3 SUPPLY CHAIN DYNAMICS FASHION BRANDS MUST BALANCE TO REMAIN COMPETITIVE IN THE 21ST CENTURY

There has been a lot written recently about the damage that the Fashion Industry is doing to our planet.  Clothing has become too cheap, too wasteful, too damaging socially and environmentally.  Sadly, as soon as a new trend emerges, cheap clothes just end up in landfill.

To address the fashion crisis, the Fashion Industry needs to build a mature supply chain to stop having a negative impact on our planet.  When building supply chain maturity, there are three dynamics which Fashion brands must balance to address the fashion crisis and remain competitive in the 21 Century.  These dynamics are: be responsible; be profitable and be responsive.  This article will lay out the reasons why these three dynamics are important and how to address the challenge of balancing them by applying mature supply chain management principles.

DYNAMIC 1: BE RESPONSIBLE

What does be responsible mean?  It means, over time, to not exploit people or natural resources; to not damage the planet for future generations and to do the right thing consistently.

Sustainability is a trend not a fad and is here to stay.  Why?  Because investors, consumers, not-for-profits are calling for brands to be responsible for their actions.  As a result, brands are slowly starting to respond to the call to action.

In the past, shareholder value focused only on profit and growth.  Now however, and rightly so, it matters very much how people and the planet are impacted across the global supply chain.  Thanks to engagement with business through the United Nations sustainable development goals and summits such as Davos, the need for a responsible approach to fashion and business generally has gained momentum in the private sector.  For example, big names in business such Richard Branson[i] or the CEO of Blackrock, emphasise the importance of sustainability in investment decisions[ii].

Consumer awareness about the damage of the current fashion model, particularly fast fashion, is also growing.  It is organisations like the Ellen MacArthur Foundation, the Fashion revolution “who made my clothes campaign[iii]” BBC documentaries such as “Stacey Dooley investigates, Fashion’s Dirty Secrets[iv]” and books like “Fashionopolis[v]”, that have helped raise consumer awareness about the urgent need for change by publishing some shocking figures about the scale and damage that the fashion industry causes.  

Among the younger generation, sustainability is a key factor.  Surveys have reported that consumers are willing to pay more for responsibly sourced products. In a 2015 Nielsen report, 66% of global consumers say that they are willing to pay more for sustainable brands[vi].  Younger consumers are also calling for transparency, due to the lack of trust arising from past scandals, where hidden truths have been uncovered (Rana Plaza building collapse 2013).  Brands also need to show how they are being responsible.

Brands that recognise the importance of embracing sustainability will be the ones to remain competitive in 21st century.  

Some established and successful fashion brands have always been responsible, and have it deeply rooted in their core DNA, such as Patagonia, Stella McCartney Tom Tom, to name but a few.  There are also a host of younger brands that are enjoying impressive growth who have chosen to put sustainability at the heart of their purpose e.g. Finisterre, Sea Salt, Frugi, Rapanui.  Also, more recently the bigger household names such as Zara and H&M have added ambitious sustainability targets to their Company objectives.  

It is fair to say, therefore, that sustainability and doing business responsibly is here to stay and must be part of the balanced supply chain equation.

DYNAMIC 2:  BE PROFITABLE

The goal of every business is to make money.  Why?  Well, what use to society is a business that loses money?  Money makes the world richer and provides the needed funds for human progress.  Since the enlightenment and the dawn of capitalism data on human progress have shown that as the world gets richer more of us are better off and thus humanity progresses.  Steven Pinker eloquently and intelligently demonstrates this fact in his book, “Enlightenment now[vii]”.

The pursuit of profit therefore is of great importance to the well being of our planet.  What has not worked in the past, is to make profit and money at any cost to our planet.  This is no longer acceptable.  A balanced approach is called between supply chain dynamic 1 and 2 in order to make profit responsibly. 

Tools such as the EP&L developed by PWC for Kering, monetises the negative social and environmental impact of its fashion brands on the planet and reports these as costs on the P&L.  This is an excellent approach to achieving a balance between profit and responsibility and one which is available to and should be adopted by more players in the Industry.

DYNAMIC 3: BE RESPONSIVE

The final dynamic in the equation, is the challenge to harness big data and new technologies to achieve speed to market and ultimately delight customers through an unforgettable product experience.

Speed to market is critical.  Raised with mobile phones, the younger generation have become very demanding and accustomed to getting everything they see, here and now. This has put pressure on brands to reduce the time lag between discovery and purchase, as consumers continue to expect better experiences.  Supply chain agility and innovation to improve responsiveness is therefore key.

The speed of technological development brought about by Apple and Amazon pose a challenge to the physical infrastructure of current fashion supply chains.  Raw materials sourced across the globe; long lead-times; 100+ year-old production processes, labour intensive skill requirements and the need for physical samples, all contribute to a disconnect between the digitisation of demand and the analogue reality of the physical supply chain.  

Add to that, the complexity of Omnichannel sales (boutique, online, retailers, wholesalers) and faster cycle times (8-12 collections per year driven by fast fashion, instead of the traditional 4), the cost of being responsive is very high.

Noteworthy too, is the heightening of returns through the on-line channel coupled with more frequent peak season sales (e.g. black Friday), which both make predicting trends, demand and inventory levels on each distribution node, very challenging, despite sophisticated forecasting tools.

All this pressure on responsiveness, causes the cost to serve to go up and calls for higher inventory to mitigate risk of stock out due to long response times.  These costs have impact both on profitability and on the working capital (of which inventory) of the business.

Despite the call by some for “slow” fashion, it is hard to believe that with the potential of modern technology available today, that things will slow down.  An alternative approach to slowing down, might be instead to reduce inventory and change from an analogue to a digitally driven demand chain, all whilst increasing the percentage reuse of raw materials and offering a responsible and profitable product range to consumers.

Striving to build a responsive supply chain, forces you to eliminate waste (e.g. samples, production waste), inefficient processes and high levels of inventory.  It also requires close collaboration and information sharing upstream as far as raw material vendors, all of which can contribute to sustainability and profitability objectives.

Building agile supply chains has been a key competence of the best supply chains that exist today (e.g. automotive Industry and HP). That is why bringing competence and experience from other industries is key to achieving the right balance.  So too, is the design of new products with the supply chain in mind.

HOW TO ACHIEVE THE RIGHT BALANCE?

At Altrubi, we believe that applying the principles of sound supply chain management is the best way to achieve balance between Profit; Responsiveness and doing business responsibly.  Historically supply chain management has always been about balancing cost and customer service to optimise profit.  The principles and methods behind this goal can equally be used to balance the three supply chain dynamics that fashion businesses are required master.

Each year Gartner Supply Chain publishes the top 25 (an annual list of the companies that best demonstrate leadership in apply demand-driven principles to drive business results) supply chain performers.  Companies consistently appear in the top are Apple; Amazon.com; P&G and McDonalds, but also Fashion Industry players such as Inditex.  Companies that appear in the top 25 list have mature supply chains, from which we can learn.

At the heart of a mature supply chain, lies a customer centric focus, a demand driven response with low inventory, achieved through integrated information sharing and close relationship building with vendors.  Process driven teams, rather than functional ones, coordinate end to end pipeline stock by understanding the entire cost to serve for a given product from cradle to grave.  It is the speed at which the teams can collaborate and bring products to market profitably and responsibly that give them competitive edge, rather than the speed at which one function hands over each collection forecast to the next in function in the chain.  Being able to foster a clear win/win attitude in relationship management and valuing differences that each team player brings, is what enables mature supply chain teams to bring about the much-needed innovation across the entire value chain.

Altrubi lies is at the intersection of sustainability and supply chain management.  We have a unique 7-step method that focusses on building supply chain maturity through collaboration to bring about change and innovation in the Industry, all whilst balancing profit, responsiveness and responsibility.  To find out more please visit: https://altrubi.com


[i]https://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8900854/Sir-Richard-Branson-We-must-learn-that-doing-good-is-good-for-business.html

[ii] https://www.blackrock.com/corporate/investor-relations/2018-larry-fink-ceo-letter

[iii] https://www.fashionrevolution.org/tag/who-made-my-clothes/

[iv] https://www.bbc.co.uk/programmes/b0bn6034

[v]  Fashionopolis, by Dana Thomas, The price of fast fashion and the future of clothes, 2019, Head Zeus

[vi] https://www.nielsen.com/eu/en/press-releases/2015/consumer-goods-brands-that-demonstrate-commitment-to-sustainability-outperform/

[vii] Enlightenment Now, Steven Pinker 2018, Penguin Books

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