Apparel factory fire reveals big brands' shadowy supply chains

By John Chalmers and Serajul Quadir

DHAKA (Reuters) - Sweating and trembling as he fielded questions about last month's killer fire at one of his factories in Bangladesh, Delwar Hossain insisted he had no idea the workshop was making clothes for Wal-Mart Stores Inc (WMT.N: Quote) when it went up in flames.

On the other side of the world, Wal-Mart said the factory - where 112 workers lost their lives - was not authorized to produce its merchandise and had been sub-contracted by a supplier without its permission.

That there should be such blind spots in the supply chain of the world's largest retailer is puzzling.

However, an investigation by Reuters since the November 24 blaze has found that, under pressure from big Western brands to produce huge volumes of apparel fast and at rock-bottom prices, Bangladeshi suppliers routinely sub-contract their orders.

This frequently happens without the knowledge of the end-buyers and, all too often, the orders end up in factories that under-pay workers or cut corners on safety.

Experts in supply-chain risk say the practice has led to a lack of control over what is manufactured where, by whom and under what conditions.

"The first problem is retailers and wholesalers are demanding more and more compliance and more and more protocol. However, they keep pushing everyone for lower and lower prices," said Edward Hertzman, who runs Sourcing Journal, a trade publication.

"You have one department of the company campaigning for fair wages etcetera, but then in the very next room the sourcing department is asking for 10-20 percent cheaper. How do you do that?"