve conditions by offering better-performing contractors the chance to reduce their cost of capital.

Through the program with the IFC, Levi Strauss suppliers in general will have access to loans at lower rates than they could find in their home countries. But suppliers which score high marks on labor, safety and environmental standards will get a further discount of up to 50 basis points (.5%) on the interest charged.

The 2012-13 incidents, which also included a deadly fire in Pakistan that killed more than 100 workers as well as a series of smaller but still deadly problems at other apparel factories, exposed a lot of questionable practices in the soft goods supply chain. Those included rampant sub-contracting, such that retailers and brand companies really lost track of what companies were making their garments in what factories, and ruthless demands for lower costs from apparel suppliers that they claimed left no money to invest in safer facilities and more generous labor practices.

For example, apparel dust and fibers are known as major fire hazards, yet many facilities in that region were found to have such dangerous debris throughout their factories. At the factory where the deadly Pakistani fire took place, many of the escape routes (doors and windows) were padlocked shut, trapping workers as the fire began to rage.

(Sourcing and Procurement Article Continues Below)