Apparel supply chain facing complex array of risks
The international apparel supply chain faces a complex array of risks and variables in 2012, as a new report from just-style.com details.
The report, “Risk analysis of the apparel supply chain in 2012”, was compiled after the supply chain was confronted with a “perfect storm” of cost elements in 2010 – but it warns that real-life supply chain scenarios are considerably more complex than a cursory analysis might suggest.
The three elements of that perfect storm included: a huge increase in cotton prices, which hit a record high of $2.27 per lb in March 2011; large-scale wage increases of 30-80% in many sourcing countries, and even a doubling of salaries in some low-cost countries; and a tripling in shipping costs from Shanghai to Rotterdam in only two years.
However, the report cautions that assessing the real impact of these increases on margins and supply costs is far from from straightforward, creating six supply chain cost models for a hypothetical UK retailer to illustrate the many variables.
These variables may be created by the sourcing country chosen, the decision on whether to use local materials, and then the effects of cost increases as detailed above.
However, while cotton price increases can have a serious impact on margins, the effects of wage increases and shipping cost rises are far less significant, the report suggests.
Furthermore, the large-scale hikes in cotton and shipping costs have fallen back since late 2010 – although increases in the price of wool have had further knock-on effects on supply chain costs.
Other factors will also have an impact on sourcing and supply chain decisions, including time factors, as the demands of “fast fashion” streamline the traditional model of up to a year between researching a product and putting it on sale to consumers.
In particular, the report details how this process has evolved through a version of the “just-in-time” supply model and the Zara model, through which the Spanish apparel company claims to be able to bring a product to market in as little as eight weeks.
The report also offers a detailed analysis of the types of risk encountered in the supply chain, including cultural/linguistic, climatic, political and economic factors.
As part of the analysis, regions are given a risk assessment score based on a variety of factors such as ease of doing business, political stability and the prevalence of corruption.
This places North America and Western Europe at the top of the tree, but closely followed by lower-cost sourcing destinations such as China and South Korea – and well ahead of less trusted regions such as the former Soviet “Stan” states and Sub-Saharan Africa.
Further variables and considerations are also considered, especially the balancing of cost, time and risk, and the increasingly important area of CSR (corporate social responsibility) and the environment, as well as supply chain finance.
Here, the arguments are balanced between responsible sourcing, cost factors and concern for the environment, using a number of recent examples.
The result is an overall picture of a complex, fast-changing apparel supply chain subject to a large number of risk factors and variables – making it ever more important for apparel retailers and sourcing companies to maintain close scrutiny of the supply chain, all the way from research and design to delivery of the final garment.
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