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Explainer: Why Fashion Supplier Base Is New Competitive Advantage

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As fashion’s global supply chain continues to feel the strain of geopolitical tensions, brands are rethinking how they operate with more efficient sourcing models and doubled-down supplier relationships in key stable locations proving critical.

Choosing fashion suppliers with the best ESG credentials and in the best locations is critical for fashion brands moving forward. Credit: Shutterstock.
Choosing fashion suppliers with the best ESG credentials and in the best locations is critical for fashion brands moving forward. Credit: Shutterstock.

Fashion brands embracing the sector’s best ESG practices are in an ideal position to make some bold moves and turn their supplier base into a competitive advantage.

During this period of global volatility fashion brands understandably want efficiency, resilience and sustainability, but good suppliers remain the secret to achieving all three of these goals.

In particular, supply chain players that are offering sustainable products without compromising on performance, quality, or price currently have a first-mover advantage, however such practices are likely to become standard in the future.

A recent survey of apparel chief procurement officers (CPOs) by research firm McKinsey highlighted fashion brands want to have closer collaborations with their suppliers to enhance transparency and resilience.

But brands must also seek out a supply chain that is flexible, fast, sustainable, tech-driven, and consumer-centric.

Achieving efficiency during demand volatility

Most fashion brands are now prioritising end-to-end process efficiency with McKinsey’s survey listing it as the top sourcing consideration for roughly half of all survey respondents, up from the fourth priority in 2019.

Almost three quarters (70%) of respondents hope to improve sourcing cost in the near term, which has resulted in a reassessment of how to improve efficiency across all facets of sourcing. This includes lowering product costs, reducing sourcing expenses, and accelerating go-to-market processes. These elements are said to be crucial for enhancing competitiveness and generating enduring growth in today’s dynamic market.

In 2021 and early 2022 the fashion industry faced significant cost increases from escalating freight charges, volatile commodity prices, and unprecedented supply chain constraints.

To address these challenges, some organisations implemented strategic initiatives combining data and AI, more-competitive sourcing practices, and enhanced negotiation strategies and execution. These capabilities reduced costs substantially, streamlined operations, and strengthened relationships with key suppliers.

Rebalancing fashion supplier footprint in new locations

Brands today want to diversify to enhance supply chain resilience and avoid an overreliance on a single location. Brands are also pursuing nearshoring to improve speed, cost, and agility. By locating production closer to consumer markets, they can reduce lead times and shipping and importing costs while responding more swiftly to trends and decreasing inventory.

As brands continue to recalibrate their footprint, Bangladesh, India, and Vietnam are expected to be hotspots for future operations with more than 40% of survey respondents planning to increase sourcing in these markets.

However, McKinsey highlighted that redistributing sourcing has been slower than expected because of capacity constraints. As a result China remains one of the largest global apparel producers accounting for over a quarter of the world’s share (28%) in 2023.

Nearshoring has remained a top priority for executives since 2016, however the share of imports to Europe and the US from nearshoring countries such as Central America and Mexico has remained flat since 2018 due to ongoing challenges.

McKinsey expects these challenges to be addressed in the coming years. For example, both local suppliers and Asian companies with a presence in Central America and Mexico have invested in improving their productivity and building local capacity for making yarns and fabrics.

In the interim, it advises fashion companies to carefully evaluate nearshoring, which is not without its challenges, such as the need to build integrated supply chains.

Consolidating the fashion supplier base

Consolidating the supplier base is a natural part of brands’ shift towards improving demand and production planning, resilience and efficiency.

McKinsey’s survey reveals almost half of brands (43%) are creating deeper relationships with suppliers such as having long-term volume commitments, shared strategic three to five-year plans, and collaboration partnerships). This is up from 26% in 2019 with McKinsey predicting it will be over half (51%) by the end of 2028. This is because three quarters of respondents have already suggested they prioritise suppliers based on reliability and performance.

The survey also highlighted that effective supplier collaboration calls for brands to forge active relationships with suppliers and both parties must shift their mindset toward sustained value creation.

Sustainability ambitions versus pressures

More than 80% of survey respondents said environmental, social, and governance certifications; transparency and traceability; and sustainable material usage have become prerequisites in supplier selection. 

Brands are ensuring suppliers adhere to sustainability standards primarily by using scorecards (92% of respondents) and third-party audits (78%). The result is an industry with an increasing need for data transparency on sustainability.

Brands are also raising their sustainable material targets with 86% of respondents stating they would use recycled polyester in the next five years, an increase of 1 percentage point since 2019. Yet while brands are prioritising sustainable materials, their willingness to pay more remains unproven.

McKinsey points out that given most (70%) of emissions are generated by tier-two production or above it means brands wanting to track emissions upstream have to rely on industry averages to provide approximations.

Yet its research found up to a 20% difference in emissions calculated using primary and secondary data for life cycle assessments.

Plus, McKinsey notes that manufacturers and suppliers are also embracing these tracking practices to stay competitive.

McKinsey suggests brands need to collaborate with suppliers to implement tech tools to effectively capture emissions data and smooth compliance, given that suppliers have limited available resources because of the persistent bullwhip effect.

Working with suppliers on digital solutions, skills and knowledge

McKinsey believes sourcing organisations should build on the digital transformation efforts that started during the pandemic to create further transformation across their operations.

Brands have accelerated the integration of digital innovation in areas such as product design and shipping-logistics cost efficiency with more than 80% of organisations using 3D modelling and digital sampling.

Through digital and analytical tools, players across the value chain can not only improve their operational performance (for example, in product development by defining at-cost solutions that maintain quality) but also use data transparency to support fact-based decision making.

To unlock the full potential of digital technologies, McKinsey says organisations need to prioritise process redesign, data quality enhancement, and the integration of systems to enable efficient operations. 

Brands can also partner with suppliers to enhance their skills and knowledge to meet evolving needs and drive improved performance and competitiveness.

Joint financing and business planning with suppliers

Joint financing and business planning represents a deeper level of coordination between brands and suppliers. Shared investments in projects and infrastructure can distribute the financial burden and result in mutually beneficial outcomes. Meanwhile, a collaborative planning process to align on short and long-term business objectives, mutual targets, and plans can formalise this arrangement. Brands and suppliers can also partner to launch large-scale sourcing-excellence programmes.

McKinsey’s survey reveals there is still a high level of confidence that apparel and footwear brands and their suppliers can follow a path built on greater efficiency, collaboration and transparency. But, it maintains that digital solutions and data will be critical enablers.

In 2023, McKinsey’s State of Fashion report suggested that ultra-low prices by players like Shein and Temu winning over consumers and predicted the two retailers will continue to increase their market share in 2024.

Source from Just Style

Disclaimer: The information set forth above is provided by just-style.com independently of Alibaba.com. Alibaba.com makes no representation and warranties as to the quality and reliability of the seller and products.

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