Can Brands Claim Ignorance? Unauthorized Subcontracting in Apparel Supply Chains

Key Insights for Managers

Unauthorized subcontracting by apparel suppliers imposes reputational risk for retail brands, which makes it important to understand when this is more likely to occur. This study finds that unauthorized subcontracting is more common among suppliers facing pressure to produce at lower-than-average prices. Suppliers producing on longer lead times (which are more typical with basic products) are more likely to engage in unauthorized subcontracting than those producing on shorter lead times (typically fashion products). Suppliers are less likely to engage in unauthorized subcontracting of goods produced for major brands, perhaps because those brands engage more heavily in monitoring. Moreover, factories that engage in unauthorized subcontracting are especially likely to do so repeatedly.

The article also shows that brands can develop analytical tools to predict the occurrence of unauthorized subcontracting with 80% accuracy, which can provide a data-driven approach to target auditing and other forms of monitoring.  The study is based on analyses of 30,000 orders in the apparel industry placed at factories in Bangladesh, Cambodia, China, Indonesia, Vietnam, and elsewhere conducted by authors Felipe Caro, Leonard Lane, and Anna Saez de Tejada Cuenca.