Preparing For Transparency With A Flexible Value Chain, Backed By Data

Our last article discussed some of the drivers that now make SROI, or “Sustainability Return on Investment“, critical for brands, retailers, manufacturers, and suppliers. These drivers covered the initiatives the industry is trying to address, and the legislation that the US, EU, and UK are implementing that will no longer be self-governed by the industry, but objectively and independently measured by the local, national, and federal government. What does this all mean? Ultimately, it all boils down to growth through cost saving (and avoiding hefty fines), revenue generation, and profitability. Those companies that are ‘late to the party’ are going to find it extremely difficult to compete with the early adopters, or even be outpaced by new legislation.

It’s clear that brands and retailers that operate in the US, EU, and UK must define sustainability improvement initiatives – a recognised scientific-based method of measurement across the entire supply chain – and will be required to publish timelines with regular, or even auditable evidence of reduced social and environmental impact to continue to compete in these markets.

A key element overlooked is the vast range of process types and associated data managed by the Tier 1 to 6 manufacturers, raw materials, and chemical suppliers. The logistics for brands and retailers to directly gather this data will be extremely difficult, which is leading to new organisations, with software and data acquisition methodologies to capture this data on behalf of the brands and retailers. In reality, many brands and retailers currently do not know their Tier 3 – 6 supply chain partners, with some struggling to identify Tier 2 partners.

Therefore, the majority of brands and retailers will initially focus on Tier 1 – 4 partners, with only the largest, forward-thinking organisations driving down mapping and traceability to Tier 5 & 6 partners.

Although it’s early days, work is already underway collecting primary data from partners across Tiers 1, 2, 3, and 4, and over time we expect brands and retailers to go deeper into their value-chains, reaching Tiers 5 and 6. We would also expect to see this data being gathered dynamically via IoT devices connected to machinery, raw materials (smart labels), finished products, various software solutions, APIs to associated partners, and suppliers that will participate in the collection, analysis, and publishing of these primary datasets.

This is going to have a large impact on Tier 1 to 4 partners; to ensure sustainability measurement, brands and retailers could not work with a manufacturer and associated supply chain partners that are not participating in the collection, analysis, and publishing of trusted primary datasets.

In this article, we take a deeper dive into the drivers behind the need to improve and measure sustainability, identify the priorities when defining sustainability initiatives, and the SROI that is going to be required to help justify the investment.

What are the drivers?

Generating growth via new sales, incremental revenue generation, cost saving, and profitability are key drivers for almost every company. However, we’ll first focus on some of the coming legislation that will enforce companies, and their supply chains, to implement science-based sustainable process improvements, measurement, and publication in the US, EU, and UK.

Drivers in the US:

New York state bill, the Fashion Act, will affect all companies, and their supply chain processes, associated with the operations generating over $100M in annual revenues. This covers all the usual global brands.

The proposed bill has 3 main elements;

  1. Binding targets: targets defined by the governing body, and must be published by each qualifying company
  2. Complete supply chain mapping: full mapping of the supply chain associated with operations in New York state, with the objective of traceability of products. The initial requirement is: “a minimum of 50% of suppliers by volume across all tiers of production shall be mapped”.
  3. Social and Environmental impact disclosure: regular publication and comparison to binding targets which will be assessed by an objective and independent body

For those brands and retailers that are not compliant, the punishment is proposed as 2% of annual revenues.

The key aspect of this bill is that it will not be self-governed by the fashion industry, so it’s not going to be a matter of brands and retailers marking their own homework. There have been many self-governed initiatives – just one of the many reasons why an industry-wide standard of data gathering and systems collaboration has not been achieved to date. The independent assessment and enforcement will provide a greater probability of success.

All standards for compliance with the bill will be defined by the legislature, which is a significant change from past industry-managed initiatives.

One thing that we can be assured of, is that those brands and retailers that wish to continue to operate within New York state, will need to develop new processes and methodologies to scientifically capture the required data. Regarding full traceability of their supply chains, are global brands really going to manage the supply chain differently in New York versus London or Paris? Once a brand or retailer decides to comply with delivering on the required data points, then they will most likely do it once and on behalf of all global requirements. The only exception to this rule will be for those that operate in a single state, or country.

Publication of social and environmental impacts aligned to the legislature’s binding targets is a game changer; the brand will not be able to pick and choose targets. Therefore, the acquisition of science-based standardised data from all Tier 1 – 4 companies in the supply chain is essential. Brands and retailers do not have the capability to acquire this data directly, so will need to work closely with each of their third-party partners, to ensure that the data and methods of capture are acceptable to the legislatures, and become the de facto standard. Initially, we would expect that data models will be built as part of vendor surveys and questionnaires, using primary (first-hand) data, completed by each of the partners, and shared with each of the brands and retailers. In the future, we would expect that this data would become dynamic, meaning that it could be collected in real-time from many of the IoT devices connected to machines and solutions that are used within the connected value chain.

Smaller brands and retailers operating outside New York may think they don’t need to comply with legislation in the near future. However, this bill is being assessed at the Federal level in the US, so similar requirements will eventually be applied nationally, and impact a significantly wider group of brands and retailers, that not only operate within the USA but also sell internationally.

In addition, California Garment Worker Protection has recently announced that it will ban the use of piecework, and will revert to hourly minimum wage. It’s not just a ‘stick’ approach, but rather that the US also plans to provide a ‘carrot’. There is the aim to create an American apparel industry with a 30% tax credit incentive for brands, retailers, and manufacturers.

Drivers in the EU:

The E.U. Green Deal was approved in 2020 as a set of proposals to improve policies in line with greenhouse gas emission targets. One of these is the Sustainable Products Initiative (SPI), a new regulation to improve E.U. products’ circularity, energy performance, and other environmental sustainability aspects published in March 2022. The SPI was set to have a public consultation on priority product categories in 2022, but this has been delayed. Ultimately, the SPI is set to affect brands starting 2024, however, brands will need to take action in 2023 to avoid penalties.

The Digital Product Passport (DPP) initiative is part of the Ecodesign for Sustainable Products Regulation (ESPR) and one of the key actions under the EU’s Circular Economy Action Plan (CEAP).

The DPP is key to the EU’s transition to a circular economy and will provide information about products’ environmental sustainability. It aims to improve traceability and transparency along the entire value chain of a product and to improve the management and sharing of product-related data which are critical to ensuring their sustainable use, prolonged life, and circularity.

The DPP will help consumers and businesses make informed choices when purchasing products, and should also help public authorities to better perform checks and controls.

Therefore, brands and retailers with operations in the EU are in a similar position to their counterparts operating in the US and need to be prepared for 100% transparency.

It’s time to transform fashion’s traditional analogue supply chains into modern data-driven value chains!

Commentators expect to process and data to be the key focus in 2023, to enable brands and retailers to collect and offer data transparently.

Some companies are already transforming their value chains.

There has been reporting of human rights, and other social and environmental violations, resulting in a reduction of production orders, in areas such as Xinjiang. However, some brands were already taking action, and shifting their production. These brands have been working with supply chain partners to improve sustainable processes in each of their facilities, but have also been working with those partners to create a flexible and adaptable digital value chain that can mitigate risk and provide sustainable options in times of regional crisis. When a crisis hits the supply in a specific region, the supply can be switched to another region, whilst still using the same verified and sustainable processes.

This flexible and adaptable digital value chain can also enable a greater balance between long-distance sourcing and near-proximity sourcing. Core items can be sourced at distance based on longer lead times with optimised cost and environmental impact, whilst time-dependent products can be sourced closer to the market for a faster response without high environmental cost.

What does this mean for the prioritisation of sustainability initiatives?


Priority #1 for most companies is cost-saving and/or additional revenue generation. However, there is a commonality between your company’s financial objectives and the imminent legislation.

These are:

  1. Detailed mapping of your supply chain partners (all Tier levels), and their processes
  2. Capture and analysis of primary data generated by each of the processes, raw materials, human resources, energy, waste, water, and created products.

Detailed mapping of supply chain processes is essential to both understanding and defining the changes required to implement more sustainable business practices. One way to measure the greenhouse gas impact of fashion is by using lifecycle assessment (LCA), which is a technique used to evaluate the environmental impact of a product or service throughout its entire lifecycle, from raw material extraction to disposal. LCAs can be used to assess the greenhouse gas emissions associated with different stages and processes of the fashion industry, such as the production of raw materials, manufacturing, transportation, and end-of-life disposal of clothing. the current process must be mapped to identify the inefficiencies and enable the definition of a new process that improves sustainability. Comparison of the existing and proposed processes will enable the estimation of cost-saving and revenue generation. Crucially, the new legislation discussed above also requires the publication of the mapping of processes across all tiers of supply chain partners for compliance, and this is a prerequisite for traceability throughout the supply chain.

This exercise is not a small effort, and again, is not possible for a brand or retailer to achieve alone. Assistance from third-party expertise and strong partnership with all tiers in the supply chain is going to be essential to satisfy the initial process mapping, and ongoing verification of process for every new facility or facilitator added to the supply chain in the future. However, once this mapping is completed, significant improvements will be more easily defined, planned, and executed.

As stated already, step one will be to work with your partners to define and gather primary data. More forward-thinking businesses will consider real-time data collection, that can be mapped and measured for improvements in real-time. These methods will also enable over time Track & Trace, linked to the lifecycle of raw materials to the finished products.

More information on the challenges and opportunities for aligning the Bill of Process to the Bill of Materials and the Bill of Labour can be read here.

The capture of data generated by these processes, raw materials, and resultant products is a prerequisite to understanding the impact of current processes and compliance with targets. A measure of environmental and social impact is already provided by many brands and third-parties. However, as previously discussed, these current measures are self-governed within the fashion industry, which leads to the use of various measures. Worse, some measures often use generic secondary data in template form which has raised concerns about flawed calculations and resultant measurements. Imminent legislation calls for objective and standardised measurement, and in order to deliver on the greater accuracy required to satisfy the proposed legislation, more accurate primary data is required from each of the brand’s or retailer’s Tier 1 to 4 supply chain partners. This primary data includes the details of their machinery, processing capabilities, throughputs, resources used, etc. Unfortunately, this is something that most brands and retailers will find very difficult to collect.

The good news is that there are many new organisations that have been formed to assist brands and retailers in collecting this primary data. Examples include management of industry-standard terminology, and capturing and processing the operation-specific and traceable data to support the accurate calculation of the environmental and social impact of processes. There are many other organisations in this space, that are now managing millions of data points, and providing brands and retailers with the capability to collect this data from each of their Tier 1 to 4 supply chain partners. This data is required to enable science-based calculations relating to the processes, that in turn will help provide the objective and standardised impact measurement required for both an independent assessment of sustainability, and the real-time data insights that the brands need to inform their sustainability choices.

These two prerequisites are the essential ‘foundation’ for creating the SROI. More reading on how processes and data are essential in combination with existing technology, such as PLM, can be found here.

The first steps in documenting a potential SROI

How do you prioritise your list of sustainable initiatives? The general advice, given the short timescale, is that brands and retailers should understand the processes across all tiers of their supply chain in detail, and focus on providing transparency of those processes, whilst applying small prioritised changes very thoroughly with clear and accurate goals.

As mentioned, the Fashion Act requires that 50% of suppliers across all tiers of the supply chain must have their processes mapped. The EU Sustainable Products Initiative proposes full mapping and traceability across the entire supply chain. The ‘AS-IS’ process mapping will be required for this initial compliance, but then working towards implementation of more sustainable processes, and transformation to a digital value chain, will require re-engineering of ‘TO-BE’ process mapping. This effort will require working closely with all your supply chain partners. One of the considerations for performing this mapping is that not all brands and retailers currently know who their supply chain partners are beyond Tier 1, or Tier 2 at best.

Next, you must make logical assumptions on the efficiencies of the TO-BE process, but it’s essential that the calculations made from those assumptions must be based on how you will measure the new process. For example, if you are using secondary data (historic templates), will that data give you the accuracy to correctly measure the sustainability improvements either to confirm SROI, or enable compliance with the imminent legislation?

The fashion industry is running out of time, but it’s never too late to start. By starting now, brands, retailers, and their supply chain partners will be able to get ahead of legislation, avoid related penalties, and turn a problem into an opportunity!

In our next article, we’ll examine some example processes where more sustainable practices could be implemented, and examine the potential benefits for the SROI.

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