In our latest Traceability Masterclass, part of our webinar series showcasing experts and insights from our platform, we had the pleasure of hosting Jacopo Polinori, a traceability expert and EMEA manager.

This masterclass focused on the UFLPA legislation, which bans the trade of cotton sourced from regions with labor exploitation.

Jacopo’s presentation was particularly enlightening, offering a comprehensive overview of how brands are tackling these critical issues. The depth and clarity of his analysis were so impressive that we decided to create a blog article based on his insights.

(Don’t miss out! Sign up for our next Masterclass starting in July -> LINK)

1 – What are the challenges of a chain-of-custody driven traceability approach?

LOW VISIBILITY ON POTENTIAL SUBCONTRACTORS

A lot of brands or solutions providers believe that the biggest challenge is find the right IT solution, the right platform that can ensure a complete traceability along the entire supply chain. In my opinion that’s not the point, we have a lot of technologies we could use block chain, RF or QR codes. We can discuss about what system is better than others, but at the end of day they are only tools and a tool without the willing of the operators to implement and to use it every day is nothing.

For this reason, I strongly believe that the foundation of every traceability system based on the collection of chain of custody documents is transparency. So this is not a matter of technology it’s just a matter of choice, choice to change the way of working, choice to take in consideration new factors in the business development but first of all choice to change mentality.

Considering the tiers of the cotton supply chain we have at T1 the Garment manufacturer, at T2 the Fabric Supplier, at T3 the Spinner (the yarn supplier) and at T4 the Ginner and the Farm.

The biggest name of the fashion industry spent a lot of time in the past years to know the subcontractors of their direct FG suppliers but now we need to do this analysis deeper in the supply chain. We need to know all the subcontractors of our T2 and T3 suppliers: for example we need to know the name and the physical location of the Dyeing company used by the yarn supplier of our Fabric Supplier. This companies in most of the situation have no relationship with the brands so they are not confident to share information about their value chain especially when you ask the mentioned Chain of Custody documents, they consider them too sensitive and private information that need to keep secret. A sort of intellectual property. This Enache the opacity along the supply chain.

LOW VISIBILITY ON SUPPLIER INVENTORY MANAGEMENT

When you have transparency along the supply chain you need to collect the right documents and make that documents speak. This means find a sort of Fil Rouge that linked each document and each supply chain tiers. This is very diffucut because each company have their own codification system and at current day there are few suppliers that have an inventory record that keep trace for example of the yarn batches used for the production of that batch of fabric.

LOW VISIBILITY ON SOCIAL AND ENVIRONMENTAL AUDIT

Imagine that we collected all the Chain of Custody and the value chain information, we have the document’s that proves the transaction and the genealogy of that cotton goods. Analyzing them we find that there is one spinner company located in China that is at high risk because China in very linked to Xinjiang region. The CBP procedure tell that if a product is made in high risky country, but the brand provide official documents that ensure no forced labor was used for the production, the good is safe and can leave the detention status. The only institutional and official evidence that no forced labor took place is by Social Audit. So the industry needs the creation of structured audit planning and a common place where make this information constantly available.

2 – What factors can increase the risk of non-compliance with UFLPA/Forced Labor regulations?

HIGH SUPPLY CHAIN FRAGMENTATION

One factor that can increase the risk of non-compliance with the UFLPA regulations is an high supply chain fragmentation. In the East part of the world a lot of suppliers have vertical or vertical integrated business structures.

So they buy the fiber and they can sell fabric or even finished garments. They carried out a lot of different factory processes. In terms of supply chain this means a contraction of the tiers numbers and relationship, so less value chain actors to involve in the Due Diligence. In the other side there are Value Chains with a lot of actors, this value chains develop themselves in length (direct suppliers that own the goods) and in width (subcontractors, third party worker). This is the case of the EMEA Value chain and in particular of the Luxury Value Chain. The peculiarity of this system is the presence of a lot of small companies specialized in one or few factory processes this ensure a very high-quality standards. Luxury brand want to work with luxury suppliers that can ensure not only the quality of the raw material but also the ethical and environmental respect in the production and procurement of them.  These aspects create a virtuous circle that ensures the EMEA supply chain is low risk but on the other hand, the presence of many actors makes it much more challenging to collect the chain of custody to prove it documentally.

THE COMPLEXITY OF THE BUSINESS MODEL AND THE NUMBER OF SUPPLIERS

The business model chose by the brands can affect the risk of non-compliance. A facon model requires more effort from the brand side but permit more control in the raw material purchasing phase and on the documents shared. In this way brands can establish best practices in a deeper point of the supply chain where it’s more easier drive a change in the operations. The full package or blended business requires more time in the research of the CoC documents, more effort in terms of supplier engagement and is more tendence to the opacity of the information.

In both the system the total number of suppliers play a pivotal role: higher the number of suppliers, higher the number of the supply chains to control, higher the issues in CoC practices.

OPERATING IN COUNTRIES AT HIGH RISK PROFILES FOR FORCED LABOR

I have to recognize that there are a lot of suppliers that are driving from the inside the fashion industry towards ethical and environmental best practices in procurement and production. They are going outside high-risk countries they make investments to ensure capacity and control of the value chain. This is difficult because in the past twenty years there was a mass outsourcing, the industry landscape changed and now there is a maa re-shoring and this need a new industry landscape organization.

However we need to consider why some companies still remain within China when they could easily vacate and go somewhere else for at least parts of their supply chains. Number 1 is the infrastructure that has been built up in China, in terms of railroad, roadways, other transportation links. This facilitates production activities. The second thing is that there’s a large ecosystem built up amongst manufacturers. So the spinners, the weaver suppliers this makes it difficult for any one individual to leave that clustered industry because then there’s cost associated with navigating goods and information across distances. So it’s those two elements that are tying together manufacturing in China in the present day more so than any considerations about cheap labor.

3 – Which are the potential solutions?

INVESTING IN STRONG AND CONSOLIDATED SUPPLIER SUPPLIER RELATHIONSHIP

The 50% of the success of a brand in my opinion rely on their suppliers and in particular in the relationship that they can create with them. Brands need to have a right number of suppliers that can permit negotiation and innovation but at the same time the brands need to ensure quantities and longtime commercial relationship. These two last aspect permit suppliers to understand what are the requirements of the brands from a product and also a compliance point of view. Consolidation has a crucial role.

WORKING ON THE DEFINITION OF INDUSTRY STANDARD TO SUPPORT GREATER INDUSTRY ALLIGNMENT AND STANDARDIZATION

When I worked for suppliers I understood that in this company especially the Italian companies or EMEA companies that are few people that work on certain topics and these people do these activities and other ones like commercial, testing, production development not only for one brand but for big amount of brands. So one aspect that need to be take in consideration is the standardization of the request among the fashion industry, this is crucial to put suppliers in the right situation to make this analysis and be compliant with requirements.

SHIFTING FROM A CHAIN OF CUSTODY DRIVEN TRACEABILITY APPROACH TO A MORE PRODUCTION – DRIVEN APPROACH

One of the problems with the systems based on Chain of Custody methodology is that in the majority of the situation this work start when the production of the FG is done. This means work backward asking suppliers and subcontractors to provide documents in a second time.

Usually passes years from the moment when the cotton was harvested to the production of the fabrics or the finished goods. This fact makes more difficult the collection of the information. So to extend this methodology at all products, we need to work on present we need to make our suppliers aware about the documents that they have to produce and to share in the moment of the production and the shipment and after that we need to find a system where it’s possible to store this partial information and then complete them once the flow restart.

What are your thoughts on these concepts? Interested in diving deeper with a dedicated call?

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