The fashion supply chain has for long been infected by issues of credibility and lack of transparency. Many tags, processes and technologies have attempted to address this issue, but the solutions have their own set of constraints and limitation. The latest and most reliable technology to ensure traceability along the supply chain with complete ownership of the end consumer is Non-Fungible Token (NFT), which is now being adopted in the fashion industry to monetise value and exclusivity.
NFT is a term coined by subject experts of the digital era, which is marking a gradual yet captivating presence in the fashion industry. Brands such as Gucci have already opted for NFT and the brand may release an NFT soon. Not just Gucci, other luxury companies are finding ways to integrate NFTs in their business operations to generate a source of revenue which was never obvious in the industry before and this they are doing without compromising on the exclusivity or identity of the brand.
The brands may be talking about NFT today, but the concept is still to pick up speed in the fashion industry to create transparency in inventory use and movement. One of the major activities fashion brands need to do is to drill down the inventory levels and supply chain processes. This they do to obtain greater levels of information (detail) on the origins and authenticity of the product, and at the same time the brands need to keep a close watch on the traceability of the product through its various process. However, this is not a simple task and many brands face severe challenges in having a direct visibility and control on the inventory available at their suppliers as well as the other subsequent processes. NFTs are of great help to make these processes visible.
What are Non-Fungible Tokens (NFTs)?
First, we need to understand what the term Fungible implies. Fungible items are those that can be replaced by anything similar to it, a good example being a currency note. What if you lend someone a dollar or a euro? Will you expect in return the same dollar or euro with the exact serial number printed on it? No. You’ll just expect a dollar in return irrespective of whatever number is printed on it. This is called fungibility.
On the other hand, NFTs are unique and cannot be interchanged with anything in any circumstances. For instance, if you lend someone a unique artwork, you would expect the same artwork in return. A movie ticket is another example of a non-fungible token.
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Though the ownership of a decentralised digital asset through a unique NFT is still in an early stage, there are certain areas where it will see evolution at a much faster pace in new business landscape post-pandemic world. As far as the fashion industry is concerned, NFTs are a great medium to help brands and manufacturers verify the ownership of fashion products digitally to reduce counterfeit and see a clear inventory visibility across supply chain.
So, how does NFT help brands increase inventory visibility?
The manufacturing supply chains starts typically with accessibility to raw material with further leads to highly fragmented processes that are accomplished in complex global supply networks. This significant chain of processes is highly ‘complex’ because of an obvious reason – they lack computational resources when it comes to visibility.
NFT aims at bringing key advantages by mitigating the existing flaws and modernising the traditional inventory visibility process at supplier’s end. By leveraging NFT, the fashion brands can offer precise tracking of goods from the inventory stage through the distribution channels. This is done with the help of ‘Smart Contracts’ that handle modifiable goods by capturing the required information, which is exchanged in a decentralised environment. This system facilitates not only the traceability of origin of the goods but also its inputs.
Smart Contracts are the programmes stored on a blockchain that run when predetermined conditions are met. They are used to automate the execution of an agreement so that all participants can immediately be certain of the outcome, without any intermediary’s involvement or time loss.
Entering the market at a very critical time, Trace Network, an NFT-based technology provider, explains that its protocol will be used to create a unique NFT for each product to represent physical goods once they are sourced, which facilitates the differentiation of the same type of goods.
“The product moves from one address to another address in supply chain and the processes are carried by different people. This movement of NFTs will be On-Chain hence will facilitate an unquestionable traceability of the goods. This information, such as the name of the supplier; raw material type and origin, is pre-defined and it’s recorded as part of NFT information which we want to give to the customer,” informed Trace Network’s spokesperson.
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As soon as the supplier receives an order on his address, the system automatically captures the NFT being moved from customer to the supplier. Once the supplier plans to start the production, he would request for the required raw material. It’s worth mentioning here that an NFT is generated for the final product so, for raw material, the information can be captured directly from smart contracts or the brands can make specific-NFTs for raw materials, which eventually gets burned into a fusion contract, mapped to the final NFT of the finished product.
There are two types of NFTs available – ERC-721 and ERC-1155. To make it simpler to understand, “ERC-721 is like your T-shirt, which is a single entity in itself. While ERC-1155 is a pack of 5 socks and each sock in the packet contains a separate ERC-721 NFT.”
In a supply chain as the product flows through the process, relevant, tamper-proof information would be captured from one address to another address using NFT. Besides generating authenticity of products it also allows fashion brands to know how much stock has already been sold and how much stock is available in their distribution channels – something that is still a struggle today.