Argon & Co: The EU Ban Forcing a Supply Chain Rethink

In April, the European Parliament gave its final approval to a new regulation enabling the EU to prohibit the sale, import and export of goods made using forced labour.

It means member state authorities and the European Commission now have the right to investigate suspicious goods, supply chains and manufacturers.

If a product is deemed to have been made using forced labour, it will no longer be possible to sell it on the EU market (including online) and any shipments of this relevant products will be intercepted at EU borders.

Here, Supply Chain Digital sits down with Judith Richardson, Head of Sustainability at Argon & Co, to discuss why firms are having to rethink their supply chains. 

Tell us a bit about yourself and Argon & Co

I’m Judith Richardson, Head of Sustainability at Argon & Co, a global transformation management consultancy. I work with firms to minimise environmental and social harm in their supply chains. By digging deep to identify the root of complex problems, we help clients embed sustainability into their operations, comply with all relevant regulations, report accurately and transparently and promote responsible business practices.

How should firms adapt their supply chain practices to meet new European standards?

To eliminate unethical labour practices from the supply chain, companies need to understand their supply chains – then firmly push for compliance across their entire supply base. This means probing beneath the surface of their supply chains to truly understand them, identifying potential exposure to risk and prioritising areas for action. On the first, there are considerable hurdles because of how complex multi-tiered, global supply chains are. The incoming standards set the expectation to have visibility beyond just tier-one or tier-two suppliers alone.

By analysing risks, organisations can predict potential disruption and make tangible changes to prepare. This could mean identifying high-risk factories and implementing new standards and checks and balances, or deciding to exit certain locations. However, launching in new locations does bring its own new operational complexities and risks.

Lastly, supply chain leads need to consider this at a strategic level to ensure the right focus. Honing in proactively on unethical labour practices from suppliers and sub-contractors allows for effective risk management, optimisation of processes and responsiveness to market dynamics and incoming regulations.

Mandatory disclosure of information and inputs ensures transparency and accountability throughout the supply chain, helping to enhance trust and facilitate collaboration among partners. But real enforcement mechanisms are critical to ensuring policies are not just words, but hard actions. Firms should conduct regular audits of their contracts, approaches and policies to ensure they are aligned. This can also involve creating a ‘carrot and stick’ approach, with incentives for adherence and penalties for failings, to promote compliance.

What challenges might fast fashion retailers face thanks to the new regulation?

Meeting sustainability and ethical labour targets will prove very challenging for fast-fashion giants. Part of that challenge is down to the areas of the world where these companies operate, as surprise audits and policing the use of forced labour are far more difficult to conduct.

Yet, simply moving operations is a very complex and costly decision as these firms are deeply embedded in these markets in terms of skills and infrastructure. Firms will be mindful when weighing up the merits of relocation and what impact this will have on their speed to market, which is essential in this marketplace where competition is already fierce. Ultimately, fast-fashion giants have set unrealistic expectations of cost for consumers – which is unsustainable from both a longevity perspective and an ESG perspective.

Many fast fashion firms are facing the inevitable need for a reckoning regarding the true cost of their practices. Initiatives like eBay's offering of free sales on second-hand clothing to reduce waste and challenge disruptors are putting pressure on primary retailers to reform their operations through new models like returns and resales, alterations or using recovered textiles. We'll likely see stringent regulations come into force over the next few years to accelerate this transition.

How can firms ensure they're on track to meet their responsible labour goals?

The first key to get right is a data-driven backbone to their supply chain. There's now a greater expectation for firms to understand their suppliers’ data, particularly concerning ESG. With the sheer number of topics on the supply chain leader’s agenda, and the scale of the operations they oversee, they will need to get better at harnessing low-level granular data and raising key issues to stakeholders and potential vulnerabilities which need focus.

There are still many circumstances where instinct and previous experience prevails over objectivity, but, as supply chains grow more complex and vulnerable to unprecedented natural and geopolitical risks, relying solely on intuition is risky. Using a data-driven approach helps to create a responsive and resilient supply chain that can support the business no matter which of the permacrises is putting it under strain.

Next, it's important to engage with the supply base. Only through active dialogue and information sharing can firms be sure their suppliers are meeting expectations. Having a robust and comprehensive approach to managing suppliers is essential, in particular taking strategic decisions about which suppliers to partner with – ones who inspire confidence in their standards, demonstrate compliance with your policies and deliver a smooth working relationship – will pay dividends.

Lastly, collaboration – internally within your organisation and externally across the value chain – will be key. Industries aligning on common standards means there is no space for rogue actors in the value chain. Customer expectations which are reinforced at every link in the chain ensures responsible standards are magnified. Firms can look to forge coalitions and partnerships to protect their reputation and ensure they set, rather than follow, the standards.

And of course, the sooner firms take these actions, the better, to secure early advantages.

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