Canadian Underwriter

Bangladesh factory collapse highlights major risks facing retail sector: Marsh

June 25, 2013   by Canadian Underwriter

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The garment factory collapse in Bangladesh in April, which killed more than 1,100 people, highlights the major impact that poor labour conditions can have on organizations’ reputations and supply chains, notes a new report from Marsh.

Business continuity risks in retail sectorOn April 24, the Rana Plaza building in Savar, Bangladesh, collapsed and killed more than 1,100 people, mainly garment workers.

The collapse followed two other major incidents in the country in 2012 -a fire at a garment factory in Dhaka and the murder of a labour rights activist, the report notes.

With a minimum hourly wage of 23 cents, Bangladesh is one of the most affordable countries in the world for garment production. It also has been ranked the eighth worst country in terms of working conditions.

“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,” Tracy Knippenburg Gillis, Global Reputational Risk and Crisis Management Practice Leader for Marsh Risk Consulting noted.

“Retailers and suppliers should use this tragedy as a catalyst to more fully identify and understand their operational and supply chain risk exposures, reform and strengthen workforce safety practices, and improve supply chain and reputational risk resiliency,” she added.

The Rana Plaza incident involves about half of the top 20 risks identified by executives in a survey by Marsh and RIMS. Some of those include brand and reputational risk, compliance risk, supply chain risk, and business interruption costs, according to the report.

Marsh also recommends that retailers focus on improving compliance and transparency by further standardizing factory audit processes for and contract language with suppliers.

Improvements could also include more frequent and unannounced inspections, greater worker engagement in factory audits, and stricter penalty clauses for failure to meet workplace safety requirements, Marsh says.