In terms of a correlation between purchasing practice and labour conditions, suppliers who reported to have accepted a number of orders that did not meet their costs were found to be paid 15% to 20% less than suppliers who succeeded in negotiating prices at or above production costs. Interviews of suppliers’ managers during the qualitative case studies confirmed that their difficulties to pay wages and their capacity to increase wages were directly influenced by the prices set by the buyers.
Poor order planning and forecasting were also found to be associated to lower wages (by 10 per cent), probably because it may lead to extra costs for the suppliers in terms of sampling, transportation and unexpected delays.
Results are also presented for the first time on health and safety: 35 per cent of suppliers reported, in particular, that ‘too short lead times’ led to an increase in workplace accidents, while 81 per cent of them contended that it increased the amount of stress at the workplace.
Purchasing practices and the type of relationship between the buyers and suppliers can also influence suppliers’ propensity to rely on temporary workers and on sub-contractors. Accepting ‘prices below the cost of production in order to keep a competitive advantage’ was found to be associated with a 23 per cent increase in the number of temporary workers probably because it represents a way of cutting production costs, and for some suppliers a way to push some competitors out of the market by accepting lower prices.
The buyers’ survey results confirmed many of the purchasing practices described by suppliers with 85% of buyers who admitted that price negotiations and in particular prices that turn out to be below suppliers’ production costs ‘would directly impact wages.
At the same time, a number of good practices were identified in the case studies with buyers trying to improve their purchasing practices. Some tried to build a long-term relationship with suppliers, a factor that help, according to the author, to ‘rebalance suppliers’ bargaining position’.
This work is providing new and unique empirical evidence in this area that remains relatively underexplored by the economic literature. It will hopefully stimulate further research and more surveys to confirm the intimate relationship between purchasing practices and working conditions in global supply chains, especially in the new context of post-covid19 crisis.
See also a summary of this research results in latest UN Global Compact Report ‘Improving wages to advance decent work in global supply chains’, section 4.2.4. of: