Consider the true cost of production

There are many costs that need to be considered within product pricing. Fierce competition for low prices can leave suppliers unable to cover the true cost of responsible production, undermining their ability to provide decent working conditions and sustain their business.

Workers’ wages, materials, equipment maintenance, investment in good working conditions, innovation in sustainable materials, and reasonable and sustained profit margins for suppliers, all need to be accounted for. For example, as many manufacturing countries face dangerously high temperatures due to the climate crisis, investment in equipment such as more powerful air conditioning units becomes necessary to keep workers safe. Work sites need to be kept safe through structural repairs and upgrades. 

These investments are not optional extras—they are essential for ensuring the safety of the people making your products. You need to make sure the prices you pay enable the social and environmental standards you expect. 

In this video: Animesh, a garment manufacturer in India

Animesh shares his experience of aggressive price negotiations and their impact. He highlights:

• Manufacturers must be able to meet social and environmental requirements without losing money.
• Without profit, suppliers cannot stay in business.
• Price negotiation pressure has increased.
• Some brands use itemised costing sheets to extract the lowest price from each line, then set target prices with no room for negotiation.
• These target prices put pressure on production systems and reduce workers’ wages.
• There is conflicting messaging: brands expect investment in standards but walk away over a $0.10–$0.15 price difference.
• Disconnects also exist between design teams (who choose premium materials) and commercial teams (who set unrealistic target prices).

Animesh concludes: when suppliers aren’t forced to cut corners, they can plan better, invest in working conditions, and get the best performance from their teams.