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NEW YORK — The concept of sustainability is evolving from a cost burden and annoyance to manufacturers already under severe price pressures to a way of becoming more efficient, having greater profitability and reducing risks.

This story first appeared in the November 18, 2014 issue of WWD. Subscribe Today.

John Cheh, vice chairman and chief executive officer of Esquel Group, said amid heightened concerns and scrutiny about the environment, working conditions, safety and sustainability, there are major shifts taking place in labor-management relations and production practices. Detailing Esquel Group’s plans to the annual Textile & Apparel Importers Trade & Transportation Conference at the TriBeCa Rooftop earlier this month, Cheh said the company, which manufacturers about 110 million cotton shirts annually, has taken an aggressive approach to changing the supply chain dynamic.

“We’ve turned to lean manufacturing, going modular from fabric to finished garment along the same assembly line, and we’ve found that this reduced [work in process], and improved efficiency and quality because the workers become more productive,” Cheh said.

This is balanced with greater energy efficiency, higher quality equipment and greater overall automation, throughout Esquel’s vertically integrated supply chain that includes operations in China, Malaysia, Mauritius, Sri Lanka and Vietnam. In one case, a single new state-of-the-art knitting machine has replaced 20 workers, while automated cutters reduce training time.

“We take a holistic approach to sustainability,” Cheh said. “It has to encompass the whole supply chain. We’ve applied many new management processes to all our mills.”

This includes a patented dye process that has reduced water and chemical usage.

“Since 2005, we’ve reduced energy consumption per unit of output by 46 percent, and water usage by 61 percent,” he said. “Sustainability is not just a cost, it has a sound business case. We have set our goals for the next five to 10 years where we will have green factories that don’t look like factories, where we will produce the same output with half the workforce through process improvement and automation in an Ecopark, with a botanical garden, galleries and design centers. We are transforming ourselves. We want to set a new model of manufacturing.”

This new facility in Guilin, China, is over 50 hectares, with construction of the factory to begin at the end of this year.

James Gifford, senior strategic advisor for Tau Investment Management, a private equity firm that has as its mission to upgrade the global supply chain, said, “You can make really good investment returns through leveraging sustainability trends, through looking after people, through building up human capital and that there is absolutely no need for a trade off between sustainability and worker’s welfare and profitability and financial success.”

Gifford said the apparel industry has a lot of problems in the global supply chain, “it has a dark side, and this was seen in Rana Plaza, in industrial relations issues.” This runs from factory fires, river and air pollution, to child labor, particularly in the cotton industry, “but there is a huge opportunity on the other side of all these problems.”

He said a key problem in the industry is a lack of qualified managers and management skills in global manufacturing.

“In Bangladesh, the factories are very male dominated and the atmosphere is very oppressive,” Gifford said. “The average factory in Bangladesh has a huge staff turnover of 8 to 10 percent per month. So there’s no incentive to invest in your staff.”

He called Esquel’s model “very rare,” because most factories in Asia have “incredibly poor productivity,” with little investment in technology, upgrading machinery or access to personal technology such as smart phones or apps that can better inform and train the workers.

“But we’re at an inflection point,” Gifford contended. “There’s a new generation taking over, and what we’re seeing in a lot of these factories, particularly in Asia where we’re focused, is the new generation of owners are often Western educated…and their values are much more aligned to…wanting to create enterprises that want to respect workers and respect the environment. We can really work with these people. So we’re seeing most of the interest in investment from Tau is coming from this second generation. They want to be world-class companies and when we come along, bring capital expertise, brand relationships, they get really excited.”

He feels that consumer awareness of the downside of global manufacturing is growing, and “over the next 10 years, I think the consumer side will become much more important.” He said transparency will evolve in a way that it will be impossible for things to happen in the supply chain without it becoming known thanks to social media and more readily available technologies.

“The bottom line is that you can make money out of more efficient, ethical and sustainable enterprises,” he said.

Tau has invested up to 49 percent growth equity capital in several factories and has been able to increase energy conservation, reduce greenhouse gases and water usage, and achieve a three to four percent reduction on textile waste, while reducing occupational risks to workers and instituting health care and banking services.

“Women’s empowerment is critical,” he added. “Better treatment of women and putting more women in management positions and instituting merit-based promotions increases loyalty. This can all bring these operations into the modern world and increase efficiency and profitability and reduce risks and exposure.”

J. Berrye Worsham, president and ceo of Cotton Incorporated, said, “Sustainability is a critical component for cotton’s future competitiveness. The industry is spending a lot of time and money to improve sustainability.”

Worsham identified four pillars for cotton to be competitive with synthetic fibers: sustainability, performance, consumer attitudes and cost.

He said the 2010 spike in cotton prices to more than $2 a pound was an aberration, but it did cause an erosion in cotton’s market share as companies turned to other fibers. As farm production costs have increased over the last decade, he said the key is to determine “how to improve sustainability without increasing costs in the supply chain.”

To help accomplish this, Cotton Inc. has partnered with Field to Market, an alliance working to create improvements in productivity, environmental quality and human well-being across the agricultural supply chain. In the case of cotton, this includes areas such as improvements in irrigation methods, soil erosion and land-use efficiency.

In this same vein, in October 2013 Cotton Inc. teamed with Cotton Australia to create Cotton Leads. Advocating and demonstrating responsible growing practices for cotton, the Cotton Leads program has attracted more than 200 partners across the global cotton textile supply chain since it was launched.

Worsham also noted another new environmental initiative that has led to a fluorine-free version of its Storm Cotton technology, a textile finish that adds durable water repellency to cotton outerwear, in a collaborative project with Archroma, a Swiss color and specialty chemicals company.