Lululemon’s Supply Chain Scandal in Bangladesh

Introduction

The supply chain is an essential component of every business that represents a link between a company and its suppliers to make a final product and distribute it to a customer. Often, various companies, including international corporations, face supply chain issues, and Canada-based Lululemon is not an exception. The producer of sporting clothes has become notorious because of the scandal in Bangladesh, where numerous female workers report that they are regularly beaten. Thus, the main objective of this essay is to demonstrate that the given scandal was caused by the specific reasons that include economic factors mainly. Furthermore, it is indicated that such recommendations as the cooperation with non-profit organizations, providing the workers with full social rights and others are useful for avoiding similar scandals in the future.

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Reasons for the Scandal

To begin with, one should mention that the scandal was inevitable. It is so because 2018 witnessed as Lululemon CEO, Laurent Potdevin, left his office. Agnihotri and Bhattacharya (2019) argue that this person contributed to establishing a toxic work culture within the company. Based on the information above, one is not surprised by the fact that other managers of the firm also perform their duties improperly. In addition to the personal peculiarities of some key figures, the scandal was caused by appropriate outsourcing, risk and performance issues that will be described further.

Supply Chain Outsourcing

As has been mentioned, Lululemon is a Canadian company that has a factory in Bangladesh. The choice of this Eastern nation is explained by the desire of the firm to achieve more benefits from making its products. The current economic situation in the world demonstrates that it is more profitable for a business to build its factory in a developed country than to produce goods within the domestic market. It is so because developing nations pay more for the same activities. The table below by Sardar, Lee and Memon (2016, p. 3) presents hourly compensations in various countries and explains why international corporations tend to move their facilities to the South East.

Type of economy Country Labour cost in US $
Developed Norway 64.50
Developed USA 35.53
Developed UK 30.77
Developing Vietnam 0.60
Developing Pakistan 0.58
Developing Bangladesh 0.40

The phenomenon above is known as outsourcing, and various brands utilize its principles to achieve cost savings with the help of lower wages. However, the fact that is good for businesses is not the same for individuals. As a rule, lower compensations are accompanied by poor working conditions and dissatisfaction among workers. As for the scandal under consideration, Marsh and Ahmed (2019, para. 6) argue that Lululemon labourers make approximately £85 a month, and it is fewer than the cost of leggings that they produce. In addition to that, Brain (2019, para. 6) stipulates that people at the Bangladesh factory are forced to work 18 hours a day to obtain their salary.

Thus, financially driven supply chain outsourcing was the main reason for the scandal. Since the workers earn little money and come from a third world country, they are not respected, which makes them subject to abuse, both physical and mental. One should mention that the scandals that appear because of a company’s intention to save its funds are typical now, and many examples prove it. Among them, it is reasonable to emphasize Apple’s child labour incident. The scandal erupted when it was revealed that the US firm employed children to manufacture its goods, which was the violation of human rights. Even though such issues arise, outsourcing is still requested because of its economic advantages.

Supply Chain Risks

In addition to the information above, one can state that outsourcing also results in a few supply chain risks because of the focus on cost-cutting. Christopher (2016, p. 191) stipulates that outsourcing is one of the principal factors that contribute to higher supply chain risks. According to Sardar, Lee and Memon (2016, p. 3), these risks include border crossing complexity, the possibility of late deliveries, fluctuations of the exchange rate and others. As a rule, companies that intend to place their facility abroad estimate these threats carefully to minimize their effect. This fact contributes to the efficient and continuing performance of the whole supply chain. When it comes to the case under consideration, it is possible to state that Lululemon has managed to overcome many of the potential issues.

At the same time, the scandal indicates that not all the risks were mitigated. It seems that Lululemon either did not consider or did not draw attention to the cultural peculiarities of the target economy. It refers to the fact that local managers achieve lucrative economic conditions with the help of neglected safety regulations and exploitative labour. Another essential element of the conflict is represented by the fact that women constitute a significant part of workers at the Bangladeshi factory. On the one hand, female individuals are often subject to various kinds of abuse because they are traditionally weaker in comparison with men. On the other hand, the fact that women suffered in the Lululemon’s scandal was negative for the company’s image that focuses on the female audience. These data indicate that the disregard of a single supply chain risk has resulted in a detrimental effect on the firm. What is more, the outsourcing issues and dangers described above have a significant impact on the performance of Lululemon.

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Supply Chain Performance

As has been stated, supply chain performance depends on the two phenomena above crucially. Thus, the Lululemon facility appears in Bangladesh, where local women have to work for approximately 18 hours a day in dangerous conditions. One should understand that these severe conditions are not imposed for fun. Local authorities consider it as the only option to keep wagers low, which attracts international organizations to the region. Under these conditions, few workers manage to perform their duties adequately. As a result, the poor quality of goods makes responsible figures look for additional sources of motivation, and they choose physical force for this purpose.

Thus, all the information above demonstrates that the scandal under consideration is a complex phenomenon that includes mutually connected issues. Firstly, Lululemon wants to obtain a relatively cheap labour force and opens the Bangladeshi factory. Secondly, the local workers get lower compensation because such factories do not draw specific attention to safety and even human rights. Thirdly, these conditions result in the fact that people cannot perform their tasks properly. Then, the poor quality of goods makes key figures use physical and mental abuse to force the labourers to work, and this abuse results in harsher working conditions. Thus, the given situation represents an endless circle where essential issues are inseparably connected. Consequently, this situation denotes that specific recommendations are needed to explain how to avoid a similar scandal in the future.

Recommendations for the Future

Even though the scandal above seems to have essential causes, it is still possible to take some steps to eliminate this adverse effect. Beske-Janssen, Schaltegger and Liedke (2019, p. 331) mention that it can be achieved if a business considers the flexibility, cost and speed of a supply chain and draws attention to its environmental and social issues. At the same time, more specific recommendations are needed to prevent this adverse situation from happening in the future.

Thus, one can mention that the best variant to avoid the scandal would be to refrain from outsourcing activities. Even though a sound economic logic underpins this strategy, it also contributes to “the complexity of the supply chain” (Christopher, 2016, p. 11). In addition to that, outsourcing is suitable when a firm does not have an in-house inventory to perform an activity that is not of strategic importance. As for the Lululemon scandal, making leggings does not imply any strategic significance, but the brand has domestic facilities to produce the goods. As has been mentioned above, this fact is outweighed by the possible economic benefits. The information denotes that it is necessary to draw more specific attention to supply chain risk and performance.

Since the data above justifies the use of the outsourcing principles, Lululemon should reconsider its attitude toward this strategy. In general, it refers to the risks that can arise and impact the business. One should understand that it is impossible to eliminate such dangers. That is why the effort focuses on identifying, controlling and mitigating them and their effects. Thus, it is reasonable to organize an enquiry of the scandal and assess its scale. Lululemon has coped with the task by working with an independent organization that investigates the exploitation and violence at the factory. In addition to that, Lululemon conducts audits of its suppliers and factories at least once in 18 months (Bain, 2019, para. 10). Once it appears that risks emerge within a supply chain, which is known as endogenous uncertainty, it is necessary to take specific efforts to manage them.

Firstly, it is helpful to provide the workers with the active right to unionise because it is one of the leading principles of labour law. If workers face some abuse from managers, they should have the ability to express their dissatisfaction with the given state of affairs. Secondly, once the cultural peculiarities of Bangladesh are among risk factors, it is also reasonable to address them. For example, the amount of sexual abuse will become significantly lower if a tendency to employ female managers is followed. Finally, it is necessary to understand that the main risk refers to the fact the harsh working conditions result in reduced performance of the factory. Thus, supply chain performance is the following phenomenon that should be improved to help avoid conflicts.

According to the information above, it has been indicated that the female workers partially suffered from physical and mental abuse because of their unsatisfactory performance. It is possible to solve this issue by adding capacity and inventory to the supply chain. Even though this fact implies essential investment, the working conditions will become significantly improved, which will decrease the scandal probability. This fact has some positive effects, but it is not enough to guarantee that a similar scandal will not happen again.

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In addition to that, the use of modern technologies is a suitable option here, which relates to Blockchain. This technology stands for a database that is validated by a large community, rather than a single entity. It contains official data on its components, and these data are of open access for a high number of people. As for the given scandal, Blockchain is useful because it can contain information on all the workers employed at the Bangladeshi factory. The technology can tell how long a labourer works at the factory, what are their salary, and others. One should understand that it is possible to achieve the given result with the help of Big Data, including barcode systems to track working hours and personal reports of both managers and workers. The effectiveness of this method is supported by Coca Cola that uses Blockchain to fight against various exploitative practices at their facilities.

Finally, it would be useful for Lululemon to reconsider its attitude to supply chain performance. In general, it is assessed according to how many goods or services a factory has produced, and what their quality is. When these indicators are unsatisfactory, the phenomenon of forced labour appears to meet the requirements. However, the Balanced Scorecard delves deeper into the assessment of supply chain performance. This framework draws attention to the profitability of a business, customer satisfaction, business process results and possibilities for employee learning and innovation. This four-pillar assessment tool allows to determine a general picture of supply chain performance. Consequently, managers do not need to force workers to meet the stipulated requirements by any means.

Conclusion

Lululemon’s supply chain scandal in Bangladesh serves as evidence that an outsourcing strategy can result in severe problems for a business even though it has significant economic benefits. These problems refer to appropriate risks that can lead to worker dissatisfaction and following abuse from managers. However, their effect can be overcome with the help of providing social rights, respecting cultural peculiarities, using modern technologies and assessing supply chain performance accurately. This approach can result in an effective supply chain that will meet the requirements of the market.

Reference List

Agnihotri, A. and Bhattacharya, S. (2019) Executive crisis at Lululemon: who is responsible for establishing company culture? Los Angeles, CA: SAGE Publications: SAGE Business Cases Originals

Bain, M. (2019) Even high-end brands like Lululemon face disturbing allegations of worker abuse. Web.

Beske-Janssen, P., Schaltegger, S. and Liedke, S. (2019) ‘Performances measurement is sustainable supply chain management: linking research and practice’, in Sarkis, J. (ed.) Handbook on the sustainable supply chain. Cheltenham: Edward Elgar Publishing, pp. 331-356.

Christopher, M. (2016) Logistics and supply chain management: creating value-added networks. 5th edn. London: Financial Times/Pitman.

Marsh, S. and Ahmed, R. (2019) Workers making £88 Lululemon leggings claim they are beaten. Web.

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Sardar, S., Lee, Y.H. and Memon, M.S. (2016) ‘A sustainable outsourcing strategy regarding cost, capacity flexibility and risk in a textile supply chain’, Sustainability, 8(3), pp. 1-19.

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StudyCorgi. (2021, August 7). Lululemon’s Supply Chain Scandal in Bangladesh. Retrieved from https://studycorgi.com/lululemons-supply-chain-scandal-in-bangladesh/

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