Why data is key for Digital Product Passport implementation in retail
Author: Dan Klein, Global Chief of Data & AI and David Elliman, Global Chief of Software Engineering, Zühlke
With the digital revolution sweeping through every facet of retail and commerce, the European Commission’s proposed regulation on Digital Product Passports (DPPs) is a testament to the transformative power of technology in driving retail circularity.
Many retailers are already proactively preparing for the impending regulation and the implementation of DPPs. For example, the M&S-backed fashion retailer, Nobody’s Child, has recently launched a digital product passport in an effort to highlight ‘the brand’s commitment to elevating transparency, championing sustainable values and fostering a deeper connection with their conscious community’. Similarly, Aquinos Bedding, which produces around 1.2 million mattresses annually plans to introduce DPPs this year and have up to 1 million mattresses tagged by 2027.
It looks like digital product passports are set to revolutionise the retail landscape. Whether it’s tracking the origins of raw materials, ensuring ethical manufacturing processes, or helping combat counterfeit goods, the uses of this technology are vast.
However, amidst the excitement and anticipation surrounding digital product passports, one crucial question looms large, how can retailers effectively prepare for a regulatory framework that is still in flux? As final details of the European Commission’s regulation remain to be ironed out, a lot remains uncertain, leaving retailers grappling with the challenge of navigating uncharted waters.
In this article, this is precisely what we’ll explore. We’ll dissect what digital product passports are, dive into the benefits they can deliver for your organisation, and discuss the strategies that retailers can employ to proactively prepare for DPP implementation. Join us as we unravel the intricacies of digital product passports and chart a course towards a more transparent, sustainable, and consumer-centric future for retail.
What is a digital product passport?
A digital product passport is a tool proposed by the European Commission (EC) that aims to revolutionise supply chain transparency and enable circularity by sharing comprehensive product information throughout the entire product lifecycle. DPPs should help authenticate any aspect of the supply chain, enabling users to find out exactly where elements of a specific product come from.
Under the purview of the EC, a regulatory framework for DPPs is currently under development and the expected timeline for implementation for certain product groups is 2026/2027. This signals a pivotal moment in the evolution of retail practices. The proposed regulation seeks to mandate the attribution of the supply chain, enabling stakeholders to authenticate every aspect of product creation, from raw material extraction to production and recycling. Since data provenance and lineage is what lies at the heart of digital product passports, getting your data in order will be fundamental in preparation for this regulation coming into effect.
Impact of digital product passports across retail subsectors
To contextualise the significance of DPPs, let’s examine their implications across various retail areas:
- Batteries: this is the area where the regulation is going to hit first and stakeholders will be tasked with tracing the provenance of each component, down to the mines where materials like cobalt and lithium are sourced. The challenge lies not merely in implementing digital identifiers like QR codes but establishing a robust data infrastructure to support comprehensive data lineage tracking.
- Leather: in the realm of fashion, particularly with materials like leather, the complexity of the supply chain poses significant hurdles. From farm to tannery to the final product, ensuring authenticity and traceability of each hide requires a sophisticated data system but the varying levels of digital maturity along the supply chain will complicate matters.
- Food: while the food sector in the EU already faces stringent regulations regarding data provenance, DPPs will introduce a new dimension of transparency. From supermarkets to consumer tables, the ability to trace the origin of products down to the farm level will help facilitate trust and accountability.
- Diamonds: the diamond industry is a great example of digital product passport’s potential. By assigning unique identifiers to diamonds at the point of extraction, industry stakeholders can already track a diamond’s journey from mine to market, ensuring ethical sourcing and consumer confidence while combating issues like blood diamonds.
How can retailers prepare for DPP implementation?
Unlike the General Data Protection Regulation (GDPR), which primarily addresses data privacy within nation states, DPPs represent a novel endeavour to standardise regulations across borders where none previously existed.
You see, with GDPR, similar regulations were already in place within nation states, so implementation was just about consolidating existing national rules. Digital product passports, on the other hand, aren’t regulated in any of the EU nation states, which will make regulatory adherence from the get-go significantly more difficult.
That’s why the best thing you can do now is proactively prepare for what’s to come and get your data practices right.
Besides familiarising yourselves with the upcoming DPP policy and staying on top of its developments, the number one thing you need to do is get better at data lineage by identifying your current data flows, gaps, and risks associated with your digital information.
In essence, you need to establish an in-depth understanding of your supply chain and where the important data is located because when the regulation comes into full play—that’s what will help you minimise costs and maximise on the opportunities that DPPs can offer.
Digital product passport benefits for retailers
With a lot still uncertain about the impending regulation, it’s easy to dismiss and postpone embracing DPPs. However, the advantages the tool can deliver extend well beyond regulatory adherence and underscore the imperative for early adoption and preparation.
1. Reduce current and future costs
By preparing now, ahead of regulatory enforcement, you can reduce the costs associated with reactive compliance measures. The proactive approach not only minimises the risk of potential fines but also fosters cost reduction on a large scale.
Deeper insight into the supply chain afforded by better data lineage that underpins DPPs will allow you to identify existing inefficiencies and optimise operations, leading to significant cost savings. Moreover, these new insights can help gain clarity on trade tariff disaggregation and how to balance what materials you import and from where to make the products. Thus, further bolstering profitability and positioning your retail business for financial resilience in an increasingly competitive market.
2. Minimise supply chain risks
In an era marked by geopolitical uncertainties and supply chain disruptions, the ability to identify and mitigate risks is paramount for your retail business. Getting good with your data practices now will immediately highlight areas of your supply chain that are exposed to risk. For example, you may uncover over-reliance on politically unstable countries which can put your business in jeopardy.
In short, early adoption of DPPs will equip you with the foresight and agility to navigate turbulent waters and safeguard operations against unforeseen challenges.
3. Unlock new revenue streams
As your company gets better at data collection and analysis, each step of the supply chain will become a source of potentially valuable digital information. You’ll now be able to sell your product along with all its relevant lifecycle data. This can help unlock new revenue streams.
For example, in fashion, instead of merely selling clothing items, retailers may want to pivot and explore offering consumers the option to rent garments or participate in buy-back programs. The transparency afforded by DPPs may instil confidence in consumers and encourage behaviours that facilitate circular retail.
In essence, DPPs can allow retailers to shift from unidirectional selling to more dynamic market engagement, offering ‘products as a service’ where products are not just commodities but conduits of valuable data.
4. Drive circularity and sustainable retail operations
DPPs also offer a tangible way to actualise your commitment to circularity and sustainability. By fostering transparency and accountability throughout the entire supply chain, you can demonstrate your dedication to ethical sourcing and environmentally friendly practices.
This will naturally resonate with the increasingly conscientious consumers and help boost your brand’s reputation and loyalty. By embracing digital product passports, you can position yourself as a leader in the movement towards a more sustainable future of retail.
5. Gain a competitive advantage
Transparency breeds trust, and trust is the cornerstone of customer loyalty. By leveraging DPPs to provide unparalleled visibility into the origins and production processes of your products, you can differentiate your company in a crowded marketplace.
Being transparent about sourcing and manufacturing practices will not only enhance consumer trust but also strengthens brand identity and resilience against competitors. Here, first movers on DPP implementation will carve out a reputation for integrity and accountability, gaining a significant competitive edge in the retail landscape.
