Where Will The Global Fashion Sourcing Supply Chain Go After The Epidemic?

From April 14, 2020 to April 22nd, McKinsey Co conducted a large-scale clothing purchasing survey with SourcingJournal. The participants included 116 leading fashion retailers and brands from North America and Western Europe, purchasing managers with over $120 billion purchases, and over 230 garment suppliers, representatives and experts. The survey was released in early May. These purchasing managers and stakeholders clearly indicated that in addition to immediate crisis management, the fashion industry also needs to move towards a more sustainable procurement and demand centered supply chain model.

How to reinvent future purchases?

The new pandemic may provide an opportunity to reshape clothing procurement patterns and move towards the new normal. The supply chain should be systematically transformed and a demand oriented sustainable procurement model should be constructed.

01

Demand driven, flexible supply chains are more important than ever before.

Fashion brands will need to operate more flexibly throughout the value chain (including product development process), so as to shorten delivery time and adapt more quickly to consumers' trends and needs. The key elements of demand driven supply chain include: smaller batches of subdivision portfolios, increasing transparency, eliminating functional islands, efficient processes based on tools and analysis support, multi sourcing and proximity procurement.

According to the survey, 76% of international buyers believe that the new crisis will push the supply chain to further improve flexibility and speed. Of these purchasers, 52% expect to see faster delivery times and smaller volume products to accelerate more flexible product development. 60% of the experts believe that (half) automation will be further accelerated to achieve on-demand production and solve the widespread inventory backlog problem.

Digital upgrading is another result of the epidemic crisis. As the online channel gets more shares, the future sales curve will be more unstable. In the next normal situation, while managing the procurement cost, it is very important to raise the total price and the profit of the product, which will require the fashion companies to realize the demand driven mode transformation.

Research shows that fashion driven companies can achieve significant economic benefits through demand driven procurement, which is a good omen for the future. This change can raise the full price sales rate by 5% to 10%, and the profit margin will increase by more than 3%.

02

Sustainable development is the primary task.

Although fashion retailers and brands have been reducing the importance of sustainability in recent weeks to ensure their own survival, sustainable development is expected to become the most important issue again. Large scale sustainable procurement is a new requirement before the new crown epidemic. The sustainable development of society and environment has become the mainstream of the next normal situation. The pandemic has made the company's commitment to customers, employees and workers safety in the global value chain the focus. It has also attracted attention to ecological issues such as climate change.

The epidemic has actually increased consumer interest in sustainable development. During their stay at home, consumers have been rethinking their spending habits as goals and values have become the focus. We see that consumers demand companies to adopt sustainable behavior. For example, a recent consumer survey shows that over 40% of consumers in Europe and North America are interested in brands that contribute to the fight against epidemics. More than 20% of consumers said they support local businesses and plan to buy more products locally, and say they want to reduce clothing consumption. In addition, 16% of European consumers and 13% of North American consumers said they would buy more social and ecological sustainability clothing in the future.

Close supplier partnership will be the key to innovation in achieving sustainable development goals. With the questioning of consumerism and the social impact of the new crown outbreak on the value chain, it is now time to reinventing the sustainable development of the fashion industry. The current crisis has accelerated some core trends of sustainable development. The survey shows that more than 70% of buyers believe that close cooperation with suppliers is increasing, while more than 60% believe that sustainable materials will become the mainstream.

03

Replanning the procurement and supply mix

Fashion companies need to replan their purchasing portfolios to better balance risks, costs and supply flexibility. Buyers say that next year's purchases may continue to shift from China to other Asian countries. At the same time, the need for agility and risk reduction is promoting the development of offshore and regional supply chains. 60% of fashion stakeholders say they expect large and highly capable garment manufacturing clusters to appear earlier in offshore markets, such as Eastern and Central America. More people believe that a more integrated regional supply chain will be established to reduce dependence on international fabric imports.

The impact of the new crown has disrupted the purchasing mix in the short term. Compared with the analysis before the epidemic, this year's procurement plan has changed. For example, according to the survey before the new crown epidemic, no buyer plans to increase procurement from China in the next five years, and now 13% of the purchasing managers expect that the value share from China will increase, that is, the new crown disease slightly slowed down the trend of purchasing quantity to move out of China. The reason lies in risk considerations and different national blockade policies. Another factor is China's strong value chain integration, which makes the acquisition of raw materials less vulnerable than the value chains of global interconnections that other fashion producing countries rely on. In the first quarter, when the delay of raw materials led to a wider supply disruption, other countries strongly felt China's key role as a supplier of raw materials, and stressed the need to strengthen the backward integration of regional supply chains. Meanwhile, the first quarter is a wake-up call for some fashion companies that have yet to diversify their purchasing portfolios, because they still rely highly on Chinese products. So far, compared with the five year trend before the new crown, the Southeast Asian procurement market is less disturbed and is expected to gain a share. By contrast, the new crown outbreak has led to a reversal of the medium-term trend in Bangladesh, with about 1/3 of the purchasing managers expected to reduce their numbers. Purchasing managers are also looking closer to the market to fill demand. When asked about next year's procurement / offshore development, 46% of the purchasing managers said they expected the trend to increase. The question will be how fast this transformation takes place, because it takes time to build capacity and implement changes. Turkey will benefit the most from seeking closer alternatives, with 43% of European procurement executives expected to increase their value share there. In order to take advantage of the inherent speed and flexibility of offshore services, the company will need to build an integrated value chain to avoid delays and interruptions in raw material supply, balance higher labor costs and make use of potential sustainability gains.

To this end, the fabric and garment supply chain must be located near the shore. This mode avoids the long delivery time in the design process due to transportation, thus providing faster speed and complete design flexibility, and allowing greater freedom of material selection. In terms of sustainable development, nearshore transport has reduced transport volume.

But this pattern also has challenges, one of which is the change in local fiber supply. There is sufficient supply of cotton fiber on the coast, especially for North American producers, but the vast majority of chemical fiber production in Asia will face greater challenges in the short term. Another challenge is high capital expenditure requirements. As spinning mills and fabric factories are producing large amounts of capital, investment will be a major challenge. In addition, the transition to integrated and integrated value chains will need to be streamlined and innovative, especially in terms of design and production, so as to make full use of any potential benefits.

04

Building a stronger supplier partnership

Collaboration in the entire value chain is essential for building a flexible, consumer centric supply chain and making the industry progress in achieving social and environmental sustainability.

Before the new crown epidemic, clothing retailers and brands are still avoiding long-term commitments or sharing strategic plans with suppliers. Strategic partnership with advanced suppliers is essential for a demand oriented sustainable procurement paradigm.

Fashion retailers and brands can not achieve flexibility, agility and sustainability alone. Advanced suppliers are partners in collaborative design driven process innovation and technology and product development. 60% of buyers believe that the supplier base will be integrated, which means that as fashion companies transfer to larger and more advanced suppliers with international influence, the number of suppliers will decrease in the coming year.

The most important innovation is driven by suppliers, but only a few fashion brands and retailers are willing to invest together to ensure future capacity. Joint investment in suppliers is not just about ensuring production capacity or helping suppliers to achieve capacity through the current restructuring. It is about the innovation needed to support demand driven and sustainable procurement transformation. Suppliers, for example, promote innovation in R & D and sustainable production processes and technologies, achieve traceability and efficiency improvement in industrial 4 and play a leading role in mass customization technology. However, when asked about purchasing managers, whether they want to organize (CO) invest in suppliers to ensure future capabilities, only 17% of people think that this possibility is very large, while nearly half (46%) think it is very unlikely.

05

Digital value chain

In order to persist in innovation, brand players need to strategically anchor them in the road map and operation methods, and carry out substantive business models and process changes to coordinate the changes before and after the epidemic.

Innovation has expanded in the entire fashion value chain: from design (3D design, artificial intelligence plan) to sales and planning (virtual sampling, video signing); B2B sales (digital sales, virtual exhibition hall); procurement and supply chain (training, supplier integration) and consumer participation (virtual performance, social marketing), innovation will continue to exist. In the post epidemic era, this innovation is imperative. The successful implementation of technologies and processes during the crisis will have a profound impact on the future of the industry. In the new world of agility and sustainability, the implementation of testing and learning methods will be crucial. Most fashion stakeholders predict that the digitalization of product development and procurement processes will accelerate. 60% of experts agree that automated production on demand will be the main driving force for the development of the industry. Product development cooperation and sample approval by video conferencing indicate that the level of business travel in the future may continue to decline. For example, 3D design cooperation and sample approval video conferencing is the most promising trend, since nearly half of the purchasing managers plan to adopt this general practice in their organizations.

Historically, only advanced fashion companies have implemented intelligent purchasing supported by advanced analysis. With the use of close procurement and multi sourcing in the balance of procurement cost and final product profit, advanced analysis is becoming an important tool to obtain the full value of the supply chain in turn to demand driven. 2/3 of fashion stakeholders believe that the wide application of intelligent procurement will accelerate next year. But so far, many companies are still in the experimental stage. Only 20% of the purchasing managers plan to use advanced intelligence for national and supplier selection, and only 8% plan to invest in this area.

06

Adjusting operation mode and way of thinking

Adjust the operation mode and mode of thinking, including adjusting the company culture, implementing the new collaboration model and adopting agile method to carry out the transformation. Organizations, personnel and partners must be supported to move towards new ways of work. The role and organizational models in the product development process need to be readjusted, and domestic purchasing offices may need to develop deeper supplier relationships to achieve global flexibility. This radical industry turbulence will need to be changed.

Fashion companies and their purchasing companies should be transformed into a demand oriented sustainable procurement mode, which covers the digitalization of procurement, the shift to agility, the mode of intelligent procurement and sustainability. The alarm bell of the new crown pandemic will accelerate the whole industry transformation in these fields. Companies and their purchasing organizations need immediate action to facilitate cross functional collaboration between personnel and enterprises to stimulate change. Redefining roles and responsibilities in product development and procurement is a good starting point. The company can also start skills training and retraining for its employees, and find new talents to bridge the skills gap, especially in the promising new practices, such as virtual prototyping and analysis, found in the new crown innovation.

Many of these changes require rethinking of corporate culture, and measures can be taken to promote accountability and motivate new ways of doing things. Most importantly, companies should redouble their efforts to develop ecosystems with innovative partners and try new cooperation.

As we continue to cope with the impact of the new crown crisis on the global apparel supply chain, the fashion industry will face some difficult aftermath in 2020. Many brands and retailers will fight for survival, while suppliers of procurement countries are more likely to fight for survival, which may have devastating consequences for millions of workers.

Old thinking will have to make way for the new way of doing things. In this situation, fashion participants join hands with suppliers to invest in strategic partnership with high-tech companies. The industry should not waste this crisis. It should take this opportunity to completely reinvent the procurement mode and create a demand driven and sustainable development future.