The Financial Express

Blockchain technology and RMG sustainability

| Updated: January 21, 2021 20:13:45

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Blockchain technology and RMG sustainability

Covid-19 pandemic has an unprecedented impact on US$35 billion Bangladesh apparel industry. The impacts of the pandemic on the apparel industry can be felt at multiple facets from order cancellation to payment delays. In March and April, more than US$3.18 billion in orders were cancelled putting around 1,150 factories in limbo, leaving around 2.8 million workers, mostly women, facing poverty and hunger. Furthermore, some of the retailers have refused to pay for clothing that they had ordered before the start of the Covid-19 pandemic resulting in raw materials through to finished products sitting in the warehouses costing billions to the manufacturers. Meanwhile, those who are willing to accept the pre-Covid orders are seeking discounts or payment extensions. For example, Australian fashion retail groupMosaic Brandsis delaying payment, holding or cancelling orders placed with Bangladesh manufacturers with a total value of $15 million.According to the BGMEA, Bangladesh apparel industry has lost $4.9 billion between March and June. The opening up of theUS and European economies in Julylast created optimism in the Bangladesh apparel industry. However, optimism proved to be short-lived as the European countries went into lockdown in November to manage the second wave. As the uncertainty continues, the outlook of Bangladesh apparel industry and its workers is gloomy.

During the pandemic, existing challenges related toretailer pressure for price reductionsand short turnaround timeshaveworsened. Pressure for price reduction is the root cause for the numerous issues that workers are facingsuch assafety issues related tofire hazards in the factory and forced overtime with no proper compensation. Long term issue of non-payment of living wages has deepened during the crisis. For many of the workers, the pandemic has exacerbated their poverty and forced them deeper into debt. Eventually, the pandemic will end, but it is uncertain if the Bangladesh apparel industry will ever return to pre-Covid glory. To recover from the crisis and rebuild the industry, gaining a reputationas an industry that treats its workers with compassion and dignitybecame crucial than ever before. Transparency in Bangladesh apparel industry would not only enhance reputationbut also enables consumers across the world to choose products that are produced sustainably. Ahead of the festive season, OXFAM report on retailer purchasing practices has highlighted the demand fromAustralian consumers for transparency inworkplace practices at Bangladesh apparel manufacturers. Now, the question is- how Bangladesh apparel industry can promote transparency in apparel supply chains right down to how garmentsare produced, the working conditions in which they produce, andthe environmental sustainability practices are conducted in the production contexts.

BLOCKCHAIN IN BANGLADESH APPAREL:Technology plays a vital role in providing transparency in apparel supply chains.Blockchainproperties of immutability, decentralisation, and cryptography provide transparency and traceability in supply chains.Particularly, the cryptographic hash function used to validate the transactions on block prevents anyone from altering the recorded data creating immutable transactions record that promotes trustworthiness in supply chains. All parties on a blockchain networkcan easily verify transactions recorded on the ledger without the need for a central authority. These properties would ensure security, proof of identity and privacy, and eliminate malicious transactions.Implementation of blockchain technology would enable to trace the details of the product originsand the conditions in which they are produced in a complex apparel supply chain. In this context, blockchain becomes not only a traceability tool but also a driver toward sustainability in terms of the triple bottom line, i.e. economic, social, and environmental.Promoting sustainability in apparel supply chains through blockchain technology addresses the executives' concern of lack of progress towards sustainable apparel supply chains. According to a McKinsey survey, 56 percent of 64 sourcing executivesresponsible for a total sourcing value of over USD 100 billion agreed that responsible and sustainable sourcing is critical but they are lagging in implementation.

Some of the sustainability benefits, offered by the implementation of blockchain technology, are discussed below.

ECONOMIC BENEFITS:The apparel industry is known to have payment terms that benefit buyers while exposing suppliers to financial risks. In the apparel industry, a letter of credit (LC) with the payment term where the manufacturer receives payment only after the order is shipped is commonly used. In some cases, payments are delayed for a pre-determined period from anywhere between 30 and 150 daysafter goods are shipped. The use of LC requires the management of financial bureaucracy whichtakes time and contributes to additional costs. In addition to the financial issues, apparel manufacturers in Bangladesh are experiencing issues related to documentation. It is estimated that around 66.0 percent of exports could not be delivered on time because of the late submission of documents. Moreover, documentation delayshave resulted in money laundering riskabout53.0 percent of the time.

In this context, blockchain eliminates inefficiencies in global apparel supply chains by allowing all members of the supply chain (carriers, banks, traders, suppliers, etc.) to exchange information, documents, and data, directly via a secured decentralized network. As the information is exchanged instantaneously, blockchain reduces payment risks and prevents fraud while facilitating fast, secure, low-cost international payment processing services. Blockchain also changes the conventional process of email order confirmation to automated smart contract validation which will reduce human errors and misunderstandings in payment terms, returns, purchases, etc.To be specific,the use of blockchain technology will reduce the turnaround time of the LC and increase trading efficiency.

ENVIRONMENTAL BENEFITS:The apparel industry is known to be the heaviest polluter from air to water. It accounts for 10% of global carbon emissions, more carbon than international flights and maritime shipping combined.Moreover, this industry produces over 92 million tonnes of solid waste globally, most of which goes to inhuman landfills. It is estimated that 85.0 per cent of the textile produced goes into landfills. This industry also impacts the ecosystems of waterwayswith35% of all micro-plastics in the ocean came from the laundering of synthetic textiles like polyester. In Bangladesh, more than 200 rivers are directly and indirectly affected by untreated effluent from factories and industries. Untreated textile effluent can contaminate groundwater and water bodies, reduce dissolved oxygen in the water and affect aquatic ecosystems. Furthermore, this industry is the second-largest consumer of the world's water supply and is expected to cause extreme water scarcity in countries throughout Asia including Bangladesh by 2030.In Bangladesh, the apparel industry is known to consume high volumes of water per unit fabric for processing, which contributes to the depletion of groundwater levels at up to 2-3 metres.

To address the environmental impact of the apparel industry, manufacturers are under pressure to adopt cleaner production practices. Cleaner production programs such as Partnership for Cleaner Textile (PACT) and Leadership in Energy and Environmental Design (LEED) are considered by the firms who are actively seeking to implement environmental practices. With these practices implemented in their facilities, someBangladesh apparel manufacturers are leading thegreen revolution in apparel supply chains. Now, these firms need to report and communicate the implementation of environmental practices. In this context, blockchain will assist in documenting how environmental practices are implemented. Moreover, blockchain also assists in promoting a circular economy. For example MonoChain, a blockchain-powered platform is targeting minimisingapparel waste by promoting reuse. MonoChain's Wallet enables consumers to record the clothing they buy. Consumers can count the value of their items, inspiring them to sell or donate instead of throwing away unwanted apparel.

SOCIAL BENEFITS:The working environment in which the apparel is producedhas always been questioned by foreign buyers. Bangladesh apparel industry, as alleged by various circles, does deprive most workers of their rights. Some of the issues such as minimum basic salary, working hours, overtime calculation, yearly increment, and discrimination are persistent to appear in Bangladesh apparel industry.Incidents in Bangladesh apparel industry such as factory fires and building collapse has highlighted the health and safety concerns at the workplace. Despite theincrease in minimum wage paid to workers in 2019, it is well below the living wages leaving millions of workers in poverty. Moreover, the government intervention and laws to overcome the health and safety issues at workplaces has resulted in fraudulent activities and mock compliance to safety practices by many organisations. In order to expose potential human rights abuses in apparel supply chains, there is a demand on organisations to disclose thesupply chain practices.

Against this background, blockchain technology can be used to monitor factory safety in its global supply chains. The regulator can inspect the facilities and updated the results on blockchain to flag any instances of health and safety violations, child labour, or unauthorized subcontracting. Moreover,it can provide an interface between overseas buyers and factory workers through a self-reporting infrastructure. It means that the system provides an opportunity to the workers to record and post their experiences, thus giving them a real voice. As this system records the auditor reports and the worker experiences on a blockchain which are timestamped, the results could never be manipulated.Overall, blockchain technology helps to ensure that the code of conduct is followed and social compliance objectives are achieved.

As discussed, the implementation of blockchain technology will provide opportunities to build sustainabilityfrom the triple bottomline perspective in the apparel industry. Blockchain's benefits will only be realised when different industry participants come together to create a shared platform. Hence, industry bodies, including the BGMEA do need to drive the blockchain implementation in the apparel industry through forming consortia with IT companies.


Professor Shams Rahman is a Professor of supply chain management, and Dr AswiniYadlapalli is a Lecturer of supply chain management at the Department of Supply Chain and Logistics, College of Business and Law, RMIT University. [email protected]

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