We look at why upstream Supply Chain Traceability remain key to business confidence, resilience and performance.
Key Takeaways. What's Driving Retailers:
- The Need for Investment
When costs are increasing, investment can underpin operations and growth; supply chain traceability and transparency adds significant investor appeal. - The Need to be Compliant
Consequences of non-compliance can be shattering: the inability to sell or supply products into EU countries or US states, product seizures, supply chain disrputions, and costly investigations and fines. - The Need to Protect Revenues, Profile & Share Value
Supply chain disruptions occur at the best of times, notwithstanding non-compliance. Supply chain traceability mitigates risk from political, economic and climate upheaval. - The Need to Reduce Lead Times, Transport Costs and Carbon Emissions
Supply chain visibility can bring competitive advantage through transport efficiencies and supplier alignment. - The Need to Act Now
Upstream supply chain transparency and traceability is key for business resilience but it takes time to achieve. See our sample timeline.
Retailers require investment
Retailers are facing challenging times. Businesses are being hit with inflation and increasing costs of materials, energy and duties. In the UK retailers have had to absorb increased Employer National Insurance contributions and increased minimum wages.
Many retailers rely on investment to underpin their operations and growth strategies.
However, investors are increasingly aware of the risks of investing in companies with poor ESG performance and less than thorough due diligence.
Many of these risks come from retailers’ upstream supply chains – whether that be non-compliance with ethical and environmental legislation and regulation; lack of visibility into supplier operations, including missing oversight of labour practices; concerning CO2 emissions or poorly viewed environmental impacts; or with the inability to move urgently and rapidly when supply chain disruptions occur.
All of these elements are blind spots in the supply chain that have the potential to significantly impact a retailer’s brand, revenues, profits and share value – and ultimately their investment appeal.
Contrastingly, upstream supply chain transparency and traceability is the key to identifying, actioning and mitigating risks, eliminating poor labour practices and reducing damaging environmental impact, thereby covering and managing risks that can harm investor appeal.
Retailers need to be compliant with ESG Legislation
Whether driven by changing consumer attitudes, a realisation that abuses are occurring, or national and international government commitments to ethical and environmental targets, ESG legislation is increasing and tightening, and with it the need for greater supply chain transparency and traceability.
These include:
- Extended Producer Responsibility (“EPR”) [UK and EU],
- Uyghur Forced Labour Prevention Act ("UFLPA") [USA],
- EU Corporate Sustainability Due Diligence Directive ("CSDDD"),
- EU Deforestation Regulation ("EUDR"),
- EU Corporate Sustainability Reporting Directive ("CSRD"),
- The French Anti-Waste Law (“AGEC”)
- The German Supply Chain Due Diligence Act ("LkSG")
- The Eco-Design for Sustainable Product Regulation (“ESPR”) [EU].
Whilst the detail within some of these legislative frameworks is still being ironed out, the need for upstream supply chain transparency and traceability data and evidence relating to suppliers, products, components, packaging, services, and operational practices is well sign-posted.
The Segura Legislation Matrix is extremely useful to check which legislation your business may be subject to.
Legsilation is a strong driver for retailers to invest in supply chain traceability. It’s imperative to get to grips with legislative requirements and plan for solutions before fines start being handed out. The consequences of not meeting ESG legislative compliance can be significant: the inability to sell or supply products into EU countries and US states; products seizures and supply chain disruption; costly investigations and regulatory penalties; reputational and environmental damage.
Retailers should not under-estimate the time it takes to reach compliance.
Even with a platform like Segura that automates the process, it takes time to discover and map your supply chains. To engage suppliers and collect, consolidate, validate and report on your data. With the most significant data requirements coming in the form of EU legislation in the form of ESPR and Digital Product Passports coming into force, the time to start is now.
Retailers need to protect revenues, profit and share value
It’s not just costly investigations and fines for not meeting ESG legislative compliance impacting bottom line; retailers need to ensure their suppliers, products and supply chain operations comply with ESG legislations issued by the countries into which they supply and sell products.
Failure to meet ESG legislation will impact the ability for retailers to supply and sell products into that territory, impacting their revenues. It can also lead to products being seized or even destroyed, leading to revenue impact, stock loss, supply disruption and increased cost of redesign and re-supply.
The impact of increased regulatory scrutiny is already being seen, for example In FY23, US Customs & Border Protection seized $129M of textile shipments and issued $6.2M in penalties.
Knowing where each of your suppliers are located, and what they supply to whom, helps retailers pivot and recover efficiently and quickly from supply chain disruption, ensuring continued supply, speed to market and sales revenues.
Knowing who supplies what in your supply chain also gives retailers the ability to identify opportunities to leverage economies of scale, reducing costs and increasing profit margins.
The sooner retailers can get visibility of their entire upstream supply chain, the sooner they will be able to identify their commercial risks and leverage their opportunities.
Retailers need to reduce lead times, transport costs and carbon emissions
Having upstream supply chain visibility can also help retailers align manufacturing locations to reduce lead times, transport costs and carbon emissions.
Recent news highlights the potential opportunity to exploit supply routes along the Middle Corridor, offering an opportunity for UK retailers to not only protect supply routes and minimise tariffs, but reduce its carbon footprint.
Maritime shipments, especially those passing through the Suez Canal or the Arctic's Northern Sea Route, have historically been cheaper in bulk but inflict a considerable carbon footprint due to heavy fuel usage and the distances involved.
By contrast, the Middle Corridor, reliant on an approximate 70/30 rail-to-sea split, cuts emissions by half compared to the Suez or the Northern Artic Corridor through Russia, to 154 tons of CO per ton of cargo. Knowing where each of your suppliers are gives retailers the opportunity to align manufacturing locations to this alternative supply route.
In terms of retailers measuring their CO2 emissions, there are various studies (e.g. McKinsey) that indicate that using primary data rather than industry average data can reduce your carbon GHG emissions calculations by 25-40%. As such, using primary data collected by Segura directly from the supply chain can not only provide an accurate baseline against which targets can be set and measured, but provides retailers a more accurate picture of where the opportunity hotspots are in their supply chain.
With most retailers having made commitments to significantly reduce their carbon emissions by 2030/40/50, there is no time to waste.
Retailers need to act now
As Ben Sillitoe from Green Retail World summarised in his assessment of the legislative landscape:
If fashion retailers are not already thinking about how they will meet imminent legislation such the Ecodesign for Sustainable Product Regulation (ESPR) then they are going to have a rude awakening in 2027 when this European Union (EU) ruling comes in.
Upstream supply chain transparency and traceability is key for business resilience
This is an estimated timeline for a retailer to onboard their suppliers into Segura, achieve compliance and implement a Digital Product Passport. Actual timings will vary according to a variety of factors, including number of suppliers and complexity of supply chain.
| Duration (est.) | Tasks |
|---|---|
| 3-6 months | Identify and select a platform, map out your requirements and create a phased deployment plan aligned to your legislative requirements, targets and commitments |
| 1-6 months | Discover and map your upstream supply chain; the size of your business can effect your timescales. |
| Ongoing | Collect missing ESG data and evidence whilst uncovering risks; Gap analysis will be simpler through reporting - however ongoing management and supplier engagement will be key to success. |
| Ongoing | Take action to mitigate risks; Through a platform you will be able to identify risks, but this will require ongoing review and focus |
| 3-9 months | The data capture above is a must before moving forward with a DPP solution, once completed timescales will be dependant on your desired approach but shouldn't be under estimated - engage your internal teams now and map out those activities. |
In summary, market forces are continuing to drive clothing, apparel and footwear retailers towards supply chain traceability tools that answers their needs for compliance, investment, to reduce risk and protect revenues, as well as looking ahead to meeting ESG aspirations.
By adopting advanced supply chain traceability tools like Segura, retailers can ensure greater business resilience, meet essential legislative compliance and achieve better ESG performance.
Segura’s Supply Chain Traceability Software
Segura's innovative platform for supply chain transparency, compliance, and reporting is designed to provide retailers and brands with the comprehensive visibility, data, and proof required to fully map their supply chains.
Read more about Segura’s powerful supply chain traceability tools.
