Who Foots the Bill for Compliant Supply Chains?

With 35 new regulations coming down the pike in the next four years, the compliance vice is tightening.

Brands and retailers not only need to get their own house in order, but those of their suppliers as well. And that means asking the right questions, and never taking anyone’s compliance efforts at their word.

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The Sourcing Journal Fall Summit panel, “So You’re Compliant, Can You Prove It?” discussed how supply chain actors must work together to share responsibilities and costs and work toward a common goal.

“The next two to three years are really going to be transformative for supply chain due diligence,” said Marissa Brock, senior director, government affairs & policy, Sourcemap, pointing out how the Uyghur forced labor Prevention Act (UFLPA) opened the floodgates for due diligence legislation, and the industry’s eyes to compliance gaps along their supply chains.

And while each new piece of legislation has slightly different requirements, the “common throughline” is you need to really know your suppliers, from names and addresses to how your product is being transformed across the supply chain.

It was a rude awakening for many.

The cotton industry has been particularly challenged, as cotton loses its identity once it leaves bale form and gets spun into yarn, and there are “hundreds of thousands of farmers” who grow cotton. Supima cotton, with its two to three times price premium, could provide incentive for bad actors to mix in lesser quality fibers. To help Supima brands and retailers authenticate their Supima fibers, the company just launched its AQRe Project—standing for Authenticity, Quality and Responsibility—which takes a forensic approach with “the CSI of Cotton” verification company Oritain mixed with blockchain traceability from TextileGenesis.

The cost of verifying Supima cotton’s provenance was integrated into the platform so brands and suppliers weren’t left fighting over the bill. “We surveyed 300 manufacturers and 200 retailers to find out who should bear the cost, and the answer was a consistently and unified, ‘Someone else,’” laughed Buxton Midyette, vice president, marketing & promotions, Supima. The company solved the problem by placing the traceability costs at the spinning stage. When yarn is sold, it is converted into digital “fiber coins,” which get passed down the supply chain to “equitably” spread out the cost.

Having dealt with the UFLPA for the past 18 months, Ben Tomkins, vice president, retail sales, Oritain outlined three key burdens of proof for companies. “One, can I prove that there is no financial nexus within my supply chain to have banned entity? That’s where those AI-based tools are going to be absolutely critical,” he said. “Two, can I prove that there was no use of forced labor within my supply chain? Again, critical is supply chain mapping and aggregation of documentation. Third is the raw material verification piece, and that’s where forensic-level testing comes into play, and that’s becoming more and more important.”

Tsui Yuen-Pappas, director of sustainability of Alice + Olivia, joined the designer label specifically to tackle these problems, and admitted that convincing the C-Suite and getting funds for such endeavors is a major hurdle for all brands and retailers. “There’s a tremendous amount of paperwork that we have to navigate,” she said. “So as an organization, it [came down to] determining who those partners are, and who internally within our organization is going to be the stakeholder for this.”

Alice + Olivia leaned into AI because of the company’s “disjointed supply chain,” and to learn what it didn’t even know to ask. “We didn’t ask who the textile mill was. We didn’t ask who the spinner was. We didn’t ask all those questions, and now we have to,” she said.

Yuen-Pappas advised people to get back out there and start visiting facilities again like they did pre-pandemic. “We can rely on AI and on different partners out there for supply chain mapping, but at the end of the day, people forget that manufacturing is people-based. You have to get out there and see who your partners are.”