The fashion industry operates on an outdated manufacturing system that is ripe for collapse. With many practices unchanged for over 50 years, the fashion supply chain is neither responsive nor sustainable. Manufacturing practices are fragmented as brands increasingly outsource production to a sprawling network of suppliers in developing countries as they chase lower prices. The number of factories has skyrocketed, and unauthorized subcontracting has also taken place.
At the same time, logistics stagnation and macroeconomic pressures continue to weigh on global supply. The war in Ukraine has forced changes in trade routes and caused an energy crisis. Meanwhile, aging port systems around the world are creating transportation bottlenecks. Global inflation is pushing up input costs, cotton and cashmere prices are expected to rise by 45% and 30% respectively in 2021 compared to the previous year, and extreme weather is hitting developing countries like Pakistan. Thus, in the BoF-McKinsey State of Fashion 2023 Survey, more than half of fashion executives identified disruption in her supply chain as one of her biggest risks to hindering global economic growth. 2023.
Meanwhile, softening consumer demand has led many brands to reduce order volumes, putting pressure on manufacturers’ profits. In a 2021 McKinsey survey of apparel chief purchasing officers, 66% said they expected volatile consumer demand. If these and other pressures continue, he expects overall apparel manufacturing profit margins to shrink by 10 percentage points by 2030.
With all the pressures on the fashion supply chain, the system is starting to show signs of change. To future-proof their organization, manufacturers adapt to the needs of fashion brands for greater flexibility and shorter lead times to meet rapidly changing consumer demands and unpredictable logistical disruptions. I am making it possible. Increased digitization will drive new supply chain models based on vertical integration, near-shoring and on-demand systems.
From supplier to partner
To reduce risk and improve control along the supply chain, some manufacturers are joining forces with producers from different specialties. For example, US textile manufacturer Mount Vernon Mills acquired spinning and weaving facilities from Wade Manufacturing Company, also based in the US, to increase production flexibility. In Asia, Sri Lanka-based manufacturer MAS Holdings acquired the assets of Bam Knitting, one of his fabric production and finishing businesses in the country, in August 2022.
Vertical integration helps reduce costs, improve margins and prevent delays across production. Similarly, the integration of players across supply he chains has facilitated trading. In Italy, Gruppo Florence was founded in 2020, building a production network of more than a dozen small and medium-sized luxury luxury specialists, from hat manufacturers to jersey manufacturers. Deals like this he expects to continue into 2023.
Investments and partnerships can also drive industry innovation by connecting brands and manufacturers with innovative fabric and yarn suppliers and helping bring new textiles to market. For example, athletic wear brand Lululemon’s odor-resistant Silverescent fabric is the result of a partnership with materials company Noble Biomaterials. This also allows for new material scaling. The fashion group Inditex announced that in May 2022, he agreed to purchase 30% of Infinite Fiber Company’s textile waste output for three years every year.
Several brands are prioritizing sustainability-related innovations, using partnerships with textile producers to bring recycled or circular materials to market. In 2020, H&M partnered with another Swedish company, textile recycling innovator Renewcell, to incorporate more recycled textiles into its products. Similarly, US brand The North Face has partnered with Finnish sustainable textile material company Spinnova to source circular fibers made from wood and waste. To expand these materials, manufacturers must work with brands to modernize their operations.
In the luxury segment, where the workforce may be more skill-based than in other segments, brands are securing access to craftsmanship through manufacturer acquisitions. In October, LVMH-owned Fendi said it had acquired a majority stake in Italian knitwear maker Magrificio Matisse, announcing the acquisition of the Italian fashion team, a major supplier for seven years. Since 2015, Chanel has acquired eight of his manufacturers, including Italian knitwear supplier His Paima. The acquisition strategy will provide French luxury brands with greater certainty regarding the supply of materials, while also providing Chanel with greater access to innovation.
Another dynamic of change in the fashion supply chain involves nearshoring. By moving manufacturing closer to the consumer market, brands can reduce transportation costs and tariffs while reducing time to market and mitigating a range of risks, including those associated with inventory.
In 2020, MAS Holdings opened a manufacturing facility in Kenya to take advantage of preferential trade agreements (AGOA) with key consumer markets for the brands it serves. The facility manufactures apparel for PVH Corp., which owns brands such as Tommy Hilfiger and Calvin Klein. South Korea’s Sae-A Group, meanwhile, has opened two spinning mills in Costa Rica, the latest in 2022, citing the region’s political and social stability as an attraction.
While many fashion players are expected to continue producing garments in historically low-labor manufacturing countries such as Bangladesh and Pakistan, nearshoring remains on management’s radar. In the BoF-McKinsey State of Fashion 2023 Survey, he said 65% of fashion executives are considering near-shoring to address challenges in their supply chains.
These changes are creating new manufacturing sites dedicated to serving the demands of the United States and Europe. In McKinsey’s annual survey of chief purchasing officers, more than 75% of respondents in North America expect to increase the proportion of their sourcing from Central America, while more than 35% expect to source from Mexico. We expect to increase the proportion of procurement. In Europe, Turkey has emerged as a preferred hub, with 85% of her Western European respondents expecting more supplies from the country, followed by Eastern Europe and North Africa.
Spanish brand Mango has announced that it will move some of its production in China and Vietnam to Turkey, Morocco and Portugal. Meanwhile, Steve Madden of his US footwear brand has moved half of its production from Vietnam to Brazil and Mexico in 2021. In Brazil, exports of footwear in the year he increased by 32%. Similarly, the value of denim imports from Mexico to the US increased by 50.58% in his first eight months of 2021 compared to the same period last year.
Sourcing closer to home can also create environmental benefits, such as reducing greenhouse gas emissions and energy use, unlocking access to more sustainable materials, and improving water management. increase. With more than 70% of the industry’s greenhouse gas emissions coming from upstream activities, some manufacturers are decarbonizing their manufacturing and leveraging improved sustainability credentials to stand out from their competitors. We are trying to differentiate.
However, getting nearshoring right can be tricky. Raw material suppliers are located near traditional production areas, so having the production bases of many Western brands closer to home can make sourcing raw materials difficult. For specialist manufacturers such as dyers and fabric makers, the lack of technical skills on site is also a concern. Manufacturers will have to rethink their processes to make nearshoring successful. Simple move operations have no effect.
Although rare, some fashion brands invest in moving some of their production to the domestic market. Boston-based sportswear brand New Balance will open its fifth manufacturing facility in the United States in 2022 to promote its “Made in USA” collection.
An uncertain economic environment may cause brands and manufacturers to postpone or scale back their nearshoring strategies in the short term.Nearshoring could also threaten the economic prosperity and job creation of traditional manufacturing hubs. It should be noted that if manufacturing activity is reduced, it could be adversely affected. Brands need to understand the full extent of that decision and work with manufacturers to pursue nearshoring with good governance and ethics in mind.
Regardless of how suppliers are diversifying their capacities and global footprints, increasing digitization will enable them to support the changing needs of brands. In a 2021 McKinsey survey, apparel chief purchasing officers named capacity planning, virtual his sampling, and supply his chain transparency as key areas for digital investment over the next five years.
In pre-production, digital platforms help brands source fabrics and create digital samples, saving time and money and reducing waste. In post-production, the digital look facilitates quality control and improves the flow of information between suppliers and brands.
These innovations are modernizing individual parts of the value chain, but connecting them in a digitally integrated journey remains a challenge. However, new platforms are emerging to digitally connect key parts of the production process. In China, Alibaba manages a manufacturing platform that connects shopping demand with production information on sites Taobao and TMall. Consumer insights are gleaned from websites and AI algorithms and cloud technologies provide real-time analytics that manufacturers can use to streamline production and optimize inventory. Similarly, Shein, a fast fashion player, uses trend prediction models to design and manufacture products in small batches, monitoring performance in real time and adjusting production accordingly.
Some fashion brands are looking for suppliers that can handle small batches. This gives manufacturers access to capabilities such as 3D sampling, automated sewing and knitting, 3D and digital printing, direct-to-fabric and direct-to-garment printing, and automated post-production logistics for order confirmation. Must invest.
In terms of adoption of automation, the fashion industry lags behind other sectors such as electronics and auto manufacturing. However, suppliers who insist on investing in automation can differentiate themselves from their competitors by facilitating faster, lower-volume production. More than 50% of his chief purchasing officers say he expects automation to be a major driver of his sourcing decisions by 2025.
In the coming year, both brands and suppliers will prepare to work together more than ever before, moving away from business relationships and into deeper partnerships that enable both sides to benefit from innovation and reduce risk. is needed. A BoF-McKinsey survey said about 60% of fashion executives are considering forming strategic partnerships with suppliers to ease disruptions in their supply chains. Collaboration can take many forms, from cofinancing and capacity sharing to rewards and other incentive systems.
Manufacturers are likely to be cost-conscious in 2023, but developing near-shoring, small-batch and digital production process capabilities to establish competitive advantages and build relationships with brands You can reduce your reliance on price as a bargaining chip.
This article first appeared on State of Fashion 2023is an in-depth report on the global fashion industry, jointly published by BoF and McKinsey & Company.