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The C-Level Blog

Do You Know Who Made Your Clothes?

Apparel Use Case in Blockchain

Tracy De Cicco and Steve Atkin

Retail in today’s climate is a very fickle industry. Customers are empowered to choose among a variety of brick and mortar retailers as well as online options. The rise of the Internet and web retailers, such as Amazon and eBay has enabled information to be at a customer’s fingertips to make quick decisions on purchases. They have plenty of choices. 
Part of that fickleness is customers needing and wanting to know that their clothes and other goods are responsibly produced and ethically sourced.. People — younger consumers in particular — want to know that their apparel/goods were not assembled by a child laborer in unsafe working conditions. A relatively recent Nielsen survey that looked at the extent and demographics around who is willing to pay extra for products and services from companies that are committed to positive social and environmental impact makes the case. According to the 2014 Nielsen Global Corporate Social Responsibility Report, half of the respondents who were responsive to sustainability actions were millennials (ages 21–34); they represent 51 percent of those who will pay extra for sustainable products. As a point of reference, this is over double that of GenX at 25% (ages 35–49).

As consumers and customers seek to gain more information from retailers about the origin of their goods and labor force used to manufacture their goods, they are faced with the challenge of being able to definitively know that products were assembled by age appropriate — and safe — workers. Currently, consumers place their faith and trust in retailers to provide them with this information and implicitly rely on retailers, suppliers, and manufacturers to behave in a responsible manner. In some cases though, this blind trust is violated, even though a retailer acted with the best of intentions. One example that illustrates how even well-intentioned retailers can be duped into believing that they are operating responsibly is the case of Walmart approving the manufacturing of Christmas goods from one of its ‘certified’ factories in China. In reality, an unauthorized factory was used instead. In this case, even though Walmart attempted to follow responsible labor and safety processes, their manufacturing partners decided to utilize an alternative manufacturing site that had not been inspected or approved by Walmart. Cases such as these are becoming more and more common and although in this case, there were no injuries to workers, other cases have resulted in loss of life.[1]

Most of us are familiar with the incident at Rana plaza in April of 2013. In this incident, 1135 died in a building collapse. Upon investigation, authorities learned that building certifications were falsified and the workers who had tried to speak up about problems with the building had been ignored. Since the Rana incident, the accord on fire and building safety (directed at European retailers) in Bangladesh was formed, but 3 years later about 70% of those plans are behind schedule.[2]

In some cases, even the audits themselves are falsified or erroneous. The Rosita Knitwear factory in northwestern Bangladesh, which made sweaters for companies across Europe, seemingly had passed an inspection audit with high marks even though most of the findings were falsified. A team of four monitors gave the factory hundreds of approving check marks and strong scores — across all major categories — working hours, compensation, management practices, etc. Further the auditor notes read: ‘working conditions, no complaints from workers’. In February, 2012, 10 months after that inspection, Rosita’s workers rampaged through the factory, vandalizing its machinery and accusing management of reneging on promised raises, bonuses and pay. None of this had been included in the earlier audit.[3]

These examples still leave us with the question of what are we to do to ensure that typically well intentioned parties have an opportunity to act responsibly and ethically. How do companies easily obtain greater visibility into their suppliers practices, behaviors, and culture to better manage risk and follow mandated labor, safety, and legal requirements? Many attempts to solve these issues have relied heavily on human labor, manual inspection processes, and weak governance systems. The problem with such processes is that they are largely ad-hoc, inconsistent, and prone to fraud. What is really needed is a more systematic holistic view that relies less on manual inspection processes and shifts the focus to more transparent automated techniques and systems that are of a shared open, global nature.

When we talk of shared open systems and platforms, one could imagine some form of an alliance across manufacturers, suppliers, and retailers to address these issues. An alliance is certainly a necessary element in an overall solution, though we suggest that the problem needs to be addressed even more broadly and must include governmental inputs. Certainly one could include countries one-by-one into an alliance. Our view is that, suppliers, and retailers form an alliance with a global organization such as the World Trade Organization (WTO), International Monetary Fund (IMF), or the United Nations (UN) to solve the problem globally.

The question that you may be asking yourself is why do we need to include an organization such as the UN in a solution. To help explain our position a little more clearly we need to explore some of the key questions that must be answered for an overall solution to be effective. To gain greater insight into why we believe that a global organization is a crucial partner in an overall solution we will explore the following questions:

1. How do parties verify a worker’s identity including age?

2. How do local governmental agencies ensure compliance with labor laws?

3. What role does technology play and who owns the systems used to track and verify compliance?

4. Who provides the governance?

5. How is data collected?

Throughout the rest of this article we will address these questions and explain the role that the WTO, IMF, or UN would play in an overall solution with manufacturers, suppliers, and retailers that would enable consumers to have deeper trust in their retailers’ manufacturing practices and supply chains.

One of the key facets needed in an overall solution is being able to know, with some reasonable degree of certainty who is actually manufacturing goods. When it comes to verifying workers identities and ages, various attempts have been made by national governments to create country or regionally specific identification with only limited success, such as the REAL ID in the United States[4]. In the United States, some states such as South Carolina and Missouri have objected to the REAL ID Act requirement due to costs and privacy concerns[5][6]. When you add in the whole notion of creating a digital identification, especially one that includes biometric data, the challenges become even greater. When we talk about biometric identification (ID), we are referring to a form of digital verification where a person can be uniquely identified by one or more biological attributes. Typically these attributes may be fingerprints, retina patterns, speech samples, or even in DNA itself. The challenge of creating a universal ID is being explored by both the European Union and the UN[7][8].

The UN, for example, intends to create a digital ID for every single person on the planet by 2030. This initiative was originally spearheaded by the World Bank[9]; the World Bank has now partnered with the UN to get legal identity into the global community and onto the world stage. This is exciting news as it provides a necessary, crucial foundational element in an overall solution. Having a universal, single biometric ID greatly reduces the technological complexity of any solution. It eliminates the need to have integration with many local, country-specific systems. Also, being able to access biometric data consistently provides an additional level of security and verifiability that wouldn’t be possible with non-biometric ID’s.

With a universal digital biometric ID in place, the possibility of automated systems that verify and track workers becomes more viable. We are already seeing the use of biometric-based systems and processes that can be used to track employee time cards to verify attendance and hours worked as part of the Internet of Things (IoT) revolution. We are also seeing the use of biometric sensors that are used to control access to facilities via smart-locks that have embedded fingerprint readers. One can certainly imagine that biometric sensors could be easily incorporated into a new breed of smart machines that not only would improve safety and operational efficiency, but could be used to track who actually operated equipment, e.g., smart sewing machines, as an example.

At this point, you can see that we are setting the stage for a fully automated solution that verifies the identity of workers through the use of biometric technology which could help add transparency and trust to the supply chain. One of the central recurring themes that is often cited in our examples is fraud. So simply being able to verify an individual worker is certainly necessary, but it alone is not sufficient. Any proposed solution would need to be able to not only capture verified worker data, but would need to be able to store it in a tamper resistant ‘safe’ that is not under a single individual or company’s control and is fully auditable and viewable by anyone who wishes to check into a company’s data/supply chain.

Over the last several years many technological advances have been made in the development of open ledger systems that eliminate single point of control and are tamper resistant. This technological advancement is often referred to as a hyperledger or a blockchain. A blockchain system is a decentralized peer-to-peer distributed immutable ledger. A decentralized peer-to-peer system segments work across equally privileged participants that collectively form a network[10].

Blockchain is a consensus-based system that utilizes smart contracts. One of the key tenets In blockchain is consensus, which is a method of validating and authenticating transactions without requiring a central controlling authority[11]. In blockchain smart contracts are software programs that can automatically facilitate, verify, and enforce a set of contractual terms and obligations[12]. The fact that the system is consensus-based makes it more cost efficient. Each party does not need to maintain its own ledger and perform reconciliation with each other and eliminates the need for any single party to act as the centrally controlled ledger. In blockchain, smart contracts are managed, hosted, and executed by a hosted system. These smart contracts are commonly known as ‘chaincode’ and are software programs that securely enforce and verify a set of contractual obligations amongst a set of parties.

When we combine the notion of blockchain with smart contracts we have a system that offers trust, accountability, and openness. It enables all parties participating in a contract to have a complete picture of how a contract is being executed. This type of system is exactly what is needed to help gain greater insights into the labor force being used to manufacture products. And an understanding and validation of the labor force who comprise and produce goods is an essential key step to providing accountability and ultimately sustainability in a retailer’s supply chain.

You may still be wondering what do global organizations have to do with blockchain and smart contracts. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) and the UN have both been exploring and testing the use of blockchain technologies for money delivery systems and micropayments. SWIFT and the UN are looking to expand the use of blockchain into other projects and use cases[13][14]. It is our position that a global organization, such as SWIFT, is in a perfect position to encourage, provide governance, and implement the use of blockchain technologies in concert with digital ID initiatives to combat the problem of child labor, or other egregious labor conditions, in partnership with both the private and public sectors.

Using smart contracts, parties (manufacturers and retailers) would be able to definitively define minimum age requirements, maximum number of working hours, and other corporate policies. From the manufacturer’s perspective the smart contracts will enable them to codify local labor rules and regulations to ensure automatic compliance and enforcement. As worker data is automatically collected from smart machines, it will be inspected by smart contracts and then subsequently stored in the blockchain. By automating the collection of data and application of smart contracts we greatly minimize the need for on-site human auditors and reduce the opportunity for fraud from all parties as the blockchain is a fully transparent, immutable, and consensus-based system.

It is our vision that a global organization, such as the UN, WTO, or even SWIFT, would provide the fabric that would enable the private and public sectors to develop processes and systems that allow for adherence to local labor regulations, provide support for corporate policies, and eliminate unethical labor practices. And a safe workplace should not only be an employee entitlement, it also is good business and ultimately will drive the bottom line. In our next article we will go deeper on the topic of worker safety, a crucial element to good business practices and meeting market needs for responsibility and sustainability.

The authors would like to acknowledge the valuable suggestions made by John Slocum.

[1] Stephanie Clifford, “Fast and Flawed Inspections of Factories Abroad.”,New York TimesSeptember 1, 2013.

[2] Rina Chandron, “Three years after Rana Plaza disaster, has anything changed.”, Reuters, April 21, 2016.

[3] Stephanie Clifford, “Fast and Flawed Inspections of Factories Abroad.”, New York Times, September 1, 2013.

[4] Jim Caton, “Homeland Security Pushes for National ID in 2016.”, Legal Reader, December 30, 2015.

[5] Lynn Horsley, “Missouri driver’s license may not be accepted ID at KCI in 2018.”, The Kansas City Star, December 13, 2016.

[6] Emma Dumain, “Noncompliance with REAL ID could mean real trouble for S.C. travelers.”, The Post and Courier, October 30, 2016.

[7] Michael Snyder, “The UN Plans To Implement Universal Biometric Identification For All Of Humanity By 2030.”, Charisma News, November 4, 2015.

[8] European Commission, “Stronger and Smarter Information Systems for Borders and Security.”, Communication from the Commission to the European Parliament and the Council, April 6, 2016.

[9] Mariana Dahan and Alan Gelb, “The Role of Identification In the Post-2015 Development Agenda.”, World Bank Working Paper, 2015.

[10] Nathaniel Popper, “Envisioning Bitcoin’s Technology at the Heart of Global Finance.”, New York Times, August 12, 2016.

[11] Sigrid Seibold and George Samman, “Consensus — Immutable agreement for the Internet of value.”, KPMG, 2016.

[12] Kenneth Dabkowski, “Hype or Hope? Will Blockchain Based “Smart Contracts” Save Society?”, Money Summit, May 2, 2016.

[13] Stan Higgins, “United Nations Lab Testing Blockchain for Remittances.”, CoinDesk, October 6, 2016.

[14] Giulio Prisco, “SWIFT to Launch Global Payments Innovation Initiative, Develop Blockchain Roadmap.”, BitCoin Magazine, December 11, 2015.