OBAL MANAGER\'S ENVIRONMENT CASE STUDY Levi Looks to Cut Its Cloth Differently b
ID: 392973 • Letter: O
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OBAL MANAGER'S ENVIRONMENT CASE STUDY Levi Looks to Cut Its Cloth Differently by Rewarding Responsible Suppliers Shawn Donman, Financial Times [Londoe (UK)] November 5, 2014. p. Calling all hipsters: you may just have a new reason to feel beter about your skinny jeans In a bid to bolster its ethical credentials and meet the demands of increasingly fussy i nial consumers, Levi Strauss & Co is offering a new financial incentive to suppliers as fa as Bangladesh and China to meet environmental, labor, and safety standards The San Francisco-based jeans maker said yesterday that it would begin providing cost working capital to those of its 550 suppliers that do best on those measures he financing, which is being arranged with the World Bank's private sector ant International Finance Corporation, will operate on a sliding scale. As suppliers improve ther environmental performance and condit ons for workers, they will be rewarded intcrest rates on working capital provided through a special IFC facility The project sprang out of conversations started at the IFC following the 2013 Rana Pla factory collapse in Bangladesh, which left more than 1,.100 people dead and prompted new s tiny of fashion brands' supply chains. Through the IFC, Levi Strauss suppliers will have access to cheaper capital than they would otherwise in their home countries. However, Olaf Schmidt, who beads the IFC's global neai practice, ther discount of up to 50 basis points on the interest charged said that those suppliers that did best on labor and other standards would receive a fe The initiative comes at a time when consumers are becoming increasingly interested in the conditions in which their clothes are made. Multinational companies are responding by tightc ing their bonds with suppliers and using new tools to manage them. Michael Kobori, Levi Strauss's vice president of sustainability, said that the compary t contractors about the scheme last week and had already received expressions of interest. Ir t pilot with the IFC worked, Mr. Kobori said, Levi Strauss was committed to helping expand W the rest of the garment industry as part of a global race to the top in standards. Rachel Wilshaw, ethical trade manager for Oxfam, said that offering incentives to sup to improve their practices was a good idea, but whether the scheme worked would depend o how Levi Strauss and the IFC monitored suppliers. The devil will be in the process rather D in the incentive," she said. O 2015 The Financial Times Limited Case Questions 2-10. Consider what happesed in Bangladesh (see the opening profile). To what extent do you efforts by Levi Straass can resolve the kinds of problems that led to that disaster? 2-11. What other people and factors are involved? WhExplanation / Answer
The key issue in this case is with regards to the improvement in the environmental, labor and safety standards being followed by the various suppliers of Levi. The majority of suppliers of Levi is located in third world countries and in developing countries was the wage rates are very low while compared to the wage rates prevalent in the developed countries. This had allowed Levi to manufacture its jeans and apparels at low cost and hence earn handsome profits on its sale. The suppliers, in an effort to minimize their costs, compromised on environmental, labor and safety standards. For instance in Bangladesh workers work in small and cramped factories, are made to work for long hours and are paid dismal wages. The safety standards in the factories are poor and there have been several incidents like fire and accidents in these factories. Thus the issue for Levis was to improve these standards at the factories of the suppliers as buyers are becoming increasingly aware of these factors and are buying only apparels that have been made ethically and by not exploiting labor in poor countries.
My approach and recommendation in this case would be that Levi should properly monitor the processes of the suppliers and provide them with the initial capital that is required to set up a proper infrastructure. Levi should also enter into contracts with its suppliers in which it should be stated that the suppliers should adhere to a minimum required standard related to environment, labor and safety. In case of non-compliance the contract will be terminated. Most importantly when providing incentives to vendors and suppliers Levi should ensure that the incentives are being used properly. This can be done by constant monitoring and control by Levi.
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