@ Supply Chain Management

In my earlier post, I had said that I was working on the idea/concept of a Living Wage. Some eyebrows might have popped at this – if not, this would be a good time to go a popping. After all, what is the connection between a Living Wage and the supply chain?

Take a look at this report for instance: Why is Wal-Mart blocking 35 cents an hour for Bangladeshi workers?

From that article,

Senior sewers are paid 1.7 cents for each pair of Wal-Mart jeans they sew. (Each worker must sew 10 pairs of jeans per hour, or one pair every six minutes—which is 10 percent of an hour. Ten percent of their 17-cent-an-hour wage amounts to 1.7 cents.)

That’s an hourly wage of US$ 0.17 for experienced sewers and the current demand is to raise the wage to US$0.35 (and up to US$ 0.51 by some accounts that I have researched).

The obvious question is : Is an hourly wage of US$0.17 a living wage? Is an hourly wage of US$0.35 or US$0.51 a living wage? If you think that US$0.17 is an absurdly small number, what do you make of US$0.35 or US$0.51? If you’re mortified by the idea that the designer jeans that you’re donning tonight was sewn together in misery, will you be gratified by the notion that they will be paid double that wage if you just bully the capitalist/retailer to forgo that marginal hit to his profits?

Now coming back to stateside, take a look at this site from Penn State that enables you to work out what constitutes a living wage in America, by state, by county – Living Wage Calculator. I live in Newburgh, NY and so I took a look at what constituted a living Wage for Newburgh, NY – A  living wage for Newburgh, NY.

A family with two adults and two children require a wage of $60,274 in order to “live” in Newburgh, NY which works out to a $28.98 hourly wage while the Minimum wage is $7.25 and Poverty Wage is $9.83.  Of course, this calculation does not include any governmental assistance which spans the spectrum of wages from ~ $20,000 to ~ $60,000 depending on family configuration.

The critical issue with the living wage is that is has nothing to do with living or working – it has to do with calculations in Ivory towers. There is no such thing as a living wage (just as there is no such thing as a minimum wage) – the effort to create a living wage is about replacing the antiquated notion of a minimum wage by something more substantial. What the residents and denizens of Ivory Towers and various social justice movements don’t understand is that a Living wage like the Minimum wage before it is a calculation that looks good on paper and might even absolve the bean counters and theoreticians from enjoying their privileged lives. It will do nothing to lift those Bangladeshi garment workers out of poverty and neither will it change the lives of those living stateside.

All that it will accomplish is that the annual wage of CEOs in the millions will then become in the billions, the annual wage of the consultant in the hundred thousands will be in the millions and so on. The poor will still be poor and probably poorer still because for the decade or so (and it will be much faster than that) that it would take to adjust, they will have adopted habits and lifestyles that will leave them worse off.

If you don’t believe what I say, take the hypothetical Bangladeshi worker who, through all the unrest in Bangladesh, doubles (from 17 cents to 35 cents an hour) or triples (from 17 cents to 51 cents an hour) his/her hourly wage. When that dramatic increase in wage happens, what I’d like you to do is tell me what happens to his/her life?

1. Wage – we know this already because it is a given, doubled or tripled.

2. Rent Cost – ?

3. Transportation Cost – ?

4. Food cost – ?

5. Medical cost –?

6. Taxes – ?

7. Entertainment costs – ?

8. Other costs – ?

Do you think items, 2 through 7, increase, decrease or remains the same?

I think that such misguided thinking betrays a mistaken notion of the concept of profit. I think that the most fundamental error that the calculators always make is to think that all that needs to be done is to carve out a portion of profit and return it to labor. And what always happens is that the profit margin remains unchanged or is impacted ever so slightly and everything else is adjusted accordingly.

Profit is notoriously difficult for the Ivory Tower to understand. And the reason is quite easy as well – they’ve never really worked in the real world. For some Profit is a subtraction of numbers and for others it is the recompense for overcoming fear – these two worlds will never meet.

A living wage is a confident calculation about the static nature of human enterprise and economy. And that calculation is wrong. Profit is a dynamic calculation of the nature of human enterprise and economy.

I want to bring to your attention a new blog dealing with Supply Chain Risk by Daniel Stengel at the Hamburg University of Technology. His blog is called Supply Chain Risk Management and I wish him the best in his new blogging life on this important topic.

And if you didn’t already know, the University of San Francisco has a SCM program that offers a supply chain management master certificate program via distance learning. You can read more about that here.

Well, of late, I’ve been swamped at work and life in general – we’re awaiting the birth of our third child by mid-December. Meanwhile, I’m working on a short piece concerning “Living Wage” and how that affects such giants as Walmart.

Stay tuned for that soon!!