Pulling Back the Curtain on Supply Chains0

Emily Gertz | Thu Oct 20 2011 |

It’s a tough moment for retailers: consumers are spending less money on products, but are demanding more and have an abundance of choices. While demand remains fairly strong for products that purport to save the environment, manufacturers that fail to legitimately back up environmental claims have met increased skepticism from consumers, which has led to lowered sales.

One major UK retailer is taking a bold step to make its environmental promises stand out from the competition. Marks and Spencer in August announced that it was committing to “full traceability,” and would document every farm and factory involved in creating its clothing and home products lines.

For a cotton T-shirt, full traceability will begin with the field where the cotton is grown; continue on to factories where the fiber is spun and the fabric woven and dyed; and finish its journey at the facility where the garment is cut and sewn.

“We are just launching in kidswear,” states Mark Sumner, the retailer’s Sustainable Raw Materials Specialist, “and will be rolling out across the whole of clothing and home over the next few years.” Sumner does not yet know how customers will access the product information, and declined to speculate on how the company might respond if it uncovered environmentally unsustainable practices among its suppliers.

Full traceability is about maintaining consumer trust, Sumner states. It also fits into the company’s “Plan A” multi-year effort to curb its environmental footprint, “as part of the pillar that commits us to protect the world’s natural resources by sourcing raw materials in ways that support their replenishment and safeguard natural habitats.”

The cost of full-disclosure

Traceability will not make Marks and Spencer products more expensive, states Sumner. More like the reverse: by curbing wasted materials and lowering energy use, “Plan A delivered a net benefit to M&S of GBP70 million ($110.1 million) last year and GBP50 million ($78.65 million) the year before. It is therefore cost-positive to the business.”

But if a company is sincere about its goals, the simple act of un-concealment can improve environmental practices.

Marks and Spencer is pulling back the curtain on its supply chains primarily “because they see market potential; customers care,” says Fangruo Chen, a professor at the Columbia Business School in New York City.

Sustainability must be a top down company value, however, or in-house buyers will still prioritize the lowest price over other goals. “If you’re just paying lip service, it’s not going to affect behavior” at either end of the chain, Chen says.

But if a company is sincere about its goals, the simple act of un-concealment can improve environmental practices, he says. “The way [companies] enforce it is through their bargaining power,” Chen says. “The ultimate weapon here is that they have an alternate supply.”

Traceability is “a good first step” to making manufacturing environmentally sustainable, says Chen. But he believes that market demand—voting with consumer dollars—can’t fully replace stronger environmental regulations and their enforcement.

Tim Wilson, co-founder and CEO of the UK-based firm Historic Futures, sees it differently. “The ultimate driver of any market is consumer power, and this is about a fundamental change among consumers…[W]e want to know where stuff comes from,” says Wilson. Located near Oxford, Historic is a small consultancy that specializes in helping companies document their supply chains. The firm is working with Marks and Spencer on its full traceability effort.

Wilson believes that as Marks and Spencer steps up its environmental requirements and requests more information from its vendors, suppliers near the top of the supply chain will demand greater accountability and better environmental practices from below.

Digital accountability

Historic Futures’ approach to traceability is centered upon “String,” an online system that suppliers anywhere in the world can use to describe their products, services, and processes. “The idea is if you think of it like LinkedIn or Facebook,” says Wilson, “I could reach out to you, place a request to connect, and then we would share certain information that’s not in the public domain.”

Wilson stresses that Historic Futures does not do audits, and is formally neutral toward the goals of the companies it works with, as well as their suppliers. “The whole point of the String platform is it doesn’t even know what the product is; it just knows it’s ‘product’,” he says. “Gold, silver, leather, soya…we just provide the information, and somebody else can decide if it’s good enough or not.”

Traceability is not without its pitfalls for retailers—particularly when they try to make big public relations happy with their efforts.

All this suggests that traceability is still largely an uncharted territory for both corporations and consumers.

Mega retailer Walmart has emphasized the positive environmental and social impacts of its “Love, Earth” line of traceable jewelry. But in January, a Florida paper called the Miami Sun Times News reported that a Bolivian factory in the line’s supply chain was abusing its workers (Walmart has denied knowledge of any abuses). The company has also been accused of greenwashing by some conservationists, who say raw materials for the jewelry are sourced from US mines that employ environmentally destructive, if industry standard, mining methods.

Another major retailer, the Nestle Corporation, came under fire in 2010 after touting its traceability efforts. The company announced Fairtrade International certification of its “Kit Kat” chocolate candy bar, under a corporate “Cocoa Plan” to promote sustainable practices among cocoa farms in Ghana and Ivory Coast. But a subsequent investigative report by the BBC revealed child labor on at least one Fairtrade-certified cocoa farm that supplied Nestle.

All this suggests that traceability is still largely an uncharted territory for both corporations and consumers. A lot depends upon a company’s internal ethical compass, as well as whether or not journalists and the public decide to pay close attention to its claims.

“It’s really consumers and governments [that] should have that policing role. Companies should have consequences if they don’t behave,” says Chen. “That is happening gradually, but I think the pressure has to be there.

“If it’s left to the corporate role, there are some very good companies, of course,” he says. “But unless you have a very good reporting system, [many are] still looking at the bottom line. In the end, you really have to change the ways companies think about profitability.”

Illustration by Ted McGrath