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Perspectives

A Blockchain Roadmap for Transparency in the Apparel and Footwear Supply Chain

2019-02-20


Driven by customers who are increasingly conscious of their environmental footprint, apparel and footwear manufacturers are looking to increase transparency and accountability across their supply chains. Blockchain, with its immutable record-keeping and traceability, presents a new opportunity for brands to deliver on their ethical sourcing promise.

Technology has transformed the way apparel and footwear products are manufactured, distributed and purchased, while enabling greater customer personalization and convenience. With these benefits comes the need to manage for significant environmental and reputational risks that can potentially impact the profitability, brand equity and operational capabilities of apparel and footwear companies. Consumers, especially millennials, are increasingly conscious of the environmental and humane footprints their purchases are leaving behind. Buying decisions are now influenced by factors such as how and where items are produced.  under what working conditions, and how components are ethically sourced.

In response to this changing behavior, apparel and footwear manufacturers are revising supply chain practices and sourcing models to create greater transparency. However, the complex nature of their manufacturing processes can foster a lack of trust along the supply chain. Blockchain, a sub-category of distributed ledger technology (DLT), promises to create greater transparency, traceability and auditability across the chain — if implemented properly.

Blockchain – A perfect match for fashion

The merits of blockchain lie in the technology’s ability to create immutable records of all transactions carried out among a network of peers. Data is easily verified by and accessible to all parties. The approach breeds transparency and traceability, as network participants create, update and audit data. This simultaneously ensures security, proof of identity and privacy, while preventing malicious transactions, document forgeries, and other harm.

The apparel and footwear supply chain, which is comprised of global suppliers that process and transact as untrusting entities, is an ideal fit for blockchain-based solutions. With a blockchain/DLT solution, end users, regulators and supply-chain participants can drill down and obtain greater detail on product origins, purity and authenticity, while supporting traceability in the event of product recalls. Distributed ledger elements also increase process efficiency and lower production costs.

Supply chain characteristics & complexities

Unlike heavily regulated industries, such as pharmaceuticals, aerospace, and food and beverage, the apparel and footwear industry views supply chain traceability as a low priority. Apparel and footwear manufacturing include:

  • Short product lifecycles and small manufacturing batches.

  • Highly fragmented processes accomplished in complex global supply networks.

  • Raw material production and processes that occur in countries with low-cost, manually driven operations with easily accessible material and labor.

  • Transformation of plant- and animal-based raw materials that extinguishes the original biological structure.

The fashion industry’s rapid growth wasn’t accompanied by a commensurate surge in regulatory scrutiny. As a result, the industry faces serious social and environmental issues. Major brands have suffered from incidents, such as when subcontractor sites harm workers or the environment. Working conditions viewed as modern-day slavery also present significant issues. And claims of gender discrimination, subminimum wages, child labor and migrant-worker use have raised scrutiny by authorities and brands themselves.

Red flags wave as supply chain executives push for lower purchase prices, higher gross margins, improved quality, and greater speed for the sake of fast fashion. To meet corporate social responsibility and sustainability mandates, retailers and manufacturers need a more cautious and calibrated approach. The industry needs to reach into the depth of its supply chains to retrieve information on processes, providers and materials for each product in store and online. This data should aid supply-chain visualization, verification, provenance and risk prediction by internal departments and external agencies, as well as suppliers and customers.

A roadmap for transparency

We developed a new approach, called the Strategic Pathway Business Model, that acts as a framework for initiatives focused on higher visibility and traceability. To share a glimpse into this approach, we’ll cast the business expectations, then explain the model’s technology evaluation process. From there, we’ll delve into blockchain’s strengths and essential elements to reveal how it can effectively complement related processes and systems.

Figure 1

Setting the scene

To launch the strategy, it is essential to articulate the initiative’s business rationale as well as the alternative downside of maintaining the status quo. Stakeholders should address the following key questions:

How does your organization define visibility and traceability?

Guiding examples include:

  • Visibility. Know the name and location of all factories involved in processing and manufacturing.

  • Traceability. Achieve accurate and verifiable information on the path taken by each product through the supply chain — from raw materials to finished goods.

How does a lack of visibility and traceability impact everyone around the table?

What will you commit to achieve, and what are your high-level objectives, measures, stakeholder commitments and courses of action?

Assess & evaluate

Next, assess the current state of the supply chain with an eye for enhancement. More often than not, best practices, operating procedures and technology components can be enhanced and scaled at this stage to meet present and future needs. To avoid creating anything from scratch, scan all departments to assess:

  • Availability of information related to suppliers, factories, processes and materials.

  • Access to external information sources related to sustainability and ethical trade.

  • Accuracy and verifiability of information provided.

  • Level of supplier participation and collaboration in the capture of information.

This stage presents an ideal starting point for fashion companies to develop concepts and model the supply chain, information flows and technology landscape. What follows are strategic options to determine the course of action.

Prepare & model

For traceability initiatives, all stakeholders should have interconnected processes with clearly articulated expectations, objectives and value. Create models that give form and structure to how processes are defined, information is added and systems are integrated.

Operations model

Traceability requires a well-structured supply chain. In apparel and footwear, lower-tier factories lack direct control over the fashion brand. Thus, the supply chain model should include participants who are known and, preferably, consolidated.

Conduct a supply-chain mapping exercise to capture all the data points required to record, measure and report transparency. Record and verify all participants, which is critical to traceability.

Technology model

Today’s bespoke systems, such as enterprise resource planning (ERP) solutions, traditional databases and client/server applications, can lead to partial, unverified, unauthenticated data scattered across numerous supply chain players. As data moves among participants, it can degrade with every transaction due to disparity and a lack of standardized technological infrastructures. Oftentimes, data is manually reformatted and reinterpreted. As a result, the end user might receive an incomplete, error-riddled picture of the purchased product.

Blockchain’s data immutability, consensus and traceability offers a verifiable, single source of truth. With blockchain, systems and application can access and write to the ledger, which allows disparate supply chain partners to see and act on data from interrelated parties. It also allows for data to be extracted more efficiently for further internal or external downstream analysis and reporting.

Build & operate

Cross-industry product traceability is exceedingly complex, with its constantly shifting supply chain environment. Products, suppliers, factories and processes are always in motion, with new sites onboarded constantly. All this makes for an intense operation, with a need to rapidly gather information on products with ultrashort lifecycles.

Blockchain/DLT can be used to capture and manage digital identities, as well as input to output states, in garment production — a logical extension to the operations and process model. It also provides certification and audit to verify the end-to-end supply chain process.

Measure & communicate

Tracking data across the supply chain

Establishing supply chain traceability presents unique challenges. To identify a raw material provider, data must be collected not only from direct suppliers, but also from sub-suppliers. To adhere to industry norms, classification should be considered (e.g., batches or standardized quantities) as data is captured. Product elements can be digitized by incorporating bar codes, serial numbers, radio-frequency identification (RFID), near-field communication (NFC) and Internet of Things (IoT) sensors.

Privacy: Managing commercially sensitive information and blockchain types

Most supply chain participants are also competitors, which challenges consensus around how information should be shared. Debate ensues over whether to adopt a public, private or consortium-led blockchain alternative. A few industries, such as financial services, have adopted a consortium model — a hybrid of public and private blockchains.

By forming a consortium, companies can overcome the trust barrier and encourage stronger collaboration to solve deep-seated industry challenges. A consortium approach helps address the many challenges involved in finding ways to unlock the full potential of blockchain.

Looking forward

Blockchain/DLT can significantly simplify ethical sourcing and ingrain supply chain transparency. We suggest that apparel and footwear partners venture to establish a pilot blockchain network to manage a single product type, before embarking on a broader initiative across products and supply chain scenarios.

A strong footing in blockchain can reap immense benefits for brands and reaffirm a higher level of trust throughout the fashion ecosystem with customers retailers, manufacturers and providers.

To learn more, read A Blockchain-Based Framework for Apparel & Footwear Supply Chain Traceability,” visit the Blockchain Solutions section of our website, or contact us.

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A Blockchain Roadmap for Transparency in the Apparel and Footwear Supply Chain