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VF Corp. Outlines Bangladesh Plan

The company’s new “Third Way” program combines its own manufacturing practices with those it requires of its contractors.

WASHINGTON — VF Corp. is hoping to establish a third way for Bangladesh apparel manufacturing.

As Western brands and retailers continue their efforts to strengthen fire and building safety standards in the Asian country’s apparel industry in the wake of two factory tragedies, Eric Wiseman, VF’s chairman, president and chief executive officer, on Wednesday outlined the steps the group has taken to make factories safer both as a corporation and as a member of the broader brand and retail initiative the Alliance for Bangladesh Worker Safety. These include a hybrid model that combines VF’s own manufacturing practices with those it requires of its contractors.

VF, Wal-Mart Stores Inc., Target Corp and Gap Inc. led the launch of the alliance last July, after factory tragedies in Bangladesh claimed more than 1,240 lives. The catastrophes sparked a global outcry for reforms in the Asian nation’s apparel sector, spurring the global fashion industry, labor groups and international nongovernmental organizations to implement new safety plans and reforms to provide safe work environments.

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Wiseman’s comments offered a rare glimpse inside one of the alliance members’ own on-the-ground initiatives and unveiled a new concept the company is launching in Bangladesh.

In a country where there is little Western investment or involvement in partnering with factory owners to build structurally sound factories, VF appears to be a virtual pioneer. Wiseman said VF is helping a supplier partner in Bangladesh build a new factory under the company’s “Third Way” program.

“The first way to make product is to make it in your own factories,” Wiseman said. “The second way to make it is to contract to somebody else’s factory. The third way is to work together with someone to bring our significant manufacturing expertise to bear and have them invest in a factory above and beyond all of the standards in that area. It is a factory that looks and runs like a VF-owned and -operated factory.”

VF made 100 percent of its own apparel in its own factories until the early Nineties. Today, it sources production from 1,800 independent contractors around the world and operates 30 factories of its own. Last year, independent contractors produced 70 percent of its units, with the remaining 30 percent coming from the company’s own facilities. The group, which generated $11.42 billion in revenues last year, sourced 500 million units across 35 different brands.

The factory currently under construction in Bangladesh, to be operated by The Rising Group, is the first in that country to be built under VF’s program.

“They will own and operate the factory, but it will be engineered by VF’s manufacturing expertise,” Wiseman said. “One of the things that happened in low-wage-rate countries — it happened over time everywhere — is they just load bodies in the factory because the labor is so cheap. We think we can get multiple advantages by using our manufacturing engineering capabilities to lay out a sophisticated VF standard factory that they will own and operate, and then they can take that learning and spread it to other factories that they may own or operate in the future.”

Tom Nolan, vice president for global sourcing at VF, said in a separate interview that the factory, about 37 miles north of Dhaka, is a two-story structure that will produce woven bottoms for VF and is slated to be completed and fully operational by July 1.

“We have been there since 1990 and continue to grow our business in Bangladesh,” Nolan said, adding that VF recently moved a footwear program to the country. “Regardless of any five-year commitment [through the alliance], we are there for the long haul and want to partner with factories to make it better.”

Through the alliance, VF has contributed $5 million to a $50 million Worker Safety Fund set up by the 26 alliance member companies, which is being used to provide training and worker empowerment tools. The alliance also provides another $100 million in low-cost capital, available to factories for loans to make safety improvements.

“With all of the activity in Bangladesh over the last 12 months, particularly since Rana Plaza, there was a call to action to do even more than what we had been doing and to do it together,” Wiseman said. The Rana Plaza complex housed garment factories and collapsed last April, killing 1,132 people.

Wiseman said 80 percent of the 91 contractors VF uses in Bangladesh, many of which produce garments for other companies, have been inspected. VF has also invested another $1.5 million to establish a compliance office in Dhaka employing 15 people.

A six-month progress report released by the alliance in February showed that 31 percent, or 222, of the 700 garment factories its members use in Bangladesh had been inspected. Nolan said there are now 830 factories covered by the alliance, and 44 percent of those have been inspected.

Underscoring the magnitude of the undertaking, a separate initiative, the Accord on Fire and Building Safety in Bangladesh, has 150 member companies covering some 1,500 factories in Bangladesh. It is also conducting inspections.

Late last year, H&M unveiled a sourcing project that includes implementing a living wage that covers workers’ basic needs; this will be implemented in model factories, from which the company will buy 100 percent of the capacity produced during a period of five years. Three model factories, two in Bangladesh and one in Cambodia, will be running the plan by 2014.

Joining Wiseman on a call with WWD was Ellen Tauscher, chair of the alliance, who said the group is “well on its way to achieving the aggressive milestones we created for ourselves when we began last year,” but acknowledged the companies still face significant challenges.

“There is still a lot of hard work to do. There is still a lot of political turmoil in the country, and there is still a lot of misunderstanding. We have language gaps, cultural gaps and time gaps — things that we have to overcome and that make it more challenging to achieve what we have to achieve. But I think because of the kind of people we have involved, we really have moved the needle to get to where we want to go.”

One of those challenges is unauthorized subcontracting, which was linked in reports to some production in the two factory tragedies.

Asked if the alliance members were still vulnerable to illegal subcontracting, Tauscher said it is an “issue,” but one that is being addressed.

“One of the reasons why we are so pleased to have companies like VF is not only do they have tremendous worldwide global reach but they have their own pedigree for their own manufacturing. We have learned lessons for how people get around the requirements for our existing member factories and operations. We make very clear that people that alliance companies are sourcing with cannot have subcontracting in factories that are not approved.”

Wiseman said VF has a “one-strike-and-you’re-out policy” with respect to unauthorized subcontracting.

“We hope that makes people think twice about it because they will lose a potential customer,” Wiseman said. “Will it happen again? Yes, it will. People still run red lights. But the penalty is one strike and you are done.”