Open Wide: What’s That in Your Supply Chain? SJ Guest Editorial
There is a classic The Far Side cartoon that takes place in the dentist office. Perhaps you’ve seen it. The dentist is busy working away on a patient with a wide array of tools and tubes sticking out of the patient’s mouth. Out of nowhere, the dentist holds up a tennis ball and announces, “Now open wider, Mr. Stevens…Just out of curiosity, we’re going to see if we can also cram in this tennis ball.” Every time I see that cartoon, I think of the seemingly unending requirements being imposed on the footwear and apparel supply chain. Traditional supply chains used to be simply about how to get your product from point A to point B. Now, these same supply chains are being asked to encourage (or discourage) various behaviors relating to labor rights, human rights, environmental concerns, and other social objectives. Moreover, the supply chains are being asked to reach further and further back upstream, to the raw materials in some cases; to disclose to various public and private stakeholders how they are performing with these social tasks; and to do so in an increasingly transparent manner. In an effort to harness the amazing power of global supply chains for a growing array of social causes, public and private policymakers and stakeholders have also transformed these supply chains like never before. Let’s look at some of the more recent challenges footwear and apparel supply chains have had to face. June 2 was the deadline for all publicly-held companies to file reports with the Securities and Exchange Commission (SEC) on whether their products contain tin, tantalum, tungsten, or gold (3TG) from the Democratic Republic of Congo (DRC) and surrounding countries. The requirement, known as the Conflict Minerals regulation, sprang from Section 1502 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which has the laudable goal of cutting African warlords off of profits they earned using forced and child labor in mines. And although it was aimed at the electronics industry, which is a massive user of these materials, the broad reach of the regulation has ensnared our industry as well. For the past 18 months, U.S. footwear and apparel companies have spent thousands of dollars and hundreds of man hours in a desperate effort to come into compliance. The requirement is especially problematic for our industry since these minerals, if they appear anywhere in shoes and clothes at all, exist in only de minimis quantities. Moreover, our users are so far removed from the mines and smelters that getting accurate information on which to make the proper 1502 reports is all but impossible. Meanwhile, footwear firms continue to feel they have a bull’s-eye on their backs as California Proposition 65 (Prop 65) bounty hunters target them with Prop 65 cases on lead, phthalates, and now other chemicals from the over 900 chemicals covered by Prop 65. With 17 Prop 65 notices hitting the footwear industry in 2014, on top of the 39 Prop 65 notices in all of 2013, footwear remains a top target for Prop 65 bounty hunters. Regrettably, apparel and fashion accessories are also prime targets, with 12 and 74 Prop 65 notices in 2013, respectively, and already 7 and 25 Prop 65 notices, respectively, so far this year. And other states, from Washington to Maine, have gotten into the chemical regulation game in the last few years. The industry is now fighting another round of state regulation that could impact the footwear and apparel industry in states ranging from Iowa and Vermont to Connecticut and New York State. And this effort to know and restrict the chemicals in your supply chain doesn’t stop at our shores. Europe’s Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) already requires apparel and footwear companies selling in Europe to publicly report if they have any one of over 150 “Substances of Very High Concern (SVHCs)” in their products, many of which can be found in clothes and shoes. And now Europe is moving, or has moved, to outright ban many of the chemicals on the SVHC list, including Chromium VI and Dimethyl Fumarate (DMF). In addition, individual European countries, such as Denmark, are moving to ban other substances sometimes
found in footwear and apparel, like phthalates. A number of Asian countries—Korea, Japan, China to name a few— also have their own product safety and chemical management requirements. Nonprofits are active here as well. Greenpeace has targeted the industry in many reports in recent years relating to a range of environmental concerns and demands. Human trafficking and labor issues are also a big concern. California law presently asks certain companies to document publicly the steps they are taking to make sure they don’t have slave or forced labor in their supply chains. As companies in our industry have long had programs in place to guard against such labor abuses, compliance in this case was mostly an exercise in public reporting of a pre-existing program. Several Federal proposals which would expand this requirement promise to impose a “belts and suspenders” solution with little added benefit. Technology, in the form of consumer-facing apps and websites like the Free2Work app and www.KnowtheChain.org, add further transparency pressure in this area as well. Sometimes the same social concern manifests itself in different ways on the same product. Consider a shoe, for example. Companies have to make sure the leather in the shoe didn’t come from cattle raised on land that was cleared from the Amazon rainforest. That same footwear has to steer clear of any wood product derivatives that may have been made using timber that may have been illegally harvested from that rainforest. Other times, these issues work at cross purposes. An effort several years ago to substitute lead (which triggered a number of product safety concerns even though the levels were very low) with other safe minerals led some companies to opt for tin (again in trace quantities). But tin now triggers compliance issues with the Dodd-Frank Conflict Minerals requirement (whereas lead doesn’t). Substituting the minerals ended up substituting one onerous regulation for another. So, what does all of this mean for you and your company? Just like the hapless patient in the dentist chair, your company is continually facing new surprises and challenges. These take the form of consumer demands and new government regulations in the United States and worldwide to not only know what is happening in your supply chain, all the way back to the raw materials, but to also control it. And, regrettably, the end of these demands is nowhere in sight. So, how do you structure your supply chain to achieve this much-needed transparency and traceability? Fortunately, most footwear and apparel companies have developed extensive compliance programs to address and manage these issues. And trade associations like AAFA have been active in helping develop tools and resources to supplement and inform those compliance initiatives. The challenge is two-fold: Companies must first ensure compliance with the law. Through AAFA’s Conflict Minerals Guidance and other practical tools, education, and regular consultation, the association helped many apparel and footwear firms comply with the Dodd-Frank Conflict Minerals regulation. In addition, AAFA has provided detailed guidance to companies on Prop 65, including AAFA’s Prop 65 RSL. And the association continues to provide guidance and education on the rules and regulations to the industry for states across the country and for countries across the world. The second concern is gaining transparency and traceability in your supply chain. On the chemical side, for example, this means implementing a chemical management program. But, where do you get the supply chain information needed to make such a program successful? AAFA has recently introduced a new tool to help you gain that visibility—the AAFA Voluntary Product Environmental Profile or VPEP. VPEP is a web-based supplier disclosure platform that allows brands, retailers, and suppliers to exchange vital information on the chemical makeup of products and the environmental impact of apparel, footwear, and textile products and processes. We still have a long way to go, but VPEP, in combination with a well-designed and executed chemical management program, will hopefully go a long way towards creating transparency and traceability in your supply chain on chemicals.
Just as important, AAFA is working hand in hand with the industry to learn from our experiences with specific issues. For example, with the rainforest leather issue, companies joined together under the Leather Working Group (LWG) to develop a way to trace the source of cattle hides coming from Brazil. Through that process, the companies of the LWG learned that all cattle go through a relatively few slaughterhouses in Brazil before going to market. The LWG exploited that “choke point” by working with the slaughterhouses to track, trace and certify the sources of the cattle entering, and the cattle hides leaving, the slaughterhouses. Likewise, the industry’s experience with Conflict Minerals, and other issues like Uzbek cotton, wool mulesing and goose down, have provided a wealth of information on the opportunities, and the challenges, of tracing the source of raw materials in the footwear and apparel supply chains. AAFA is working with the footwear and apparel industry to harness the lessons learned from these and other experiences to develop best practices and guidance as the industry confronts the challenge of implementing transparency and traceability throughout the entire apparel and footwear supply chain. While these challenges— perhaps like your next visit to the dentist’s office—will no doubt be unpleasant, together we can make them as painless as possible. To learn more about these issues, please visit the AAFA website at http://www.wewear.org or join us in Portland on July 9 at the “Growing Need for Traceability in Your Supply Chain” conference.
Stephen Lamar is Executive Vice President at the American Apparel & Footwear Association (AAFA), where he is responsible for the design and execution of advocacy and compliance strategies on a series of legislative and regulatory issues, including international trade, sustainability, and product safety.
There is a classic The Far Side cartoon that takes place in the dentist office. Perhaps you’ve seen it. The dentist is busy working away on...