When Egyptian cotton meets blockchain

Rage Review : Indian textile manufacturer Welspun wants to use blockchain to track cotton logistics information from farms to factories, and has launched a new DNA-based Egyptian cotton certification for its sheets, towel fabrics and bathroom carpets, which can make the complex supply chain more complete. In at least two of the past five years, Target paid Welspun for pure Egyptian cotton, but received inferior products. This information asymmetry can make blockchain useful.

Translation: Nicole

Egyptian cotton, it’s time to meet the blockchain! This week, Indian textile manufacturer Welspun was suspended by Target for mislabeling its bed sheets and pillowcases with Egyptian cotton products. Target terminated all contractual relationships, Wal-Mart and JC Penney announced their own audit plans, and Bed Bath & Beyond has appointed an independent auditor.

A year ago, Welspun, one of the world's largest home textile manufacturers, boasted a stronger competitive advantage over Chinese competitors, who he claimed had higher labor costs and relied on stockpiles of Chinese fiber, in this case cotton.

In February, Welspun launched a new DNA-based Egyptian cotton certification for its bed sheets, towel fabrics and bathroom rugs, and a senior executive claimed in an article in Home & Textiles Today that the supply chain process will be clearer next quarter.

This prediction seems to have come faster than the company thought, and in some cases, it has already exceeded expectations. But the public washing Welspun's dirty linen may be an opportunity to make the supply chain more complete. Rather than leaving it to the market, certifications, audits or whistleblowers, why not leave it to trusted technology?

As reported by Wall Street Journal last month, distributed online ledgers — or blockchains — are being used to curb “blood diamonds,” which are often mined through forced labor and whose proceeds are used to finance violence. Determining the provenance of cotton is the same principle, with GPS and RFID tags on the plastic wrapping, allowing Australian farmer Auscott to track the cotton from farm to factory. Using technology to track the information of 250 sets of sheets may be difficult and costly, but it is not impossible.

What other options are there? It is wishful thinking that the reputational capital of task companies is sufficient to maintain the integrity of complex supply chains, as scandals in the global automotive and financial industries continue to recur, and management pursues short-term gains even if it means putting the company at risk.

Walk like an Egyptian

Welspun's interests are driven by the need for US retailers to identify inferior cotton products.

Welspun may be no different, with an Ebitda margin of 30.5% on June 16, the highest in nearly four years. Investors have made 4,300% in the past five years, effectively doubling their investment every 12 months.

In at least two of those five years, Target paid Welspun for genuine Egyptian cotton, but received inferior cotton instead. Consumers, both individuals and companies, often don’t know much about this, and the cost of finding out more cotton can be very high, especially for such low-value items. Suppliers discovered this information asymmetry.

Tragically, the current system for global retailers to monitor supply chains is unreliable and prone to accidents. But if ancient bales of cotton meet blockchain, there will be no need for Target or Wal-Mart to see the underlying information.