Traceability is becoming the new benchmark for measuring a brand’s ethical sourcing performance

 

Traceability is becoming the new benchmark for measuring a brand’s ethical sourcing performance

Unknown reputational risks lurking in the complex layers of global supply chains are prompting brands to look for ways to establish a traceability programme for each product they sell.

A traceability tag enables the company and its customers to trace the product back through all the stages of production including where each of the raw materials came from and where the product was manufactured. The tag will also disclose what social and environmental criteria were used by the brand at each of these points in the supply chain. This will allow customers to understand the social and environmental impact of the product they are buying.

Some of the early initiatives that created awareness about traceability include the Forest Stewardship Council, which certifies sustainable wood; the Marine Stewardship Council, which certifies sustainable fisheries; and various organic and fair trade certifications.

More recently, a series of scandals ranging from health scares for food products to human rights violations in the supply chain have made traceability a hot corporate responsibility issue. Sean Ansett, managing partner at Madrid-based consultancy At Stake Advisors, believes that issues such as carbon miles tracking, water scarcity, community impacts and climate change are demanding more transparency right down the chain. “It is no longer adequate to consider only first-tier suppliers. Stakeholders including governments, NGOs, trade unions and consumers are demanding more transparency in what goes into making a product,” Ansett says.

No sweatshops

In the past decade and a half, multinational clothing brands have put in place varying degrees of monitoring for their supplier factories to ensure their products are not being made in sweatshops. But they often monitor only the garment factory and not the fabric and yarn manufacturers or cotton growers. A brand’s claim of child-labour-free clothing then may not hold true if the cotton for the fabric came from a farm where children work in the fields.

“At the moment, sustainability is an empty promise because companies don’t know how they source material beyond their direct supply base,” says Tim Wilson, chief executive of Historic Futures, a London-based consultancy that specialises in supply chain traceability services. He says companies may have sustainability criteria on paper but they don’t have means to measure performance against such criteria. He says supply chain traceability is the only answer as the mechanism helps the company to comprehend fully the real social and environmental impact of the product they are sourcing.

Brands that have often said it is extremely difficult to monitor every single stage of production in increasingly complex global supply chains are now rethinking their position in the wake of recent allegations of abuse and human rights violations in the deeper layers of supply chains. For example, numerous media and NGO reports in the past two years have exposed widespread child labour – enforced by the state – in the cotton fields of Uzbekistan. Uzbekistan is the world’s second largest cotton exporter and a number of multinational brands have been selling clothing made from Uzbek cotton.

Under pressure from human rights campaigners, several top retailers including Tesco, Marks & Spencer, H&M, Target, Gap and Wal-Mart have said they will not support the use of Uzbek cotton in their products. But they cannot guarantee that their clothes are not made of cotton from Uzbekistan until they implement a comprehensive traceability programme that can trace the entire supply chain from the farms to the store shelves. Currently, such traceability mechanisms are in place only for organic cotton.

Environmental and animal rights activists’ campaigning against converting tropical forests in Indonesia into palm plantations forced leading consumer goods manufacturers, retailers and traders to form the Roundtable on Sustainable Palm Oil, a multistakeholder initiative to establish a traceability programme. Unilever, the world’s largest buyer of the oil and a founding member of RSPO, announced in 2008 that it would buy all its palm oil from certified sustainable sources by 2015 and have all the palm oil it uses in Europe fully traceable by 2012. Other members of RSPO include Sainsbury’s, Tesco, Asda, Marks & Spencer, the Body Shop, Boots, Carrefour, Waitrose, Cadbury, Johnson & Johnson, Nestlé, Colgate-Palmolive, Kellogg and PepsiCo.

There are other examples where traceability has become important for companies. An international ban is in place on precious gems from Burma, where the repressive regime is accused of human rights violations. Likewise conflict diamonds – diamonds that originate from areas controlled by armed rebel groups that use the proceeds to fund military action against democratic and legitimate governments such as in Angola and Sierra Leone – are not acceptable for many consumers.

Experts say that apart from managing reputational risks, traceability can also improve business. “Improved transparency in supply chains can drive consumer trust and loyalty, which in turn can drive sales performance of a company,” Wilson says.

He believes that traceability programmes can help reduce the cost of business, as better visibility of processes in the supply chain can help companies identify areas for improving efficiency and quality.

Wal-Mart’s lead

Transparent supply chains can also mean new business opportunities as an increasing number of consumers look for sustainable products. Retail giant Wal-Mart launched the world’s first fully traceable jewellery line – Love, Earth – in July 2008. Each piece of the jewellery comes with a traceability tag that has a code on it. Customers can go to Love, Earth’s website and enter the code to see where their piece of jewellery was mined and manufactured, learn about suppliers’ social and environmental programmes and the sustainability standards used to select the suppliers.

For the Love, Earth range of jewellery, Wal-Mart has partnered with mining companies Rio Tinto and Newmont for the supply of gold and silver, and Aurafin, a Florida-based jewellery manufacturer for making the product. Conservation International, a Washington-based environmental NGO, advises on the sustainability criteria. Love, Earth was initially set up for gold and silver jewellery, and Wal-Mart plans to introduce fully traceable diamonds in the next phase. The company says its target is to source at least 10% of its entire jewellery range from fully traceable sources by 2010.

Historic Futures provided the online traceability tool for Wal-Mart’s Love, Earth range. Wilson says there is a misconception that establishing global supply chain traceability is something that cannot be achieved. The use of technology makes it possible to establish traceability programmes even in the most complex supply chains. He says the information already exists across supply chains, and only needs to be fed into an integrated system to bring full visibility of the processes being used in the entire supply chain.

The key challenge, Wilson says, lies in engaging with suppliers and suppliers’ suppliers as well as educating employees at all levels in how to implement traceability on a day-to-day basis by entering the necessary information in the system.

Enter technology

The use of technology such as radio frequency identification (RFID), bar coding and web-based systems is making traceability relatively easy. While bar coding limits the information to only a few thousand characters, RFID tags can contain more information. But RFID tags may not be effective in complex supply chains where the raw material changes hands several times and gets mixed with supplies from multiple sources a number of times, as is the case with cotton or palm oil.

Wilson says web-based tools are more effective as they allow each constituent in the supply chain to feed in its own information, and the data collected can be managed easily. Web-based tools are also economical. “A multimillion pound business can have a web-based tool by paying as little as £60 a month.”

Another way to implement traceability is to establish a clear trail of documents such as certifications, test reports, material specifications, country of origin, bills of lading, pallet labels, invoices and purchase orders, delivery receipts, shipping advice and packing slips, starting from the point of origin for each part, ingredient or raw material and finishing with the end product. But relying only on a paper trail can make the process unmanageable in large and multi-tier supply chains.

“Getting all the stakeholders along the chain to input information correctly will require training and capacity building across language, education and cultural boundaries,” says Sean Ansett. He says brands need to forge closer relationships with their suppliers and be willing to transfer technical skills to implement an effective traceability programme. But first of all, brands need to realise that traceability must be part of their sustainability commitments.

Benefits of supply chain traceability

• Enables measurement of sustainability performance.
• Minimises reputational risk from scandals.
• Wins consumer trust and loyalty and thereby drives sales.
• Helps improve efficiencies, processes and quality by better information management.
• Reduces cost of business by improved efficiencies.
• Opens up new business opportunities.

Sources: Tim Wilson, Historic Futures; Sean Ansett, At Stake Advisors

supply chain  sustainable supply chain  traceability