A recent Drapers article dated February 2021, highlighted the fact that the UK Government is taking a stricter stance to combat exploitation in fashion supply chains, requiring brands to disclose their suppliers and financially penalising those who cannot demonstrate compliance with the Modern Slavery Act 2015 [1].

The article talks about how some brands have taken responsibility for their supply chain transparency and how they do so.  However, organisations like the Fashion Revolutions transparency index argue that enough is not being done beyond tier 1 suppliers, which is where workers are most vulnerable, and processes are most detrimental to the environment.

This triggered a question in me, as to why is more not being done to redesign supply chains to make them more transparent and suitable to business-as-usual post pandemic?  My thinking takes a backward approach starting upstream and moving downstream to the consumer, rather than the other way around which seems to be the most common approach in transparency mapping.  

More concretely, here is a bottom up three-step approach to tackling supply chain transparency and building a sustainable fashion supply chain.

Secure Raw Materials first

Secure the raw material source directly and thereby simplify transparency efforts focusing on the big things first.  Even if you have not yet managed to map your supply chain as a Brand, there are plenty of examples of larger brands who have.  These show the biggest environmental impact in Fashion is at the source in raw material production. 

For example, cashmere demand is causing over grazing in Mongolia due to the herds getting larger to meet demand and will ultimately lead to irreversible desertification.  In her book Fashionopolis, Dana Thomas shares in her interview with Claire Bergkamp,of how Stella McCartney switched to regenerated cashmere from virgin and in doing so reduced environmental damage by 92%.  

Another example is the Kering EP&L which visually depicts the worst environmental impact at raw material source.  (see visual below – The bigger the bubbles in the image below the bigger the negative impact.  It is clear that in 2019 for Kering, raw materials were the biggest causes of land degradation, water pollution and a significant contributor to greenhouse gas emissions). My point is here, that whatever the Brand, any supply chain mapping exercise is likely to give a similar result.

Image source : https://www.kering.com/en/sustainability/environmental-profit-loss/results/

In trying to make things tangible, simpler, focused and productive, would it not be easier to determine a single source of e.g. cashmere or cotton that can meet your annual demand and to purchase from them directly and work closely to minimise environmental damage, rather than try to go through several supplier tiers and try to dictate practises to a very broad supply base?

This approach to procurement, would of course turn traditional thinking and buying of lowest priced FOB finished goods made in Asia upside down.  It would seek to secure supply of the most sustainable raw material with least environmental cost to be delivered to multiple locations fabric production facilities at the Brands instruction.  This would present a challenge and would call for a big change to internal planning processes.  Not only this, but it would require raw material management, stock allocation and coordination with mid-tier suppliers.  However, in return, it would tackle the biggest part of the environmental issues head on and would provide maximum control of what you are buying with considerably less risk.

If you can manage 80% of your raw material impact in this way and still be able to count the number of suppliers on your hands, then you are a long way towards making your supply chain more sustainable and well within your human resource capability.

It is not uncommon either in other Industries for brands to procure key raw material supply and instruct intermediary suppliers where to source these and a what price e.g. for bottle resins where soft tolling processes are used between supplier tiers.

Another thing to consider here, is that as the sustainability movement picks up pace, more and more brands will require sustainable materials e.g. organic cotton.  As has been seen in other industry’s the supply of sustainable materials quickly get in short supply (e.g. Recycled PET, as all brands using plastic containers, try to promote their responsible approach to consumers by including ever increasing proportions of recycled PET in their products).  By going direct to suppliers for E.g. organic cotton would secure supply of a certain volume at a certain price.  Not only this, for those who are not as big as Zara and H&M, it would highlight the gap in supply of a given raw material against future demand. This gap would then be a trigger to make up the defined shortfall from recycled materials and would allow sufficient time to implement actions, thus avoiding incidents of false certification when organic supplies run out, if using the current buying model.

Planning a handful of different raw materials well ahead of time, has several advantages:

  1. Demand is much more predictable at the lowest level of the supply chain. For example, you may know that 50% of our portfolio will be made of cotton, therefore you can estimate the annual tonnage you will require
  2. There are fewer suppliers to deal with, allowing you to enter into longer term partnership to secure supply and price
  3. There is the added security of really knowing where your raw material comes from
  4. It is possible to work directly with suppliers to improve social and environmental impact over time
  5. It the event of shortfall of virgin materials, you have time and will get better at finding alternative non-virgin sources of supply.

Build for agility and resilience 

Having determined raw material supply in this way; and before turning to mid-tier suppliers, it would be appropriate to consider first how to create more supply chain agility.  Long lead-time finished good procurement from, say, China doesn’t allow brands to respond fast enough when a particular garment design becomes a best seller in season. Air freight emits a lot of carbon and is costly and sea freight unfortunately takes up to 30 days.  Neither are a good solution for agility.

In a digitally connected world, it is no longer brands that set the trends in fashion, rather it is influencers and consumers themselves who do.  Get demand predictions wrong and brands are either stuck with inventory that doesn’t sell and an eroded top line through heavy discounting.  Or, brands simply lose a huge sales opportunity not being able to produce more stock quickly enough.

Not only this, the Covid-19 pandemic has significantly impacted sales in Fashion apparel and footwear due to store closures.  The impact of the “bullwhip effect”[2] has led to order cancellations and a huge pile up of unsold inventory, threatening the solvability of many brands, especially those without an online presence.

Rather than generating healthy profits and returns on investment, supply chains that are slow to respond are less attractive to brand owners and shareholders a like.

Again, the traditional approach to procurement, that seeks out the lowest FOB price for a finished garment is no longer the best approach, in view of the lack of agility.  Long lead-times work when demand is predictable.  Digitally connected consumers and the uncertainties of the pandemic dictate that demand will remain unpredictable going forward, calling for a more agile supply chain model.

In October 2018, McKinsey wrote a paper[3] targeting Mass-market apparel brands and retailers entitled “Is apparel manufacturing coming home?  It talked about the possibilities of on- or nearshoring for agility; automation to maintain competitive costs and, albeit to a limited extent, sustainability.  In essence it supported the need for a demand driven supply chain, rather than a traditional supply driven one, that “pushes” stock to the marketplace rather than allows production to be “pulled” by demand.

Taking a total cost of ownership view when making procurement decisions is a much more effective way of assessing costs rather than FOB unit cost approach.  Coupled with the environmental cost approach adopted by Kering and Stella McCartney through their EP&L, these cost approaches combined would certainly drive decision making in the right direction.

Although not applicable for all products in a brand’s portfolio, nearshoring agile response (including smaller Minimum Order Quantity) with some automation does lend itself to trendy one-off items for which the proportion of manual labour in the production process is low, or in the absence of automation, where the additional cost of nearshoring can be offset by a high full price sell through rate.

In selecting and reviewing locations for CMS/CMT operations an opportunity is created to tackle the social issues often associated with these operations, which are generally opaque. Again, just looking at lowest cost cannot be a factor.  Although automation and technological innovation have big role to play here, so too does the presence of a strong social insurance.  The future ability of a supplier to innovate, automate, as well as the presence of positive social and environmental drive, must be incorporated in the partner selection criteria alongside the commercial aspects, thereby deriving “best value for money’ overtime.  The idea here is to find partners with whom a Brand can grow and work with overtime to become “best-in-class”.  What we are really looking for here is to find partners with whom we can create Centres of Excellence in a given manufacturing process in the fashion supply chain.  In essence, it is a marathon approach to sustainable fashion, rather than a sprint to the bottom mindset driven by lowest cost procurement.

Given the huge impact of the Covid 19 pandemic on the fashion industry coupled with geo-political tension driving uncertainty in trade agreements and exchange rate developments as well as increasing growth in local demand in Asia, coupled with the pressure to disclose supply chain transparency, it is certainly the right time to go back to the drawing board and attempt to redesign the fashion supply chain to secure risk, profit, resilience and truly promote sustainable business practises throughout.

Creating partnerships to build the missing links

Having determined the raw material sources as per section (1) and determined on-, off- or nearshoring locations for appropriate CMS/CMT operations as per section (2), the next step is to select Centres of Excellence for fabric production.  Ideally these would be located close to the CMS/CMT production locations for faster response, but in all likelihood are no doubt currently located in Asia.  

However over time, in conjunction with on- and/or nearshoring decisions it would not be insurmountable to gather support with other like-minded brands to initiate local initiatives to promote government investment in education of such skills, so are to make such Centres of Excellence in fabric production a future possibility, combined with a good social insurance systems or welfare states.  In the interim period, it would be a of case shipping materials around, in between processes, which is not ideal, but which could be tempered with knowledge that a better future is in the making.

A word on product development

In describing the alternative approaches to procurement in the fashion supply chain, I did not want to overlook the importance of the role of product development.  None of the key changes above can be implemented without the buy-in and collaboration of the product development teams.  This is because a certain synergy will be required across the product portfolios to help make the supply chain cost effective. Commonality across fabrics and cutting blocks are an example.  Such elements need to enter the design process right from the start, so as to allow efficiency without compromising the end result for the consumer.  Finding this balance is a key challenge and requires close collaboration between supply chain and product development teams.

Conclusion

Whilst supply chain mapping is a useful top-down tool for transparency, I believe a bottom-up approach in taking steps to redesign the supply chain and rethinking a brands approach to procurement and product development, would provide a clearer set of action, results and transparency more quickly. 

Building a new supply chain structure, calls for a partnership approach with key players in the supply chain and cannot be based on e-auction, unit cost driven supplier transactions for lowest FOB price.  It requires a balanced approach between commercial gains for all players in the chain, as well as a deep commitment to purpose and a longer-term approach to continuous improvement and driving through positive change collaboratively.  

This requires a mindset shift for some brands and suppliers alike.  It is also something that comes more easily to those who are already sustainability conscious.  The backward rebuilding of fashion supply chains from source to consumer, will take a decade or more.  In the urgency of the climate crisis and need for social transparency, it is a bold step that should be taken immediately to lead and pave the way for others to change.

Contact us

If some of the ideas shared in this article have triggered other points of view needing discussion, we would love to hear from you. Why not book at free 30 call with Annika here: 

https://altrubi.com/contact/

[1] https://www.drapersonline.com/topics/sustainable-fashion/the-search-for-fashion-supply-chain-transparency

[2] Link to my explanation of the bullwhip effect

[3] https://www.mckinsey.com/~/media/McKinsey/Industries/Retail/Our%20Insights/Is%20apparel%20manufacturing%20coming%20home/Is-apparel-manufacturing-coming-home_vf.pdf

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