Co-ordinating Sustainable Cotton Chains for the Mass Market

Co-ordinating Sustainable Cotton 

Chains for the Mass Market 

The Case of the German Mail-Order Business OTTO 

* 

Maria Goldbach and Stefan Seuring 

Carl von Ossietzky University Oldenburg, Germany 

Simone Back 

OTTO, Germany 

Traditionally, the textile market is characterised by spot-market transactions which consider 

environmental criteria only at the final product level. Yet the introduction of 

environmentally optimised products is not only a technical problem but also an organisational 

one. This fact was encountered by the German mail-order business OTTO GmbH, 

Hamburg, when it first began to green its clothing collection in the early 1990s. While 

initially improvements were aimed at the product level, in 1997 OTTO decided to go one 

step further. The objective was to provide organic cotton clothing for the high-fashion 

mass market. The challenge was to realise a value-adding process in which economic, 

environmental and social aspects would be equally respected. 

OTTO therefore decided to adapt its conventional chain and make it sustainable. The 

chain is highly complex, and includes small players such as cotton farmers as well as 

large companies such as OTTO itself. The major difficulty arising was how to co-ordinate 

the activities of the complex network of the different partners involved. Such co-ordination 

may require a set of hybrid approaches, ranging from market-like structures to hierarchical 

ones based on command-and-control mechanisms. These are discussed in the 

context of a case study on the introduction of a sustainable cotton chain at OTTO. 

Dr Maria Goldbach studied Business Administration and Environmental 

Management in Kassel, Germany, and Bordeaux, France. She worked at the 

Chair for Production and the Environment, Institute for Business 

Administration at the University of Oldenburg, Germany, and did her PhD on 

‘Co-ordinating Supply Chains with Target Costing and Eco-Target Costing’. 

Her research areas are environmental management, cost management and 

organisation. 

Dr Stefan Seuring is currently a senior lecturer at the the Chair of Production 

and the Environment at the University of Oldenburg, Germany, where he 

established the Supply Chain Management Centre. He holds an MSc in 

Chemistry, an MSc in Environmental Management, a PhD and the habilitation 

in business administration. He has published widely on supply chain 

management and environmental/sustainability management. 

Simone Back studied nutritional science and home economics and Total 

Quality Management in Gießen and Kaiserslautern, Germany. She has extensive 

experience in environmental product and process innovations for textiles, 

food and retailing, where she worked for Hess Naturtextilien and for BUND 

eV (Friends of the Earth Germany). From 2000 to 2002 she was responsible 

for the organic cotton project at OTTO GmbH, Hamburg. Currently, she is a 

freelance consultant focusing on sustainability in supply chains. 

u 

● Supply chain 

management 

● Sustainable 

development 

● Co-ordination 

● Transaction 

costs 

● Textile and 

apparel industry 

● Organic cotton 

● Case study 

Gederfeldweg 41, 58453 Witten, 

Germany 

! maria.goldbach@gmx.net 

u 

Chair for Production and the 

Environment, Institute of Business 

Administration, Carl von Ossietzky 

University Oldenburg, PO Box 2503, 

26111 Oldenburg, Germany 

! stefan.seuring@uni-oldenburg.de 

u 

progresso, Borngasse 14, 

55126 Mainz, Germany 

! Simone.Back@t-online.de 

* This paper was written in the context of the research project EcoMTex (Ecological Mass Textiles), 

which is funded by the German Federal Ministry for Education and Research (BMBF) and administrated 

by the National Research Center for Environment and Health (GSF). We would like to express 

our gratitude to both the BMBF and the GSF for their financial and administrative support. 

GMI 43 Autumn 2003 © 2004 Greenleaf Publishing 65

maria goldbach, stefan seuring and simone back 

The creation of a sustainable product chain does not rely only on the 

technical feasibility of ecological and social improvements, including the management 

of related material and information flows. A major challenge also lies in the 

management and co-ordination of the relationships between the partners in the 

chain (Goldbach 2002, 2003; Seuring 2004a). Traditionally, the apparel industry 

has been characterised by market co-ordination based on price (Abernathy et al. 1999; 

Seuring 2001: 72). And sustainable cotton, yarn, fabrics and apparel are not available 

on the market, which may be explained by lack of demand by consumers (Meyer 2000). 

Therefore, in order to produce such apparel, other co-ordination mechanisms are 

required. The question that arises is which mechanisms (if not the market) allow for 

the co-ordination of activities necessary in order for sustainable clothing to succeed in 

a highly complex network of different partners? 

The German mail-order business OTTO has been looking to market sustainable 

clothes since 1997, so this case promises insight into the necessary co-ordination 

scenarios for sustainable product chains, using the example of sustainable cotton. 

In the first section, the ecological and social impacts of conventional cotton chains 

will be described and the characteristics of sustainable cotton chains introduced. In the 

next section, different co-ordination mechanisms for sustainable product chains will be 

discussed. The following section looks at the theoretical findings from the OTTO example 

and examines the different co-ordination scenarios in a conventional cotton chain as 

well as in a sustainable cotton chain. 

Ecological and social impacts of cotton chains 

Conventional cotton chains 

The value-adding process for cotton apparel, illustrated in Figure 1, consists of six supply 

chain levels (van Elzakker 1999b): 

1. Fibre production. Cotton fibres are produced by farming, which includes growing 

and harvesting cotton fibres as well as cleaning them, which is known as ‘ginning’. 

2. Spinning. In the spinning mill, the cotton fibres are transformed into yarn. 

3. Fabric production. At the next value-adding level, the cotton yarn is processed into 

fabrics by weaving or knitting. 

4. Dyeing and finishing. Dyeing includes colouring and bleaching of the fabric; 

finishing consists of processes such as form stabilisation or easy-care treatment. 

5. Clothing production. This includes sewing as well as adding accessories such as 

zippers, buttons, etc. 

6. Clothing retailing. Finally, the ready-made apparel is distributed and sold to the 

consumer. 

In conventional value-adding cotton chains, ecological and social impacts occur at 

different levels, though with varying intensity. 1 Cotton farming, i.e. the fibre-production 

stage, is a particularly critical process, having major ecological and social impacts. 

Ecological impacts include the intensive use of pesticides, synthetic fertilisers and other 

1 See Fig. 1. For a more detailed description of the environmental and social impacts of cotton farming, 

see Myers and Stolton 1999; van Elzakker 1999b; Meyer and Hohmann 2000. 

66 GMI 43 Autumn 2003

co-ordinating sustainable cotton chains for the mass market 

Ecological 

t Energy intensity 

Ecological 

t Low impacts 

Social 

t Labour conditions 

t Minimum wages 

t Child labour 

fibre 

production 

spinning 

fabric 

production 

dyeing/ 

finishing 

clothing 

production 

clothing 

retailing 

Ecological 

t Intensive use of pesticides, synthetic 

fertilisers and other agricultural chemicals 

t Soil exhaustion and destruction of soils’ 

self-regeneration capacity 

t Disturbance of soils’ water balance, 

drying-out and contamination of water 

sources 

t Use of agricultural land 

Social 

t High impacts of pesticides and chemicals 

on human health 

t Financial dependence on pesticide, 

synthetic fertilisers and chemical 

companies 

t Instability of cotton prices 

Ecological 

t Toxicity of chemicals 

(dyestuff and additives) 

t Pollution of waste-water 

and insufficient 

degradability 

t Use of AOX, 

formaldehyde and heavy 

metals 

t Water and energy 

consumption 

Social 

t Medium impacts on 

human health 

Ecological and/or 

social impacts 

Low 

Medium 

High 

Figure 1 ecological and social impacts in a cotton chain 

agricultural chemicals. The use of synthetic fertilisers leads to soil exhaustion and the 

destruction of its self-regeneration capacity. Pesticides are proven to contaminate water 

sources vital for cotton farming. The high water intensity of cotton farming may cause 

a disturbance of the natural water balance of the soil and a depletion of natural water 

sources, leading to the pesticides used seeping into water resources such as groundwater, 

rivers and lakes. Problems from the drying-up of soils are most apparent in the 

Aral Sea region (a vast freshwater lake), where cotton farming has contributed to the 

halving of the lake’s size (Enquete-Kommission 1994: 148; Myers 1999: 13). Another, 

often overlooked problem is the use of agricultural land for cotton farming. If the entire 

population of the world had to be provided with cotton clothes, there would not be 

sufficient space for nutritional farming (Enquete-Kommission 1994: 145). From a social 

perspective, the pesticides used are known to be toxic to humans, and lead to between 

3,000 and 40,000 fatalities per year (Enquete-Kommission 1994: 149; Myers 1999: 13). 

These pesticides are carried through to the dyeing and finishing stages, causing minor 

ecological problems at the different production levels. Moreover, cotton farmers are 

often highly dependent on producers of pesticides, synthetic fertilisers and other chemicals. 

Finally, the high instability and variety of prices for raw cotton on the spot market 

GMI 43 Autumn 2003 67


lead to severe financial insecurity for farmers, many of whom struggle to deal with such 

stress, leading to health problems (Enquete-Kommission 1994: 149; Myers 1999). 

The spinning and fabric-production stages are not as critical as regards ecological and 

social impacts. Ecological impacts occur mainly due to the energy intensity of the 

processes. Also, small amounts of comparatively harmless chemicals are used during 

processing. No significant social impacts can be identified at these stages. 

At the dyeing and finishing stages, the conventional cotton industry uses toxic chemicals, 

which contaminate the waste-water and are non-degradable. Moreover, some of the 

substances, such as AOX, formaldehyde or heavy metals, are also liable to have human 

health impacts. The use of water and energy is also significant in dyeing and finishing. 

Ecological impacts in the clothing-production stage are minor. However, toxic 

chemicals, particularly the stain remover used after sewing, are often used without due 

labour safety precautions. In small firms especially, health and safety standards are low. 

Social impacts are highly significant at the clothing-production stage, and working 

conditions, minimum wage levels, insufficient labour rights and child labour are issues 

often raised. The International Labour Organisation (ILO) investigates and reports on 

such conditions (Enquete-Kommission 1994: 158-61; www.ilo.org). 

The ecological and social impacts of retailing are relatively minimal. Ecological 

impacts also occur at the consumption and disposal stages, but these are not within the 

scope of this paper. Also, transportation between the different value-adding levels along 

the chain has ecological impacts. These, too, may be relatively significant, especially at 

the retailing stage; however, they will not be discussed in this paper, as the problem is 

of equal significance for both conventional and sustainable cotton chains. 

Sustainable cotton chains 

The transformation process of turning conventional cotton chains into sustainable ones 

itself has ecological, social and economic effects which must be taken into consideration. 

At the farming stage, pesticides and other chemicals are replaced by biological pest 

control and organic fertilisers. Organic cotton farming is an integrated farming 

approach without pesticides and one that respects the soil’s natural regeneration cycles. 

This has not only positive effects on the natural environment (i.e. the soil) but positive 

social effects as well, by not harming human health. Ecological improvements at the 

farming stage have important cost effects: these can be seen in, for example, higher 

prices for organic cotton due to the so-called ‘transfair premium’ paid to organic cotton 

farmers. The transfair premium aims to compensate for possible harvest losses caused 

by switching to organic cotton and for the increased amount of manual work required. 

In addition, organic cotton needs to be certified, incurring certification costs. The 

sustainability-based improvements therefore lead to positive social effects by assuring 

higher cotton prices and often lower production costs for the cotton farmers. The social 

risk for the farmers consists of requiring customer demand for organic cotton. No 

market for organic cotton currently exists, so, in a worst-case scenario, organic cotton 

farmers would have to sell their cotton on the conventional spot market at a lower price, 

which does not cover the extra costs (even taking the transfair premium into account). 

Moreover, the conversion is highly time-consuming. In fibre production, for example, 

the transition period from conventional to organic cotton is about 3–5 years because of 

pesticide residues in the soil and the lack of natural soil fertility (Myers 1999). During 

the conversion period, the yield is much lower than it will be later and the premium 

paid to the farmers is not as high as for certified organic cotton. 

In spinning and fabric production, the major change consists of using organic instead 

of conventional cotton, so minor ecological problems linked to pesticide residues in 

cotton are eliminated. However, negative effects occur at an economic level. As the 



overall amount of organic cotton supplied is often (at least in the beginning) not 

sufficient to reserve permanent production capacities for organic cotton, firms must set 

up parallel production capacity, which incurs higher costs, i.e. through separate storage 

and handling, and additional cleaning and switching processes. Furthermore, different 

market structures lead to difficulties in trading. The market for organic raw cotton, as 

well as the consumer market, is small and not comparable with the spot market for 

conventional cotton. This leads to higher financial risks. 

At the dyeing and finishing stage, the challenge lies in using low-toxicity dyestuff and 

auxiliaries wherever possible, e.g. by substituting chemical with mechanical form 

stabilisation and by reducing easy-care treatment to the necessary minimum. 

Although the substitution of chemicals may sometimes lead to higher costs for 

ecologically optimised cotton clothing, it is also possible to keep the cost level equal or 

even reduce the total production costs if the substitution is combined with more waterand 

energy-efficient processes. Higher costs are temporarily incurred through switching 

and setting up parallel production. In addition, production quantities of ecologically 

optimised garments are still relatively low owing to the limited availability of organic 

cotton as well as low demand, 2 resulting in higher costs linked to small quantity effects. 

In the clothing-production stage, control of social effects is managed through the 

introduction of SA8000, a standard aimed at improving working conditions, labour 

rights and wages, and defining conditions for child labour. 

Finally, higher costs result from increased co-ordination efforts in sustainable cotton 

chains which become necessary due to the limited availability of organic cotton fibres 

and yarns (Meyer and Hohmann 2000: 59; Seuring 2001b: 152; Goldbach 2001; Ton 

1999). Sustainable cotton and yarn cannot be purchased on markets, so the transactions 

between the different actors along the chain must be co-ordinated differently than they 

would be through a purely market-based system. In the next section, co-ordination 

scenarios permitting transactions in sustainable product chains will be introduced and 

discussed. 

Co-ordination scenarios for sustainable cotton chains 

The major challenge in transforming conventional cotton chains into sustainable ones 

lies not in the technical feasibility of introducing ecological and social standards but in 

the management and co-ordination of the actors involved (Goldbach 2003; Kogg 2003; 

Seuring 2004a). Williamson distinguishes three different forms of institutional arrangements 

allowing transaction co-ordination between economic actors (Williamson 1975, 

1985). These are market arrangements, hierarchical arrangements and hybrid arrangements. 

The choice of a suitable institutional arrangement is made with the objective of 

minimising transaction costs that arise from the need to co-ordinate activities between 

economic actors. Three characteristics influence this choice, which include: 

t Uncertainty of transaction. Uncertainty is differentiated into parametric uncertainty, 

determined by the environment, and behavioural uncertainty, i.e. uncertainty 

caused by the behaviour of the transaction partners. 

t Asset specificity. Assets include all investments that are carried out in the context 

of a transaction with a specific partner, such as investments in technology or human 

capital. 

2 For the costs of greening cotton chains, see Chaudhry 1996; van Elzakker 1999a; Goldbach 2001; 

Seuring 2001b. 



t Frequency of transaction. The frequency of transaction determines if economies of 

scale transpire with regard to production and co-ordination costs. 

High transaction-specific assets, high uncertainty and repeated transactions between 

partners generally lead to the choice of hierarchy as an institutional arrangement, while 

low uncertainty of transaction, low asset specificity and single transactions suggest the 

choice of market hierarchy. Hybrid forms (generally referring to any kind of co-operation 

between firms) lie between these two extremes (see Table 1). 

Market Co-operation Hierarchy 

Uncertainty of transaction – 0 + 

Asset specificity – 0 + 

Frequency of transaction – 0 + 

Co-ordination mechanism Price Negotiation Command and control 

– low, 0 medium, + high 

Table 1 choice of institutional arrangements on the basis of characteristics 

The mechanisms underlying the transaction vary according to the chosen institutional 

arrangement. In markets, price is the overriding factor in the choice of partner. 

In hierarchies, command-and-control measures underlie co-ordination between actors. 

The choice of transaction partner is made at the beginning of the transaction and the 

tasks to be carried out are prescribed by the principal (Pratt and Zeckhauser 1991; Arrow 

1991). Transactions are based on negotiations between the actors: the choice of partner 

has been made, but defining the task to be carried out as well as the quid pro quo is still 

to be agreed. 3 

Williamson applies these institutional arrangements only to a single firm or bilateral 

transactions between firms. In order to apply to the context of making cotton chains 

sustainable, they must be extended to value-adding processes or supply chains. Most 

authors dealing with supply chain management automatically subsume supply chains 

under hybrid arrangements, i.e. between market and hierarchy (Skjoett-Larsen 1999). 

This view will be questioned on the basis of the definition of supply chains and supply 

chain management proposed by Handfield and Nichols (1999: 2): 

The supply chain encompasses all activities associated with the flow and transformation 

of goods from raw materials stage (extraction), through to the end user, as well as the 

associated information flows. Material and information both flow up and down the 

supply chain. Supply chain management (SCM) is the integration of these activities 

through improved supply chain relationships, to achieve a sustainable 4 competitive 

advantage. 

If we use Williamson’s distinction of three forms of institutional arrangements and 

co-ordination mechanisms to look at supply chains with low uncertainty, low asset 

specificity and low frequency of transaction, we see that market mechanisms may be 

the most suitable means of forming relationships to achieve sustainable competitive 

advantage. In supply chains with high uncertainty, asset specificity and frequency, 

3 The three types are idealised forms. In reality, mixed forms exist, e.g. the asset specificity may be 

high, but the frequency of transactions low. In this case it must be determined which of the 

characteristics are more relevant and if these permutations still justify co-operation as the suitable 

means of co-ordination. These mixed types will not be discussed further in this paper. 

4 The term ‘sustainable’ in this definition merely refers to long-term-oriented or enduring and does 

not correspond to sustainability as integrating environmental, social and economic aspects. 



command-and-control mechanisms may be more appropriate. In any kind of chain with 

medium uncertainty, asset specificity and frequency, i.e. the kind of arrangement usually 

understood to describe a supply chain, negotiation is the most efficient means of gaining 

sustainable competitive advantage. 

This means that, in this paper, supply chains are considered to be a network of actors 

involved in the value-adding process of a product. Whether this network is co-ordinated 

through price, command and control or negotiation depends on the nature of the 

transactions and their related characteristics. 

Of course, these three types represent ideal forms, even though co-operation seems 

to subsume any kind of arrangement that does not correspond to market or hierarchies. 

For further analysis, it remains to be pointed out that, at a bilateral transaction level 

between firms, mixed forms (especially with regard to co-ordination mechanisms) are 

possible. Moreover, a number of institutional arrangements and co-ordination mechanisms 

may co-exist along the entire supply chain. While the transaction between a cotton 

farmer and a yarn producer may be based on the market, i.e. on price as a co-ordination 

mechanism, the transaction between the clothing retailer and its producer may be based 

on command and control or on negotiation and vice versa. This co-existence of several 

co-ordination mechanisms implies that the partners involved in the value-adding 

process may change: i.e. the supply chain is dynamic and no longer static. 

The example of the German mail-order business OTTO illustrates how changing its 

conventional cotton chain into a sustainable one affects the co-ordination mechanisms 

and the structure of institutional arrangements within the chain. 

Cotton chains at OTTO: a case study 

The German mail-order business OTTO began introducing ecologically optimised clothing 

into its collections in the early 1990s. These improvements comprised both cotton 

and other fibre collections and aimed at limiting harmful substances at the product level. 

In 1997, OTTO decided to go one step further and to extend beyond the production 

process back to the ‘cradle’ of clothing production, the cotton plant. The objective was 

to provide organic cotton clothing for the high-fashion mass market. The challenge was 

to achieve a value-adding process in which economic, ecological and social aspects would 

be equally respected. The new sustainable cotton clothes were not to cost significantly 

more than conventional ones and at the same time would maintain OTTO’s high quality 

and fashion standards. 

The major difficulty arising in this context was not so much how to solve the technical 

problems, but rather how to co-ordinate the activities of the highly complex network of 

the different partners involved. In the following, the co-ordination scenarios of a conventional 

and a sustainable cotton chain are presented and discussed. 

Co-ordinating the conventional cotton chain at OTTO 

In the conventional cotton chain, OTTO is in direct contact only with the clothing producers. 

For the sake of simplicity, the focus here will be on fully integrated clothing 

producers, i.e. those carrying out fabric production, dyeing and finishing as well as 

clothing production all within the one company. 

At OTTO, purely market-based co-ordination based on spot-market transactions, the 

usual mechanism in the conventional textile industry, is partly mitigated by reducing 

the supplier base and building long-term supplier relationships. During the 1990s, 

OTTO began setting up a supplier pool. The different buying departments at OTTO could 



freely choose any supplier within this pool that best met the requirements for a specific 

article. Thus co-ordination through purely market-based transactions was replaced by a 

form of co-ordination limiting the scope of action to this supplier pool but maintaining 

flexibility within it. It therefore corresponds to a mixed co-ordination scenario of cooperation 

(concerning the setting-up of the pool) and market (within the pool), i.e. 

negotiation and price mechanisms. 

In the early 1990s, OTTO began optimising its conventional cotton chain by limiting 

the amount of harmful substances at a product level. It introduced an internal standard, 

called hautfreundlich, weil schadstoffgeprüft (‘skin-friendly, because tested for harmful 

substances’) which basically corresponds to Öko-Tex 100—a German standard controlling 

human toxicological effects at the textile product level—but is stricter as regards 

certain categories and permissible limits. The desired improvements were achieved 

using suppliers from the pool that were approved eco-suppliers (AES). Currently, 80% 

of products meet OTTO’s ecological requirements, and by 2004 this will rise to 100%. 

Therefore, this first level of environmental optimisation does not constitute an extra 

selection criterion within the existing pool of suppliers, but is established as a standard 

which may be interpreted as an additional quality requirement. 

The introduction of this standard affects only the direct suppliers who are involved 

in the dyeing and finishing processes, i.e. the production stage where harmful chemicals 

are used, those liable to cause human toxicological problems that are connected to the 

final product. Therefore, the structure of the conventional cotton chain beyond the 

clothing producers is not affected, as changes occur only with regard to the internal 

production processes of the clothing producer. 

The interaction between OTTO and its clothing producer is based on co-operation (i.e. 

negotiation), and interactions within the pool are based on the market (i.e. price 

mechanisms). 

Interactions beyond the bilateral one between OTTO and its clothing producer do not 

concern OTTO. Interaction between the fully integrated clothing producer (from the 

point of view of fabric production) and the spinner relies on a mix of price and 

negotiation. There is co-operation between the fabric producers and spinners, so the 

scenario is similar to the one between OTTO and the clothing producer. The interaction 

between the fibre producer, i.e. cotton trader, and the spinner is based purely on spotmarket 

transactions, as conventional cotton is traded on the cotton exchange. Figure 2 

summarises these findings. 5 

fibre 

production 

spinning 

fabric 

production 

dyeing/ 

finishing 

clothing 

production 

otto 

Price 

Price 

Negotiation 

Price 

Negotiation 

Figure 2 co-ordination mechanisms in the conventional cotton chain at otto 

5 A selection of chains were analysed as examples. Therefore, these results reveal a general tendency 

but may not be valid for all chains. 



Co-ordinating the sustainable cotton chain at OTTO 

In analysing the sustainable cotton chain, two major differences to a conventional chain 

can be distinguished. First, the co-ordination of the initial phase, i.e. the one within 

which measures need to be taken to set up the chain, was significantly different from 

the advanced phase, i.e. the one within which the chain needs to be maintained in the 

medium term. Second, bilateral co-ordination between neighbouring partners at a more 

operational level in the conventional chain was complemented by a chain-wide level, 

below also referred to as a global level. Therefore, in the following, analysis of the 

sustainable cotton chain at OTTO is presented in two steps: the first concerning the initial 

phase and the second the advanced phase. In the conventional chain, which is already 

in place at OTTO, such a distinction is not necessary, the conventional chain implying 

an advanced phase. 

The initial phase 

When OTTO decided to extend its ecological and social ambitions to the entire production 

process in 1997, no market existed that would ‘naturally’ co-ordinate sustainability 

processes within cotton chains. OTTO decided to fall back on fully integrated partners 

from its conventional cotton chain and convince them to become sustainable. It was 

decided to proceed with the planned ecological programme with those companies that 

had already passed an audit for social accountability. The structure of the potential 

partners within this chain is quite complex, including small players such as numerous, 

anonymous cotton farmers as well as big companies such as OTTO itself. The necessary 

changes were so significant that they fundamentally affected the nature of the interaction 

with OTTO’s direct suppliers as well as the entire chain structure. 

OTTO’s existing fully integrated clothing producers from the supplier pool did not 

have at their disposal the necessary know-how and technology to make their dyeing and 

finishing processes sustainable and were therefore (at first) unable to put into practice 

the required improvements. OTTO therefore selected specific suppliers from the pool 

considered to have the potential to become sustainable. It supported these in acquiring 

the necessary know-how through a consultancy process on technology adaptation. In 

contrast to its conventional chain, OTTO built up fixed, long-term-oriented relationships 

with these suppliers. This meant that the buying departments were now restricted to 

choosing from among those suppliers that had been assessed and evaluated. In some 

cases, only one single supplier was eligible to supply a specific article. 

Apart from changing relationships with clothing suppliers, prior stages in the chain 

were also affected as the programme was aimed at the entire chain, all the way back to 

the farmers. Conventionally grown cotton was to be replaced by organic cotton because 

of the high ecological and social impacts of conventional farming, outlined above. 

As OTTO’s fully integrated clothing suppliers—more specifically, the fabric-production 

departments—had no business relationships with sustainable yarn or cotton 

traders, OTTO itself sought suitable sustainable cotton partners and spinning companies. 

As OTTO does not usually interact with the cotton and yarn traders directly, this 

meant dealing with two new trading partners in the cotton chain. The ones they selected 

were already ecologically motivated and already possessed the required know-how. 

Moreover, they met OTTO’s social requirements. 

At first, OTTO was required to actively organise and co-ordinate the chain. OTTO 

bought the organic cotton directly and arranged transport to the spinning mill, negotiated 

spinning and yarn prices with the spinning mill, and arranged the transfer of the 

organic yarn to the fully integrated clothing producer. OTTO entered the chain as an 

interim actor between the cotton trader and the spinner, as well as between the spinner 

and the clothing producer. The usual interaction between cotton trader and spinner, as 

well as between spinner and fully integrated clothing producer, was thus dissolved. So 



the original chain structure was broken up, as OTTO began by co-ordinating all levels 

along the chain, not only with the fully integrated clothing producer but also with the 

yarn and the cotton trader. 

In this chain, two levels of co-ordination could be distinguished: the chain-wide, 

global level and the bilateral, operational level. On the global level, the structure of the 

chain was determined. The fully integrated clothing producer, based on command-andcontrol 

mechanisms, was instructed to use the organic yarn from the spinning mill 

chosen by OTTO. The relationships with the spinning mill and the cotton trader were 

built up on a partnership basis, i.e. co-operation, based on negotiation between partners. 

On the operational level, the bilateral relationships between the cotton trader and OTTO 

are based on negotiation and price. The interactions between OTTO and the spinner, the 

spinner and OTTO, and OTTO and the fully integrated clothing producer are based on 

command and control, with OTTO instructing the other actors in the chain on how to 

interact. Interaction between the clothing producer and OTTO is based on a mix of 

negotiation and price mechanisms. These findings are summarised in Figure 3. 

Negotiation 

Command and control 

fibre 

production 

otto 

spinning 

otto 

fabric 

production 

dyeing/ 

finishing 

clothing 

production 

otto 

Negotiation 

Price 

Command 

and control 


and control 


and control 

Negotiation 

Price 

Figure 3 co-ordination mechanisms in the sustainable cotton chain at otto: initial phase 

The advanced phase 

The sustainable cotton chain has been consolidated within the last two years, so OTTO 

can now build the co-ordination of the chain on an established chain structure. The coordination 

of the entire chain by OTTO has been superseded by negotiation between all 

partners, including the fully integrated clothing producers, at a chain-wide level. OTTO 

still offers recommendations, and controls where the different partners can acquire 

materials—i.e. where the yarn trader can purchase its organic cotton and where the 

fabric producer can buy organic yarn—but the responsibility for achieving the goal of 

sustainable cotton clothes is increasingly relinquished to the chain. Chain-wide coordination 

will therefore be entirely based on negotiation. 

At a bilateral level, as the chain is more settled and responsibility lies in the hands of 

the different partners, co-ordination becomes mainly based on a mixture of price and 

negotiation mechanisms. The fabric producer and the spinner co-operate, partly influenced 

by strong recommendations by OTTO. Co-ordination, even though based on 

negotiation, is supported by the market, i.e. price mechanisms. This phenomenon may 

equally be observed in the interaction between the spinner and the fabric producer as 

between the clothing producer and OTTO itself. The findings are summarised in Figure 

4. 



Negotiation 

fibre 

production 

spinning 

fabric 

production 

dyeing/ 

finishing 

clothing 

production 

otto 

Negotiation 

Price 

Negotiation 

Price 

Negotiation 

Price 

Figure 4 co-ordination mechanisms in the sustainable cotton chain at otto: 

advanced phase 

Summary of the different co-ordination scenarios at OTTO 

Comparison of the conventional, the initial sustainable and the advanced sustainable 

cotton chain at OTTO indicates a development from a market-oriented approach, via a 

co-operation-oriented approach, leading to a scenario that is a combination of marketand 

co-operation-oriented co-ordination. 

In the conventional cotton chain, interaction between the fibre producer and spinner 

is based merely on price; interactions between spinners and fabric producers, as well as 

between clothing producers and OTTO, are based on price and negotiation. OTTO’s 

interaction with the supplier pool as a whole is based on co-operation, while within the 

pool a market exists. There is no global co-ordination within this chain. It is therefore 

a ‘market scenario’. 

In the initial phase of the sustainable chain, global co-ordination exists which is 

undertaken by OTTO and is based on command and control over the fully integrated 

clothing producers and on negotiation with the cotton and yarn traders. On a bilateral 

level, OTTO enters the chain as an interim player. Interaction between the fibre producer 

and OTTO is based on a mix of price and negotiation between OTTO and the spinner, the 

spinner and OTTO, OTTO and the clothing producer (using command and control) and 

between the clothing producer and OTTO (using negotiation and price). As regards OTTO 

itself, the sustainable supplier pool forms a sub-pool within the general supplier pool. 

This scenario can therefore be referred to as ‘patriarchal co-operation’. 

The advanced phase of the sustainable chain combines the conventional and initial 

phase of the sustainable chain. Global co-ordination within the chain is based on negotiation 

and recommendations. It no longer lies merely in the purview of OTTO but is 

shared with the fully integrated clothing producers and spinners. Bilateral interaction 

between all partners along the chain relies on a mix of price and negotiation elements. 

It is therefore influenced by the market. This scenario of the advanced phase of the 

sustainable cotton chain can therefore be referred to as a ‘co-operative market’. Table 2 

sums up these findings. 



Conventional cotton chain 

Sustainable cotton chain: 

initial phase 

Sustainable cotton chain: 

advanced phase 

Bilateral, 

operational 

Chain-wide, 

global 

Bilateral, 

operational 

Chain-wide, 

global 

Bilateral, 

operational 

Chain-wide, 

global 

Fibre production 

OTTO 

Price 

Negotiation 

Price 

Negotiation 

Price 

Spinning 


and control 


and control 

OTTO 

Price 

Negotiation 

None 


and control 

Negotiation 

Price 

Negotiation 


and control 

Fabric 

production 

Dyeing/ 

finishing 

Clothing 

production 

Negotiation 

Price 

Negotiation 

Negotiation 

Price 

Negotiation 

Price 

OTTO 

Co-ordination 

scenario 

Market Patriarchal co-operation Co-operative market 

Table 2 co-ordination mechanisms in the conventional and sustainable cotton chains at 

otto 

Conclusion and research perspectives 

The cotton supply chain is dispersed around the globe. This makes the move toward 

sustainability in such supply chains a complex task. Sustainability management can 

therefore be understood as an implementing measure that ensure that suppliers meet 

environmental and social standards, while ensuring that the supply chain remains 

competitive. This requires increased co-operation among all partners involved in the 

chain. The findings from the OTTO case offer insights on how a combination of market 

and co-operation seems to be the most promising means of further improving sustainable 

chains and allowing their survival in the marketplace (Goldbach 2003; Kogg 2003). 

As the market and price are initially not available as co-ordination mechanisms for 

sustainable cotton chains, co-ordination in the initial phase is based on negotiation and 

even command and control. Once the chain has been set up, market elements may be 

reintroduced into the co-ordination scenario allowing for the necessary competition and 

meeting of market demands. 



The case provides evidence that sustainability in a supply chain cannot be viewed 

merely as a technical matter, where products’ life-cycles are analysed and technical 

measures are subsequently implemented to ensure that related goals are met. On the 

contrary, the management of products’ environmental life-cycle within supply chains 

(Seuring 2004a, 2004b) are first of all inter-organisational concepts, where much effort 

has to be placed. 

The overarching research question—how to manage the transition of supply chains 

from conventional product to sustainable products and production processes—will need 

further investigation. 

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