Understanding supply chain traceability

Exploring the need to develop knowledge of a supply chain’s finer details – an action which is increasingly being enforced by relevant legislation.

by Nicola Pichel-Juan

It is increasingly crucial for companies working in the footwear and leather industries to gain a deep understanding of their supply chains, and this is not just in terms of where finished goods are manufactured. In some cases, this requires a business to have traceability of its supply chain all the way back to the extraction of the raw materials used to manufacture its products. This article explores the importance of traceability, discusses what is driving the need for greater traceability, and considers the necessary steps which must be taken in order to better understand a supply chain.

Why is this important?

The main reason why greater supply chain traceability is now a necessity is legislation. There are both current and proposed laws which aim to ensure that organisations take their responsibilities seriously regarding the three environmental, social and governance (ESG) ‘pillars’. Another factor is that consumers are demanding more information about the products they purchase, so that they can make ethical and sustainable purchasing decisions.

Only the very largest firms will currently meet the thresholds for compliance with some legislation. However, smaller companies will also be impacted, as they will be asked to provide information to larger operations within their supply chain to allow the larger entities to meet their own obligations. The thresholds for compliance will also be reduced over time, bringing more organisations directly into their scope.

Examples of legislation

The USA already has existing legislation focusing on very specific supply chain challenges, with further legislation being proposed by the state of New York. Within the European Union, several pieces of legislation are being phased in that have at least some requirements relating to supply chain traceability.

The European Union’s ‘Corporate Sustainability Reporting Directive’ (CSRD) includes a requirement for companies to disclose information about environmental and social impacts throughout their supply chains. The European Parliament recently voted to delay the implementation of CSRD as part of its ‘Omnibus package’ of proposed amendments. However, from 2028, any business in scope will have to prepare detailed reports in line with the directive.

In addition, the EU’s ‘Ecodesign for Sustainable Products Regulation’ (ESPR) covers many aspects of sustainability. In terms of traceability, ESPR will lead to the introduction of digital product passports (DPPs) – see the article ‘The use of digital product passports’ published in the November 2024 issue of SATRA Bulletin for an in-depth consideration of the relevant legislation.

At the time of writing, the exact data requirements for DPPs are still to be confirmed. Information is likely to be required on where the final manufacturing process takes place, in addition to where other production stages are conducted, and the origin of both raw materials and finished components.

The European Union ‘Deforestation Regulation’ (EUDR) requires the traceability of key commodities, such as leather and natural rubber, back to a specific plot of land. For example, this includes the farm on which the cow was raised or the plantation where the rubber tree was grown.

The implementation of the EUDR has been delayed by one year until 30th December 2025 and it will then be phased in according to the size of the company. It is likely to have a significant impact on any EU-based business which is importing, exporting, or trading in affected commodities.

At a national level, the United States has the ‘Uyghur Forced Labour Prevention Act’ (UFLPA), which is intended to prevent goods produced in Xinjiang, China from entering the US market. This region is a significant manufacturing base for items made from cotton and textile.

The ‘Dodd Frank Act’ includes a provision relating to ‘conflict minerals’ (minerals extracted from areas affected by armed conflict and human rights abuses, often exploited to fund such conflict), including tantalum, tin, gold and tungsten. Organisations are required to conduct due diligence to ensure that any minerals used in the manufacture of their products are ‘conflict free.’ For footwear companies, this will involve traceability of metal components or trims, which could potentially contain tin.

The draft ‘New York Fashion and Social Accountability Act’ aims to make fashion retailers and manufacturers accountable for social and environmental impacts throughout their supply chains. A key provision of the Act would be a requirement to trace and map 50 per cent of suppliers by volume across all supply chain tiers (see the box ‘What are the different supply chains?’) The Act would be applicable to retailers and manufacturers trading in New York State which have global revenues of more than USD 100 million. Smaller firms would be indirectly affected by the Act as the larger organisations work to map out their supply chains.

California also has the ‘California Transparency in Supply Chains Act’ (CTSCA), which dates to 2010. This legislation requires the largest enterprises to map and report on their supply chains in order to eradicate the illegal problems of slavery and human trafficking.

How can supply chains be accurately traced?

The first step for operations when mapping their supply chains is to make sure that all ‘tier one’ suppliers are known. For most footwear brands and retailers which do not have their own manufacturing facilities, the tier one production site will be where the finished footwear is produced. It is also important to understand if the finished goods manufacturers are subcontracting any production processes to other sites or using homeworking.

The next step would be to have visibility of ‘tier two’ suppliers – where materials and components are manufactured – potentially focusing initially on the most significant items such as upper materials and outsoles. From that point, it may be necessary to trace back further to 'tier three' and even 'tier four' suppliers.

It is also important to understand the social or environmental risks that may be associated with certain geographic areas or with certain materials. This could include deforestation, water scarcity and forced labour. Supply chain mapping software is a tool that can be used to identify the level of certain risks in each geographic location. Non-governmental organisations (NGOs) can also be a useful source of information about known risks.

It is important to monitor supply chains by regularly visiting production sites, including material and component suppliers. This will give greater confidence that supply chains are accurately mapped and that risks have been identified.

What are the different supply chains?
Tier	Activity
Tier one	Finished goods manufacturer
Tier two	Material and component supplier to tier one
Tier three	Suppliers to tier two – for example, a producer of yarn that is subsequently woven or knitted into a material by a tier two supplier
Tier four	Raw material extraction, such as the farm on which cotton is harvested, that is subsequently spun into yarn by a tier three supplier

Conclusion

It is clearly going to be a huge undertaking for any company to comprehensively map its supply chains to comply with all relevant legislation. The initial mapping is likely to take a long time to complete, and it will then be an ongoing exercise. Nevertheless, there are also potential benefits for the business in completing this work, in addition to simply being in compliance.

Supply chain traceability can be used to build trust with the consumer, and this can enhance the brand’s value and build stronger relationships with suppliers. The mapping process may also present opportunities to consolidate the firm’s supply base, in turn leading to improved quality and reduced costs.

Publishing Data

This article was originally published on page 16 of the June 2025 issue of SATRA Bulletin.

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