Fashion companies are seeing significant changes in the regulatory environment and consumer needs, such as human rights; Sustainable raw materials and products; climate change; diversity, equality and inclusion; Business ethics; Compliance and other hot key issues come to the fore. A decade ago, consumers may have been concerned about where a garment was made (eg, “Made in USA”), but there was little information—or consumer concern—about where and under what conditions the upstream parts of that garment were made. .
Today is a different story. As fashion consumers move from visual to conscious consumption and seek assurances of ethical practices, it is incumbent upon fashion companies to ensure the provenance of their products. The socially conscious, digitally savvy consumer demands verifiable data – traceability – at every stage of the supply chain. Craftsmanship stories and guarantees of authenticity connect the consumer to the purchase and provide peace of mind about the fair treatment of workers and other environmental, social and governance concerns.
Still, most apparel and footwear companies are slow to respond to these demands. Only a few – like Patagonia, The North Face, Lewis – have implemented game-changing ESG or fair labor practices initiatives. In light of this, governments and societies around the world have been taking measures to protect workers and the environment. As a result, regulatory enforcement such as supply chain transparency laws and greenwashing penalties, along with reputational risk, force fashion companies to disclose the source of every fiber, thread and garment.
Traceability is the new must in fashion.
However, at any level beyond tier one suppliers, the ability to track in fashion remains attractive. After much production was moved overseas in recent decades, fashion businesses have largely depended on their finished goods manufacturing partners – in other words, tier one – to coordinate and refine their extended supply chain, moving away from the more incremental value chain in tiers two, three, and more. four. As things stand today, 50 percent of the world’s 250 largest fashion brands and retailers disclose their tier one suppliers, 30 percent disclose their tier two suppliers, and only 12 percent disclose select raw material suppliers.
Fashion companies cannot sustain this hands-off approach for two reasons. First, the pandemic, geopolitics and shipping issues have created unpredictable gaps in the value chain that are beyond any brand’s direct control. Second, it is the responsibility of the fashion companies, not the tier one manufacturers, to back up their claims on the origin of the goods.
With increased scrutiny surrounding cotton sources and finished garments from some Asian regions, it is becoming increasingly urgent for fashion companies to trace the ethical origins of their high value chains. This is necessarily exacerbated as evidence of forced labor has led consumers and governments to demand and enforce product transparency and traceability.
Fashion companies are looking for a silver bullet, and like most supply chain issues today, this involves data. The first and most critical step in achieving end-to-end traceability for fashion companies is to collect data from each supplier in the supply chain in a usable format. Unfortunately, most providers do not store data centrally, and the available data varies in format and granularity.
Nora Kleinwillinghofer
Even organized tier-one suppliers are discouraged from collecting and sharing their data with apparel brands, so there is an additional roadblock. Vendors are often hesitant to share information upstream and downstream, in part to create visibility and not to violate their customers’ privacy. Further upstream, unorganized growers or other small business owners may not have access to technology, training or resources to transmit information on provenance and labor information downstream. This creates a very challenging situation when trying to identify the source of each cotton ball. When suppliers subcontract to partner institutions, moreover, there are often multiple players, which means more missing data and passing control of brands. Greater regulatory oversight has made fashion brands, especially on greenwashing, less willing to share tracking information that is less reliable.
Monitoring is not just a technology challenge, but an operational and partnership challenge. Creating end-to-end supply chain transparency is complex and requires industry collaboration. Creating a traceability system from farm to finished product requires significant financial investment and change efforts.
Brian Ehrig
The apparel industry has a long way to go to make end-to-end supply chain traceability a reality, but not surprisingly, the landscape of traceability-based technology solutions has exploded. These innovations, which use blockchain technology to securely store data and protect privacy, provide a promising platform on which to build, including leading-edge testing technologies to verify provenance and further environmental and social goals.
Addressing traceability has become urgent to meet the growing demand and regulations for a sustainable, ethical supply chain. We see that technological solutions only solve parts of the problem – there are huge human and psychological elements involved – but we see that increased transparency allows fashion brands and retailers to develop new business models such as reselling and circularity. In monitoring and sustainability, for the common good.
Brian Ehrig is a partner and Nora Kleinwillinghofer is an associate partner in the consumer practice of Kearney, a global strategy and management consulting firm. Brian and Nora thank their colleague Emal Ihsan for his contributions to this article.