Man-Made Disasters

Disasters strike in many forms. Insured disasters often arrive in the wake of natural catastrophes – floods, earthquakes, drought, tornadoes and hurricanes. But disasters are also man-made as in the terrible tragedy that occurred at the Rana Plaza factory in Bangladesh on April 24.

On that day in Savar, Bangladesh, more than 1,100 people perished when the factory building collapsed. The disaster highlights the risks that labor conditions can pose not only to workers but also to the reputations and supply chains of the organizations that use their services.

For many of the world’s largest suppliers and retailers the tragedy brought widespread negative attention to the use of outsourcing textile goods following the Rana Plaza incident.

A recent report by Marsh Risk Management Research, Bangladesh Factory Collapse: Lessons in Risk for the Retail Industry, provides an overview of the risks retailers face when sourcing textile goods from Bangladesh and other low-cost markets.

“Even though major retailers and suppliers have sourced from Bangladesh for decades and have worked to improve labor conditions in the past, the Rana Plaza incident clearly reinforces to organizations that labor-related globalization risks require robust oversight efforts, greater visibility, increased vigilance, and continuous improvement,” said Tracy Knippenburg Gillis, Global Reputational Risk and Crisis Management Practice Leader for Marsh Risk Consulting. Gillis says retailers and suppliers should use this tragedy as a catalyst to more fully understand their operational and supply chain risk exposures, strengthen workforce safety practices and improve supply chain and reputational risk resiliency.

Bangladesh’s textile industry plays an important role in the retail industry’s supply chains due to its low-cost production capability.

But while the country may be home to the world’s lowest minimum hourly wages (Bangladesh workers make just 23 cents per hour at minimum wage), according to Maplecroft’s “Working Conditions Index” it also ranks as the eighth-worst country for industrial working conditions – resulting in significant reputational, compliance and supply chain risks for retailers.

Bangladesh remains one of the most attractive global markets from which to source primary retail goods for demanding consumers because costs to produce remain low.

But retailers should beware, the Marsh report said. Retailers should carefully consider their approach to reputational risk, crisis management, and supply chain resiliency, and focus on improving compliance efforts and transparency.

Topics Risk Management