Co-ordinating Sustainable Cotton Chains for the Mass Market

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maria goldbach, stefan seuring and simone back 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. 72 GMI 43 Autumn 2003
co-ordinating sustainable cotton chains for the mass market 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 GMI 43 Autumn 2003 73
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