The
apparel sourcing report, which is called ‘Revamping
fashion sourcing: Speed and flexibility to the fore’ highlights
that the pandemic and ongoing disruptions to supply chains has placed apparel
sourcing at the top of the agenda for many fashion chief executives around the
world.
Who took part in the apparel sourcing report and what
was its aim?
This bi-annual report, which started a decade ago
assesses the industry’s progress on its journey to date and looks ahead to
2025. It draws on the reflections of 38 chief procurement officers (CPOs) who
have taken the time to assess their own organisations’ trajectories. The
respondents represent international apparel and sportswear brands and
retailers. The report features a mix of industry leaders and SMEs — which
together command roughly US$100 billion of sourcing volume. Two-thirds of the
CPOs surveyed were from European companies, and almost a quarter were based in
North America.
What are the main findings from the apparel sourcing
report?
Karl-Hendrik Magnus, who is a co-author of the report
and a leader of the Apparel, Fashion & Luxury group in Germany and senior
partner in the Frankfurt office told Just Style exclusively: “The scale of the
transformation towards speed and flexibility that companies have started on is
certainly the main message this report addresses.”
In fact, the report found exactly half
the companies surveyed (50%) had undertaken major transformations, jump-started
by the pandemic. The companies are changing up their operational and design
processes, their sources, and their ways of working. Assortment decisions are
also shifting with brands using advanced analytics and virtual pretesting to
refine their product lines.
The report found design adoption rates are set to rise
with reduced product complexity. Fabric consolidation, platforming, and fabric
pre-booking will become even more common. Sustainable materials and 3D design
are significant trends, while designs developed by vendors or in-house in
sourcing offices will also play a greater role.
Magnus added: “The individual plans shared around assortment,
product development efficiency, and sourcing strategies need to be accelerated
if companies want to fulfil their ambitious improvement targets on full-price
sell-through. [Almost a third] 29% of companies plan even more than a 10%
increase by 2025.”
He pointed out that those players which are slow to
transform, but continue along a traditional sourcing model, will not withstand
the strong headwinds.
He explained that over the next few years sourcing
costs will continue to inflate, consumer demand will be volatile, and change
for more sustainable operations will need to be mastered.
Report co-author and senior expert in McKinsey’s
Munich office, Saskia Hedrich told Just Style the main message to come from the
findings is that “every step of the value chain and every company involved
needs to change in order to achieve a more flexible, resilient, sustainable,
and customer-centric sourcing model”.
She
believes digitisation plays a big role in the transformation, but it is even
more important that operating and relationship models change and that more
focus is placed on upskilling the workforce in sourcing teams and at suppliers.
She pointed out: “Supply chain and demand risks
continue to increase – and climate risks will increasingly put pressure on some
of the main sourcing countries. Apparel brands and retailers can’t go it alone
and neither can suppliers. Collaboration across the value chain and with other
stakeholder groups is vital.”
Other key findings included:
Travel
restrictions and supply chain disruptions leading to alternative
approaches to sampling with nonphysical sample approval such as virtual or
video options being expected to stay.
Apparel
companies are looking to change their sourcing-country mix, turning their
attention to reshoring, and particularly nearshoring, to secure the supply
chain.
Speed
and flexibility is leading to more diversified and complex strategies such
as dual or multi-country sourcing to increase in-season reactivity, and
analytical
sourcing decision making.
It is
vital to force strategic links with trusted suppliers, especially
those that invest in digitisation and have fast and flexible production
cycles and batch size offerings.
Digitisation
is a vital element of success with clear progress across the industry.
Companies
need completely new operating models to manage the complexities supply
chains face today.
Key facts and stats from the report:
71% of
surveyed CPOs plan to increase their nearshoring share.
Turkey
has reached the top 3 as a country hotspot over the next few years.
11% of
respondents picked Turkey as the most interesting sourcing location.
50% of
apparel companies have started a major transformation to achieve speed and
flexibility since the start of the pandemic.
53% of
companies plan to reduce the number of assortment options over next years.
68% of
apparel brands plan to increase the number of suppliers with
digital/industry4.0/automation capability.
Half of
companies plan to decrease the number of trips by buyers from the
headquarters to Asia.
What are the key recommendations to accelerate apparel
sourcing success?
Magnus told Just Style there are four areas that
apparel brands and retailers should focus on to accelerate their success:
Turbocharge
digital tools and capabilities
Sourcing executives are driving the digital
transformation, promoting skills development, and ensuring that ownership of
the various tools remains in the organisation. Investment in internal digital
upskilling, new tech developments, and other capabilities is key. A
fully-integrated set-up is needed: instead of just focusing on selected tools,
we encourage apparel companies to work on full-scale digital and analytics
transformation.
Optimise
sourcing strategy for net margin
Companies in the future will set calendars that allow
for healthy margins. Many current ones are too vague or too general. Investing
in the role of a calendar manager and clarifying responsibilities will unlock
significant value.
Developing strategic nearshoring capacities will be
key. It will be crucial to have a clear vision of the requirements regarding
different product types as well as the development potential of each sourcing
country. Setting proper guidelines and KPIs for sourcing organisations will
help drive the change, but it should be done not just for costs, but for
flexibility and net margin as well.
Create
a (virtual) ecosystem
Establishing partnerships with a group of key
suppliers is necessary to achieve flexibility and create transparency. Getting
suppliers onboard regarding the PLM system pays off very quickly and so does
achieving full transparency of manufacturing and delivery timelines. At the
same time, building the ecosystem beyond Tier 1 to ensure sufficient, flexible
raw materials supply is increasingly important. Creating a (digital) ecosystem
will not only improve speed and flexibility, but also provide assurance that
products are sustainable and ethically produced.
Align
the organisation with new incentives and roles
Many organisations struggle with misaligned incentives
and priorities. Magnus feels strongly that it is necessary to map joint KPIs
across functions in order to achieve the required E2E alignment. On top of
purely financial concerns, a lack of process and planning focus – including
weak calendar discipline – has long-term repercussions. Therefore, the authors
suggest including these factors in the organisational targets that are set.
Successful sourcing organisations will make sure the focus is not only on the best
cost price, but they will rethink the responsibilities of sourcing offices. As
sourcing teams spend less time on more typical activities, such as order
management, they will improve in other areas, among them, supplier-relationship
management and digital and analytics skills.
The countries to watch in future
Magnus told Just Style the rating of sourcing
countries is heavily impacted by the need for apparel retailers’ and brands’
stability and flexibility.
He said: “Bangladesh serves the role for stability, as
the country fulfils a significant share of apparel players’ sourcing
strategies, especially in the value segment. However, looking at the actual
plans for sourcing value shifts, Bangladesh lags behind the respective
nearshoring markets.”
He explained: “While three out of five players plan to
increase their sourcing share from Bangladesh, there are also some who plan to
pull volumes out. In contrast 71% of surveyed companies plan to increase their
nearshoring share with Turkey – in the lead when it comes to European companies
and Central America – for North American companies.”
He believes sourcing-country strategies are becoming
more diversified, and buyers will employ more-flexible country approaches, such
as dual-sourcing, import of semi-finished product, and multi-country sourcing
closer to consumer markets.
Magnus also highlighted that like with manufacturers
globally, the apparel industry in Bangladesh has to transform since pressure on
traditional CMT [cut, make, trim] manufacturers is increasing as buyers are
consolidating their supplier base, with half of the surveyed companies planning
to reduce the number of suppliers by up to 25%.
“In the future, buyers will favour suppliers that have
digital and Industry 4.0 capabilities, are able to run small batch sizes, and
are vertically integrated,” he said.
What does apparel sourcing look like beyond 2025?
This report was focused on the present day to 2025 but
report co-author Hedrich told Just Style the changes will only increase beyond
that date.
She said: “The transformation for sustainable and
customer-centric sourcing will have gained even more traction.”
She explained: “While a number of innovative
technologies and digital tools as well as circular and bio-based fibres are
just at the start of scaling for industrial use today, some solutions will have
developed into standardised industry best practices. At the same time, new
circular and digital business models will have gained a more significant
revenue share.”
Hedrich concluded: “One thing that’s clear is that
sourcing teams will have new roles in the future and their success will be
measured differently that it is today.” By Just Style