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:

1. 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.

2. 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.

3. 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.

4. 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