Fashion companies are witnessing massive changes in the regulatory environment and consumer demands, as human rights; sustainable raw materials and products; climate change; diversity, equity and inclusion; business ethics; compliance, and other hot-button issues come to the fore. A decade ago, consumers may have cared about where an article of clothing was made (for example, “Made in USA”), but there was little information — or consumer concern — over where and under what circumstances the upstream components of that garment originated.
Today’s story is different. As fashion consumers shift from conspicuous to conscious consumption and want a guarantee of ethical practices, the onus is on fashion companies to prove the origin of their products. The socially conscious, digitally savvy shopper demands provenance information — traceability — at every step of the supply chain. Craftsmanship stories and reaffirmations of authenticity connect the consumer to their purchase and provide peace of mind about fair treatment of workers and other environmental, social and governance concerns.
Still, most apparel and footwear companies have been slow to respond to these needs. Only a handful — such as Patagonia, The North Face, Levi’s — have implemented game-changing ESG or fair work practice initiatives. In light of this, governments and communities all over the world have been taking steps to protect workers and the environment. As a result, regulatory enforcement such as supply chain transparency laws and greenwashing fines, along with reputational risk, are forcing fashion companies to disclose the source of every fiber, yarn and garment.
Traceability is the new must-have in fashion.
However, at any level beyond tier one suppliers, traceability in fashion remains pretty dormant. After moving most production overseas in recent decades, fashion businesses have relied largely on their finished goods manufacturing partners — in other words, tier one — to orchestrate and vet their extended supply chains, while staying out of what happens further up the value chain in tiers two, three and four. As things stand today, about 50 percent of the world’s 250 largest fashion brands and retailers disclose their tier one suppliers, about 30 percent disclose their tier two suppliers, and only 12 percent disclose select raw material suppliers.
Fashion companies won’t be able to sustain this hands-off approach for a couple of reasons. First, the pandemic, geopolitics and shipping issues have created unpredictable breaks in the value chain that are outside of any brand’s direct control. Second, it’s the responsibility of fashion companies, not tier one manufacturers, to prove their claims around the origins of goods.
With increased scrutiny, particularly around sources of cotton and finished garments from some Asian regions, it’s becoming increasingly urgent for fashion companies to be able to trace the ethical origins of their upstream value chains. This imperative has escalated as evidence of forced labor has driven consumers and governments worldwide to demand and enforce transparency and traceability of products, with severe penalties — such as detention, seizure and forfeiture — for falling short.
Fashion companies want a silver bullet, and like most supply chain issues today, that points to data. The first and most crucial step for fashion companies to achieve end-to-end traceability is, of course, to gather data in a usable format from every supplier across their supply chain. Unfortunately, most suppliers don’t store data centrally, and available data varies by format and granularity.
A further roadblock exists in that even organized tier one suppliers are not incentivized to collect and share their data with apparel brands. Suppliers are often hesitant to share information both upstream and downstream to create visibility, partly to avoid breaching their customers’ confidentiality. Further upstream, unorganized growers or other small business owners may not have the technological access, training, or resources to pass along data on provenance and labor intelligence downstream. This creates quite a challenge when seeking to identify the source of each cotton ball. There are, moreover, very often more players than meet the eye, with suppliers subcontracting to partner facilities — meaning more missing data and bypassing of brands’ controls. The greater regulatory scrutiny fashion brands are experiencing, particularly on greenwashing, has made them reluctant to share traceability information they’re less confident about.
Traceability is a challenge related not only to technology but also to operations and partnerships. Creating end-to-end supply chain transparency is highly complex and requires cross-industry collaboration. Establishing traceability from farm to finished product will require significant financial investment and transformation effort.
The apparel industry has a long way to go toward making end-to-end supply chain traceability a reality, but not surprisingly, the landscape of traceability-focused technology solutions has exploded. These innovations, which use blockchain technology to store data safely and protect privacy, offer a promising platform on which to build, including leading-edge testing technologies to prove provenance and further environmental and social goals.
Solving for traceability has become urgent to meet growing demands and regulations for a sustainable, ethical supply chain. We see that tech solutions address only portions of the problem — huge human and psychological elements are also involved — but we also see that the added transparency will afford fashion brands and retailers growth opportunities through new business models, such as reselling and circularity, while winning in traceability and sustainability, for the collective good.
Brian Ehrig is a partner and Nora Kleinewillinghoefer is an associate partner in the consumer practice of Kearney, a global strategy and management consulting firm. Brian and Nora thank their colleague Emal Ehsan for his contributions to this article.