According to industry statistics, up to 30% of sustainable materials could be counterfeit – an issue that has its roots in the fashion retail industry’s widespread lack of true supply chain visibility.
At the same time, consumers are demanding greater transparency into not just the composition of their products, but their entire lifecycles up to the point of sale. This has led to a situation where brands and retailers are hurrying to make sweeping sustainability commitments that, more often than not, are built on data from just a small slice of their multi-tier supply chains.
TextileGenesisTM is a blockchain-oriented traceability platform that was designed to tackle this problem head-on. We sat down with its Founder, Amit Gautam, to talk about why traceability matters, and why the technology purist’s approach isn’t always the right one.
The Interline: Last month we focused extensively on sustainability, and across the board it was apparent that a lot of public CSR and ESG commitments stand on pretty shaky ground due to a lack of visibility and transparency in supply chains. With that being a problem that TextileGenesisTM is looking to solve, at least for materials, let’s start by talking about where the largest gaps are for a brand that wants to be able to confidently, verifiably declare that their products are made from 100% sustainable materials?
Amit Gautam: Ask any brand to what level they can see their supply chain, starting with the direct tier one supplier, or manufacturer, how far back upstream can they go? We researched this for several months, looking into around 100 brands, and what we saw quite shocking: less than 5% of the top 100 global apparel brands can track their garment collections back to the fibre, which is a tier 4 or tier 5 source for them.
Almost all of them have great visibility at tier 1, which is where they’re either commissioning production or buying finished product. Sometimes they can see further, to tier 2, which is a finished fabric producers, but then if we look to tier 3 to tier 5 – yarn spinners, fibre producers, ginning mills, and farms – it’s a complete black box.
Beyond tier 2 is where the real gap in visibility is. But we should also remember that these were the top 100 global apparel brands, who have significant resources that they can devote to their sustainability initiatives. So you can imagine the kind of visibility the rest of the industry has.
So that is where a claim to the sustainability profile of a particular product is most likely to be undermined: because the sustainability of a material is determined to a large degree at the point of origin. And very few brands can see that far into their supply chains.
The Interline: There seem to be three key parts to real supply chain visibility: collecting better data at the source, standardising it, and then making it available downstream. The first of those is not something the apparel industry has done very well to date, and that seems like as much of a cultural problem as a technical one. How can the industry shift its thinking and its processes to ensure that transparency starts off on the right foot: with accurate data from the point of origin?
Amit Gautam: If we look at an example of a well-established supplier of sustainable materials like Lenzing, or another company supplying recycled polyester, for example, it’s relatively easy to gather that sort of data because there are robust ordering and auditing systems in place, as well as processes that are designed to track those physical volumes as they move downstream.
In those scenarios, our approach is to convert that physical volume into a digital token, so that alongside your physical inventory you have a digital inventory that mirrors its path exactly, from supplier to spinner and so on. That can be tightly controlled because you can regulate the amount of certified material that enters the network by digitising it and tokenising it at the point of origin.
When you go downstream to a dyeing house, for instance, I think you’ll see quite a big variation. On the one hand you’ll have large, multi-billion dollar textile companies in Sri Linka, India or China, which are quite advanced in terms of their systems, which would allow you to easily capture the data in a reliable way.
So those would be the ideal scenarios for collecting information, if you like. But it’s also going to be important for brands to be able to capture data of a similar quality from a broad range of suppliers, at every tier in their supply chains. Historically, that would have been managed with manual, form-based inputs, but the solution as we see it is to automate that process through standardisation, providing templates to capture the right information in the right format – whether you’re dealing with a large material company or a much smaller supplier.
The Interline: There’s a fundamental part of that vision that often gets overlooked, and that’s providing an incentive and a framework for suppliers to change. Automating the data entry process certainly seems like a step in the right direction, but obtaining visibility further upstream than that second tier seems like it’s going to require more than just a smoother method of data capture.
Amit Gautam: You’re absolutely right. Fashion has traditionally taken a “stick” approach, where the brand issues a directive and forces suppliers to comply otherwise they will be ejected from their supply chain. But we don’t believe that approach is viable beyond the closest tiers, and instead you need intrinsic motivation to get the kind of deeper engagement you’re going to need, as a brand, to improve your upstream visibility.
That’s why we devised a ranking system for suppliers – from one to five stars – that’s based on the quality of data they share, the frequency with which they update their audits, and other indicators. By continuously updating that ranking based on the quality of the data that suppliers provide to their downstream customers, we can provide motivation for improvement that should translate into actual business development and bottom line growth for the suppliers themselves.
And to build on that, we’ve established a partnership with a fund in Amsterdam that provides access to preferential rates for investment loans and other funding to suppliers that have a greater than three-star ranking. Many of these companies are based in Asia, where access to the sort of investment needed to upgrade to waterless dyeing technologies, for example, is difficult to get. So this is an example of the kind of incentive that we believe will encourage suppliers to change for their own benefit, as well as to improve the quality and the quantity of visibility they can provide to their brand customers.
The Interline:Let’s talk about that second component of traceability: standardisation. It’s one thing to put in place structures to collect information, and another to decide what information matters, and what format it should be communicated in. How did you determine what parameters a fibre-to-retail traceability standard actually needed to contain to be useful in supporting a brand’s claim to sustainability or authenticity?
Amit Gautam: We determined that in order to have a robust traceability system for any kind of asset, you need to track five elements at each step in the value chain where the product is being converted from an input to an output through what we call a transformation event, such as in spinning, dyeing, sewing and assembly and so on.
Non-transformation events are processes that do not involve that sort of change, such as logistics, because these are either already comprehensively tracked in existing systems, or because tracking the key elements at those stages added little value to the brand or the fibre producer in terms of visibility.
Those five elements are: who, what, where, when, and why. And we then identified the key criteria that we believed were essential for knowing what were the minimum datapoints we needed to capture from each element to be able to guarantee reliable, robust traceability at the article level – whether that article is a yarn or a finished garment.
You might be surprised to learn that, when we evaluated the standards that already existed, we realised that many of them were missing one, two, or more of those elements, which made them unsuitable to be the data model for the kind of transparency the fashion and textile industries are going to demand.
And finally we made a choice to steer away from data that was commercially sensitive, so none of the pricing data or product specifications – outside the composition of the fibres and fabrics – is relevant to the goal, and it’s excluded from the standard.
The Interline: Now that we understand how a brand can gather better data at source, and how they can standardise it to be useful to all the right stakeholders, the next question would be how to ensure its integrity when it’s transported. For TextileGenesisTM, this means using a blockchain, but why? What is unique about supply chain transparency at this level that makes it difficult, or impossible, to deliver with a centralised database instead?
Amit Gautam: It’s a great question, and it’s one that brands and retailers should ask of any blockchain application. And I’m not a blockchain purist or advocate – except where it emerges as the best way to solve a problem when all the alternative avenues have been considered.
To solve the supply chain traceability problem you don’t strictly speaking need a decentralised architecture, which is why we’ve incorporated some elements of blockchain but also ignored a significant part of it. And the reason we’ve done that is because if you want to try and achieve the same aim – full supply chain visibility at the material level or anywhere else – from a technology purist’s point of view it’s destined not to work. It’s too costly, too time consuming, and too difficult to secure adoption.
The key innovation we have adopted from blockchain is the idea of “tokenization” of a physical asset i.e. creating digital twin of the physical asset at the point of origin through tokens in order to create completely paper-less supply chain traceability. I think that’s a breakthrough when it comes to creating change that’s both meaningful and manageable.
People are most familiar with blockchain technologies through cryptocurrency, and the concept of digital coins, so we decided to translate that familiar concept into something applicable to the material supply chain. That’s where the idea of tokenisation comes in: we’re creating digital tokens (FibercoinsTM) that are linked to physical volumes, so that a FibercoinTM can represent a physical asset such as a length of yarn or weight of fabric (one FibercoinTM = 1 kg of sustainable fiber). That way, when a shipment goes out, you can connect the right amount of tokens to that block to ensure that it cannot be counterfeited or tampered with, and that the quantity is secured.
And that is not something you can do with a physical shipping certificate, a PDF form, or a database held in a single location. By applying the principles of blockchain, we can provide brands with the ability to see the balance of inventory at any time by evaluating the balance of tokens, and also to track when and where those tokens have changed hands. Approaching things this way imbues the supply chain with an element of security, because critical computational and transactional components of the data flow in the supply chain are being managed in a way that’s difficult, if not impossible, to tamper with.
So while I don’t believe supply chain transparency needs blockchain per se, if we apply the concept of tokenisation and the right components of blockchain technology, we can substantiate that transparency with more empirical proof. And from there we can use other systems and other architectures that don’t rely on blockchain to build on top of that proof, delivering a solution for brands that hits the right price point, the right level of complexity, and with the ease of use the industry is going to need.
From that point of view I see blockchain more as a tool to re-energise the discussion, and a way of drawing people’s attention to the value of digitising physical assets and tracking physical processes.
The Interline: That’s an interesting perspective, because it also adds a layer of abstraction on top of problems that might seem insurmountable when a brand looks at them in their native form. For example: it might be easier to visualise a token changing hands as it passes through the supply chain than it would be to consider all the complexities of tracking and tracing the multi-tier processes that turn a raw material into a finished product. In effect we’re talking about using carefully-chosen parts of a technology to help enact cultural change.
Amit Gautam: Absolutely. And tackling digitisation in that way can also make it easier for supply chain actors to move away from the deeply-entrenched paper and PDF-based transactions they’ve traditionally relied on. Because it’s immediately apparent how it differs from the historical methods, which were incredibly easy to fake, and which led to valid accusations of greenwashing and poked other holes in the sustainability picture.
Consider as well that linking a physical asset to a digital token also opens up new avenues for physical verification – things like DNA markers, pigment markets and other tools for forensic verification. Obviously that category of traceability is complementary to what we’re talking about, but it’s also a good example of the benefits that blockchain concepts can offer over centralised systems.
As an example, think about quantity and quality checking in material distribution. With traditional tools, that has to be done on a small sample size, since you might be talking about millions of kilogrammes of material, which is impossible to verify physically. If you can instead verify the tokens associated with those kilos as well as conducting “risk-based” forensic audits, you can be confident that your entire supply chain traceability is intact.
The Interline: One final consideration would be where independent third parties, certification businesses, and auditors fit into this picture. Does robust traceability and transparency exclude the sorts of intermediaries that people are used to associating with the ethical and environmental side of fashion?
Amit Gautam: I don’t believe so, no. Because the brand and theirs consumers will always want to be confident that a particular manufacturing location is up to the right standard, so someone will need to go in there and study its inventory segregation practices, or look at its water usage, or assess how it treats its workers. I think those sorts of certifications and credentials are going to have value for the foreseeable future – perhaps even more so when you’re able to track them in a digital way, and to systematise and support them with the right technology.
That’s really this entire subject in a nutshell: finding the correct methods of collecting information that brands and consumers care about, finding the right standards to convey them, and settling on the right amount of technology to communicate them in a way that gives everyone involved in the product journey confidence that’s backed by the best solution for the task.
