Why Fashion’s Latest Challenge Is An Opportunity For Dramatic Change

EVP, Industry Principal at Logility and NGC Software, digitally transforming the retail supply chain.

Everyone has a favorite cotton T-shirt. Now take a look at the country of origin label sewn inside the collar. If it says, “Made in China,” there’s a high likelihood that the cotton used in your T-shirt was harvested by forced labor in China’s Xinjiang region — a sobering realization during the pandemic.

According to the USDA, the Xinjiang region produces 85% of Chinese cotton, which is used in goods exported to the U.S. and other countries. Much of that cotton is produced using forced labor by Muslim minorities.

In reaction to this, on January 13, 2021, U.S. Customs and Border Protection (CBP) announced a ban on cotton and cotton products produced in China’s Xinjiang Uyghur Autonomous Region. Personnel at “all U.S. ports of entry … will detain cotton products” originating from Xinjiang.

This withhold release order (WRO) applies to any product that is manufactured, wholly or in part, by forced labor in China, and the burden of proof is on brands and retailers to demonstrate their goods do not contain cotton or cotton products from Xinjiang.

If a retailer cannot provide proof of admissibility, there are three options: export the goods to another country, destroy the goods or abandon them.

The retail industry has championed the elimination of forced labor in the fashion supply chain. Yet for an industry already ravaged by the effects of Covid-19, this presents yet another existential threat. If retailers can’t sell these products in the U.S., they may be left with empty distribution centers and store shelves — a nightmare scenario just as they begin to bounce back from Covid-19.

Tracing A Product’s Chain Of Custody Is Essential

That’s why traceability has become a hot topic in the retail supply chain. Traceability means that a retailer can trace every step that is involved in the production of a garment — including the field where the cotton was harvested — and provide a digital blueprint of every step in the production process.

Traceability allows retailers to document this chain of custody from cotton fiber to the finished product entering U.S commerce so retailers can prove garments weren’t manufactured with forced labor.

Retailers must turn to technology for the traceability capabilities they need, and blockchain technology appears to be the most viable option. The financial industry has embraced blockchain for its ability to provide an auditable ledger of every step in a transaction chain. Blockchain produces a “digital thread” for every product and can then create a compliance certificate that summarizes each exchange of materials and services from fiber origin to destination, providing the proof that the CBP requires.

Blockchain can help solve one of fashion retail’s most urgent challenges by eliminating forced labor in the supply chain. However, it has the potential to provide an equally important value, such as helping the industry become much more environmentally responsible.

Blockchain Technology Can Support Sustainability Efforts

The fashion industry contributes a disproportionately high amount of carbon emissions, producing “about the same quantity of [greenhouse gases] per year as the entire economies of France, Germany and the United Kingdom combined,” according to McKinsey. As a result, all fashion brands and retailers are under substantial consumer pressure to sharply reduce their carbon footprints.

Blockchain technology also holds great promise for sustainable supply chains, as it can measure the environmental impact of a garment from fiber origin to final delivery to the consumer.

This kind of life cycle analysis (LCA) can be daunting, as brands and retailers must assess the environmental impact at every step of the complex fashion production cycle. That’s a task that’s uniquely suited to blockchain, with its ability to model the physical supply chain with a virtual model known as a “digital twin,” which measures the environmental impact as well as the greenhouse gas emissions and other environmental pollutants that are discharged during the production of a single item.

As brands and retailers gain visibility into their supply chain operations, they can then take steps to reduce environmental impact at each stage — for example, by using more recycled materials and using manufacturing facilities running on renewable energy. To truly become “carbon neutral,” they can purchase carbon offsets to mitigate the remaining environmental damage caused by their supply chain.

Improving The Fashion Supply Chain Has Lasting Impact

The industry must change, and product traceability is the first step forward. As good corporate citizens, fashion brands and retailers must demonstrate supply chain transparency during every stage of a product’s life cycle. To enable true blockchain technology, industry leaders must require lot tracing from the lowest-level input (i.e., cotton bale) to the retail store. The FDA requires this level of detail for food, beverages and pharmaceuticals in the event of a product recalls.

In the months ahead, when consumers check the country of origin for a product they are purchasing, they should have much better assurance that it was produced under ethical working conditions. At the same time, as brands and retailers embrace sustainability, consumers can be confident that the products they buy do not have an adverse effect on the environment.

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