Fashion’s interconnected global value chain has been severely disrupted owing to the havoc caused by the COVID-19 pandemic, with countries around the world going into lockdown. While there have been massive behavioural changes in fashion consumers, this article discusses the struggles of manufacturers and how they are rethinking the sourcing and supply chain process to thrive.
By Swikruti Pradhan, Designer & Founder, Rustic Hue
The World Health Organization (WHO) declared the outbreak of COVID-19 as a pandemic on March 11, 2020 and urged us to accept that it would be with us for the foreseeable future. The global supply chain process, too, has been disrupted like never before. The whole world has witnessed how the COVID-19 pandemic disrupted the supply chain of textile and fashion manufacturing, design and retail industries in various unexampled ways since then.
Reckoning with disruptions
A value chain takes the perspective all the way from where raw materials are sourced, how they are passed through the system to produce the goods, and then finally how the final goods get to the customers. But rarely do we see companies thinking of their supply chain from beginning to end, going all the way back to where the raw materials come from and how they come together at each step. When we say value chain, we mean the whole process from fibres to yarns to textiles to garments and the end customers.
During the pandemic, a majority of fashion businesses suffered financial distress for a long time and many did not survive. The pandemic has exposed a fundamental weakness in the traditional fashion system matching supply with demand. The old idea of sourcing and manufacturing abroad season-wise, with large volumes without the feedback of customers in advance, and then hoping to sell them later at the retail stores, doesn’t work now. There has been a requisiteness to check the practice of over-production every season, and then the wait to stock them out next season and revamp the entire supply chain process.
There have been stumbling blocks in the course of fashion sourcing and supply chain as follows post COVID-19:
- Shipping disruptions caused by harbour shutdowns, capacity and transportation issues leading to delays
- Volatility of demand due to changes in consumer spending behaviour
- Rise in cost of raw materials due to hefty mark-ups to survive in the pandemic
- A surge in online sales as well as the competition from new- generation online channels
Rising Costs
According to a report by McKinsey, the prices of raw materials are soaring up, and further price increases are expected. Price mark-ups in nearby markets are contributing to the trend. The manufacturers, suppliers and many companies in the supply chain plan to move towards more sustainable fibres, which will only increase the probability of feedstock uncertainty.
The drastic hike in shipping costs has also become a matter of concern for the sourcing teams of companies. This situation is likely to stay for some time, and further integration of shipping parties may worsen capacity limits, thus, costs are expected to remain high.
“Which drivers do you expect to have the highest impact on sourcing cost development within the next 12 months?”
Technology and Digital Escalation
New-age technologies and digitization have a major impact on the current supply chain process. Digital escalation is another reverberation of the crisis; as online channels gain share, they contribute to a more volatile sales curve in the future. In this next normal, it will be preponderate to improve full-price and product margin, while managing sourcing costs, and this will call for fashion companies to work on the demand-driven paradigm shift.
There has been an uncertainty of demand and hence, sales volatility has increased. Supply chains, thus, need to become more demand-driven and flexible. As discussed earlier, the crisis has disrupted traditional practices and given rise to new tools and processes being piloted out of necessity. The overstock issue of pre-COVID-19 times has been exacerbated and will likely result in a slow recovery and vicious cycle of discounting. Simply put, the regular fashion calendar needs to be revised. Fashion brands need to operate more flexibly across the value chain, starting from the product development process to cutting down lead times and adapting more responsively with a deeper understanding of consumer behaviour. Fashion companies need to revamp their sourcing strategies and practices.
The fashion industry responded to the pandemic, and the shift in practices and ideas has been evident. However, so far the industry has been slow to adapt and bring the changes needed to solve decades-old issues. It needs to look beyond the immediate crisis and survival measures, and move towards a new normal.
Strategies for a Systematic Transformation
ON-DEMAND MANUFACTURING
A growing number of industry experts believe that fast, on-demand manufacturing is an important part of the next normal for fashion. An on-demand model allows the manufacturers to have no inventory, no fabric waste and no warehousing. They need not produce hundreds of something that may never sell. Is the necessary investment in equipment and cut-and-sew skills prohibitively expensive and complex?
The challenge is a change of mindset more than the investment in hard technology and labour. Change requires patience. A cue can be taken from the book publishing industry; publishers initially resisted the on-demand model. Now they have adopted it broadly with the traditional long-run offset printing. The same thing has started to happen in the fashion industry and the pressure from COVID-19 accelerates this shift. A demand-driven model is more logical, economical and sustainable. Waste in the industry is rampant and expensive. The production allows fashion brands to reduce their upfront cash need and minimise excess inventory.
The regular fashion calendar needs to be revised. Fashion brands need to operate more flexibly across the value chain, starting from the product development process to cutting down lead times and adapting more responsively with a deeper understanding of consumer behaviour.
RE-IMAGINING THE SOURCING MIX
The fashion players need to re-map their sourcing mix to better balance risk, cost and flexibility. Earlier, there used to be five-year-long sourcing plans by big players in the market, which has shrunken to short-term sourcing mix during the pandemic. The sourcing plan ahead includes strategies like multi-sourcing, implementing near shoring and dual sourcing, and moving towards an integrated value chain.
To leverage the speed and flexibility opportunities inherent in near shoring, companies need to set up an integrated value chain to avoid delays and disruptions in raw material supply, balance higher labour cost, and take advantage of potential sustainability gains. For this to happen, textile and apparel supply chains will have to be co-located near shore, but there may be inertia in making this move and scaling up production. Full speed and flexibility will likely be reached once fabric production follows CMT. Specifically, this model offers far more speed and full flexibility in design by eliminating long lead-timesin design processes due to shipping and allows for greater freedom in material choices. Near shoring reduces shipping and enables regional efforts to close the loop on the sustainability front.
We cannot disregard the fact that collaboration across the value chain is crucial for achieving a flexible, consumer-centric supply chain and making industry-wide progress towards social and environmental sustainability. Suppliers play a major role in crucial innovation in R&D and sustainable production process & technology. If the fashion players forge stronger supplier partnerships, they will not only support the innovation needed for a demand-driven and sustainable sourcing transformation, but also secure production capacity and help suppliers make it through the current shakeout. Local production may gain ground once again, but the industry needs to quickly shift to such model, else there a lengthy delay may lead to more problems than solutions. A balanced mix of global and local manufacturing is perhaps the best way forward.- ADAPTING OPERATING MODELS AND MINDSETS
It is essential to support the organisation, people and partners to move towards a new way of working. Roles and organisational models along the product development process need to be rethought, while domestic sourcing offices may need to develop deeper supplier relationships, allowing for global flexibility. Such radical industry uplift requires a change in mindset.
Fashion companies need to take action to nurture cross-functional collaboration between people and businesses to combust transformation. But, to bring in this transformation, the changes will require adapting company cultures, implementing new collaborative models, and taking an agile approach to transformation. 
DIGITIZING THE VALUE CHAIN
Technologies and processes successfully implemented during the pandemic will have a profound effect on the industry’s future. Implementing a test-and-learn approach will be critical in a new world where agility and sustainability are of the essence.
Companies have been forced to innovate on their processes and practices during the COVID-19 crisis. Those previously bound by physical borders explored the possibility of engaging virtually with teams which, in all likelihood, will make them rethink the need for in-person meetings and travel going forward. Integrating advanced digital technologies into the end-to-end systems will help supply chain professionals survive further global crisis. It is vital to engage people across the business by showing them how a well-run supply chain adds value and gives enterprises a competitive edge.- THE END OF FASHION SEASONS
Environmentally, a season-less shift is much better since it tamps down on the notion that any and all collections are short-lived and that they need to quickly be replaced with next season offerings, thus leading to more waste generation. That said, it would be interesting to see how such a shift to a leaner model would impact a designer’s creativity. - INTERNAL COST ADJUSTMENT
Besides managing open commitments, cost containment measures include the operating expenses of the sourcing function itself. Most of the companies engage temporary staff measures in their sourcing offices or outsourced staff to help manage operating costs.
Fashion companies need to take action to nurture cross-functional collaboration between people and businesses to combust transformation.
RISK MANAGEMENT STRATEGIES
To incorporate greater agility into the supply chain process, companies can consider implementing risk-management strategies that aim to reduce the impact of disruptions caused by sourcing dependencies by creating buffers. Additionally, they should look to assist their key suppliers who are facing insolvency. Stocking strategies based on actual demand rather than predicted demand may yield greater flexibility for some firms. It is also important to enhance the customer’s online experience in order to maximise sales while keeping demand disruptions in check.
That said, given the dynamism of the pandemic, it is difficult to map a particular course as its long-term effects still remain unknown. However, one thing is clear – the pandemic has accelerated a much- needed fundamental shift in what customers value, their buying behaviour, and how businesses must operate in order to win their trust and royalty.
Besides managing open commitments, cost containment measures include the operating expenses of the sourcing function itself. Most of the companies engage temporary staff measures in their sourcing offices or outsourced staff to help manage operating costs.
Key Supply Chain Shifts in the New Normal
In Conclusion
The pandemic, in its wake, has brought to light the vulnerability of the supply chains and raised questions on globalisation. The time is ripe to come to realise the inevitability of a new normal, one that makes the most of the existing capabilities while laying the path for greater resilience and reducing the risk from future disruptions of this scale.
The COVID-19 pandemic has challenged the fashion industry and the future supply chain will be shaped by the industry’s response. The fashion industry needs to shift towards a more sustainable and demand-centric future beyond immediate crisis management. It was already clear that transformation was needed, particularly in making sourcing more demand-driven and more sustainable on both social and environmental dimensions. The COVID-19 crisis has brought the structure of the industry into sharper focus, and there has been significant demand and supply chain disruption across the fashion value chain. A dramatic change is underway! Transformation is more important than ever to ensure the industry’s future. It is time to step up!
