Better Cotton Chain of Custody Traceability Kerem Saral

Better Cotton Chain of Custody & Traceability Kerem Saral BCI Supply Chain Manager 2014 1

Overall Goal: Transforming cotton production worldwide by developing Better Cotton as a sustainable mainstream commodity. SPECIFIC AIMS: Improve… Increase… livelihoods and economic development in cotton producing areas commitment to and flow of Better Cotton throughout the supply chain Reduce… Ensure… The environmental impact of cotton production the credibility and sustainability of the Better Cotton Initiative 2

BCI GLOBAL TARGETS Global Indicators Livelihoods Environment Supply Chain BCI Sustainability Number of Better Cotton lint Earned income Cotton farmers hectares under volume in MT as % of global cultivation costs 2012 actual 165, 000 685, 000 670, 000 50% 2015 target 1 million 2. 6 million 75% 2020 target 5 million 9 million 8. 2 million 100% 3

WHERE DOES BETTER COTTON GROW? USA Turkey Tajikistan India, Pakistan, China Mali, Senegal, Burkina Faso, Cote d’Ivoire, Ghana Brazil Mozambique, Malawi, Zambia, Zimbabwe Countries where Better Cotton is grown via a partnership agreement between BCI and a national actor Better Cotton Countries with BCI owned legal entities and operations In the pipeline Australia

New vs. Old » New Better Cotton Co. C requirements for traders, spinners, and intermediaries and retailers » Introduction of Better Cotton Claim Units » No more UBICS » Output declaration forms from spinners » Making Better Cotton volume claims » Better Cotton Traceability System 5

New Chain of Custody Guidelines - But Why? » Inform all supply chain actors about their role in tracing Better Cotton throughout the supply chain » Enable retailers to make claims with confidence » Eliminate past challenges that led to low uptake rates » Availability issues, inventory management problem, timing problems, overstock/out of stock suppliers, premiums » Lay the groundwork for introducing physical traceability as an option in 2016 6

Better Cotton Chain of Custody & Traceability System Before and After Ginners Better Cotton Traders Chain of Spinners Custody Intermediaries Retailers Supply chain actors in BC traceability Better Cotton system Traceability System BEFORE July 1 st 2013 AFTER July 1 st 2013 Physical Segregation Mba w/ Country Scope Physical Segregation Mba w/ Site Scope Physical Segregation Mba w/Site Scope Claim UBICs Claim BCCUs Ginners, Traders, Spinners, Ginners, Retailers Bale Tacking System (BTS) + Traceability System Bale Tracking System (BTS) Better Cotton Tracer (BCT) 7

What is a Better Cotton Claim Unit? BCCU = Better Cotton Claim Unit » The units of conventional cotton that can be substituted for equivalent units of Better Cotton - Due to Mass Balance » 1 BCCU represents 1 kilo of physical Better Cotton 8

Better Cotton Chain of Custody MASS-BALANCE ADMINISTRATIVE SEGREGATION Chain of Custody Guidelines Ginner Monitoring Guidelines BCI membership not required Membership Code of Practice Registered BCI membership required Retailer clients monitoring requirements BCI membership not required but encouraged Membership Code of Practice BCI membership required Trad er Farmer 100% Seed BC 100% BC Bale BTS Products with associated BCCU (Better Cotton Claim Units) Better Cotton Tracer

Better Cotton Co. C Guidelines – Gin Level Better Cotton is kept physically separate from conventional cotton at the gin level in all countries In order to create 100% Better Cotton Bales = Total available lint Better Cotton at a global level 10

Better Cotton Co. C guidelines - Traders Mass-balance with Country Scope Trader’s warehouse in Brazil 100 Kilos of Brazilian Better Cotton Bales Volume In out = Volume BC CC Better Cotton 100 Kilos of Brazilian Conventional Cotton Bales Conventional Cotton Having bought 100 kilos of BC Bales gives the trader 100 Better Cotton Claim Units. They can then ship 100 kilos of conventional cotton bales with the same country of origin to fulfil a BC order using these 100 BCCUs – by attaching earned BCCUs to conventional cotton bales 11

Better Cotton Co. C guidelines Spinners Mass-balance with Site Scope Spinning factory in Bangladesh Volume In 100 Kilos of Chinese Better Cotton Bales = Volume out BC CC 100 Kilos of Indian Conventional Cotton Bales Better Cotton Conventional Cotton Better Cotton Bales can be swapped with conventional cotton bales of any origin as long as they are in the same site, using BCCUs earned by buying bales with allocated BCCUs from BCI traders or BCI-registered ginners. 12

Better Cotton Co. C guidelines – Intermediaries Mass-balance with Site Scope Fabric manufacturer in India Volume In 100 Kilos of yarn with allocated BCCUs from China = Volume out BC CC Yarn with BCCUs 100 Kilos of yarn without any allocated BCCUs from India Yarn without BCCUs Yarn with allocated BCCUs can be swapped with yarn without any BCCUs of any origin as long as they are in the same site and volume-out doesn’t exceed volume-in. 13

Tracing the “volume” of Better Cotton Until now – BCI has enabled retailers to claim individual bales of physical Better Cotton. From now – BCI enables retailers to claim usage of lint Better Cotton (a certain amount of it) in their supply chains. But How? Output Declaration Forms from Spinners 14

Output Declaration Form from Spinner 15

Mass-Balance & BCCUs help BCI to: Trace the volume of physical Better Cotton throughout retailer and brands’ supply chains This is done by transfer of BCCUs from one supply chain actor to the next using output declaration forms (ODF) Traders Earn BCCUs purchasing physical BC Transfer these BCCUs along with bales they sell Spinners Earn BCCUs purchasing bales w/ BCCUs Transfer these BCCUs along with yarns they sell Fabric Mills Receive ODF from spinners Pass ODFs to retailers and brands (Coordination is required) Retailers/Brands Receive ODF that was generated by spinners on Better Cotton Tracer Enter claims accordingly 16

Better Cotton Volume Claims by Retailers Retailer Total claims reported to BCI Product with allocated BCCUs (indicated on spinners’ ODFs) Yarn with BCCUs Yarn without BCCUs Cotton Tracer 17

How would it work starting with the retailer? Fabric Mills Retailers/Brands Set BC usage target Decide how to spread this % throughout products Set KPIs for various departments Ask fabric mill to provide ODF from spinners Receive the PO from RBs given a set % of BC to be included in the fabric Calculate the net weight of yarn needed Place order with spinner and indicate the % of BC to be included in the yarn (same % received from retailer) Spinners Receive PO from fabric mill Calculate needed BCCUs for the ordered yarn, using the fixed conversion rates built into the system Order lint accordingly Enter transaction into the system and generate ODF Traders Receive PO from spinner Buy lint bales from ginner accordingly Ship lint bales Enter transaction into the Cotton Tracer 18

Spinner’s ODF w/BCCUs HOW? Retailer’s Claim Coordination effort Engage with suppliers down to the spinner or fabric mill level – suppliers’ suppliers Inform about Better Cotton requirements – no UBICS, mass-balance, no certificate, ODF Ask for ODF to be transferred to you – how? The actual document or information on it? Due diligence Fabric mill level redistribution of BCCUs in = BCCUs out for your specific orders Ask the fabric mill to keep records of BCCUs received and passed along to retailers? Ask your spinners to pass the ODF directly to you? Special cases Cancelled orders – when to enter claims into the Better Cotton Tracer? 19

Things to take away » New Better Cotton Co. C requirements for all Ginners 100% Segregation Co. C Traders Mass-Balance Admin. with country scope Spinners Mass-Balance Admin. with site scope RBs Enter claims against spinner BCCUs on the Cotton Tracer » Introduction of Better Cotton Claim Units » No more UBICS » Output declaration forms from spinners » Making Better Cotton volume claims » Better Cotton Traceability System 20

Better Cotton Tracer Ø General web site functions Ø How the transfer of BCCUs work between members Entering purchase and sales transactions Generating output declaration forms Ø How retailers and brands make their claims using ODF from spinners. 21

Thank you! Please contact me or my country teams to: Ask any questions regarding our traceability system Your account on Better Cotton Tracer To get a copy of this presentation Report troubles you identified in your BC supply chain Kerem Saral – BCI Supply Chain Manager kerem. saral@bettercotton. org Direct Line: +41 -22 -939 -1293 Skype ID: keremsaral Selvin Lloyd - India Supply Chain Coordinator selvin. lloyd@bettercotton. org Muhammad Shuiab – Pakistan Supply Chain Coordinator muhammad. shuaib@bettercotton. org Leo Xiao - China Supply Chain Coordinator leo. xiao@bettercotton. org 22