just-style management briefing: Apparel supply chain challenges in 2012
After the turmoil of 2011, the biggest challenges facing the global apparel supply chain in 2012 continue to include rising costs, political and economic uncertainty in both consumer and sourcing markets, the changing role of China, increased competition at retail, pressure to integrate supply chains and the shift towards faster fashion cycles. Against such a background, the ability to quickly adapt to changing conditions and pressures will separate the winners from the losers.
Kurt Cavano, founder, chairman and chief strategy officer, TradeCard
Economic uncertainty in Europe has shifted from Greece, to Italy and now Spain, Portugal and Ireland. China's torrid growth rate of the last several years is slowing down and inflation is picking up. The recovery in North America is still considered fragile and under threat from rising energy prices, a stubbornly high unemployment rate and a housing market still on life support. Raw materials costs remain volatile. Consumer confidence and spending rates fluctuate month to month. Now more than ever, the key to apparel supply chain success in 2012 is agility and responsiveness. The ability to quickly adapt to changing conditions and pressures will separate the winners from the losers in 2012.
Bob McKee, fashion industry strategy director, Infor
The apparel industry has been facing this turmoil since 2008, and only now are we beginning to see a turnaround. Because our industry is based on change and is global in nature, the rising costs of labour and raw materials, issues of sustainability, and the uncertainty around sourcing are all challenging the supply chain and forcing it to evolve.
Given the global nature of the industry, an issue affecting one part of the world can greatly affect something in another part of the world. The changing role of Asia, particularly China, as the primary producer of apparel and footwear, is a driving force behind this change. With its growing middle class, China is beginning to shift from an export-based economy to a domestic consumption economy. This shift, combined with increasing wages, growing labour shortages and domestic inflation plus RMB valuation, is forcing international apparel manufacturers to re-evaluate their sourcing strategies and supply chains. So the question becomes, where do we go next? Should we be looking to find another country or region that can support our global manufacturing requirements?
Anastasia Charbin, fashion marketing director, Lectra
Two of the biggest challenges are:
- Creating value or the perception of value for the consumer. Maintaining authenticity in product as well as marketing is one way fashion companies can do this. Authenticity is expressed through core values or unique identifiers, such as remarkable brand heritage or history, environmental consciousness, a distinctively trendy or classic style - basically the element or elements that make a company singular. This authenticity must be reflected in the product, or the consumer will immediately sense a disconnect. For a fashion company, this means aligning the supply chain and working collaboratively from step one of development.
- Constantly changing supply chain and sourcing models. Geo-political, economic and cultural trends are changing very quickly, far more quickly than in the past. The impact on supply, cost and production options is enormous. Just look at China's rapid evolution, evident in both increased production for the domestic market and a growing appetite for flashy foreign brands, or the fluctuation of raw materials prices over the last year, or the shift in consumer preferences to high or low end products with less interest in mid-range ready-to-wear. Taken together, these factors have changed the game. Now it's time to redefine the rules and find better ways of working.
Susan Olivier, vice president, consumer goods and retail, Dassault Systèmes
The biggest challenges facing the global apparel supply chain are not new, but the impacts are becoming more significant. The 'rise of the consumer' has continued to accelerate; the consumer today is empowered and informed. Retailers and brands alike are challenged to attract shoppers and asking themselves: "How do I meet, exceed and inspire consumer experiences that will make me unique?"
For the global apparel supply chain that generally translates into more consumer choices...in less time. It means extensions to product categories, expanding sources of supply, shorter cycles and both more change and more uncertainty until the last moment as merchants and brand managers try to time their decisions closer to consumer demand.
As demand certainty decreases, supply chain uncertainty and risk increases. New sources of supply may be unproven and infrastructures, even banking systems, may be fragile. So how to protect brand value, brand integrity, operational excellence and shareholder value while supporting flexibility?
Mark Burstein, president of sales, marketing and R&D, NGC Software
Agility and flexibility within the global supply chain are the biggest challenges in 2012. Buyers must have visibility to the status of raw materials, WIP inventory, and inbound shipments. NGC's clients are positioning raw materials prior to issuing production orders, adjusting open purchases based upon retail sales, and expediting inbound shipments based upon their customers' needs. In other words, demand is driving supply. The result is a very lean supply chain inventory that allows the brand and retailer to react quickly to consumer trends.
Tony Parkinson, managing director, Option Systems
- Given the West's insatiable demand for low-cost apparel, the political and social upheaval apparent in North Africa and the Middle East, rising standards of living in traditional low-cost labour countries and the continuing long term trends of shorter production runs delivered faster, the challenge for apparel companies is to maintain a sourcing base that is a balance between cost and speed, while not becoming over-dependent on any one country or region.
- There is some anecdotal evidence of an increase in UK manufacturing, but I doubt this will ever be a significant proportion of garments - costs are too high, the workforce is lacking in skills and production line jobs are not viewed as being attractive.
- However CMT or MT are increasingly seen as the best use of near-sourcing; you retain control over the fabric quality (and in some cases the cutting and therefore yield) while outsourcing the labour element. It's also a good use of return freight.
- Political uncertainty in some traditional near-sourcing markets such as North Africa. The arbitrary nature of some of these country's borders may well lead to some fragmentation to more tribal or ethnic areas, such as happened with Yugoslavia.
- On-going concerns continue regarding ethical sourcing; we want our clothing cheaper but not produced in child- or slave-labour factories. However, the industry's watchdog (the Fair Labour Association) is widely seen as rather toothless and too reliant on their corporate funders (see criticisms on Wikipedia and other sources).
- Increasing costs in China are promoting other regional countries with lower labour costs.
- Increasing fuel and Chinese labour costs will promote shorter supply routes and more near-sourcing, and sourcing from China's other competitors in the region.
- Increasing fuel costs are also leading companies to hold stocks in a number of locations around the world so that they can deliver from the most appropriate warehouse leading to quicker and more cost effective deliveries.
Rob van Serveen, partner, Genova Consultancy
Upstream (supplier level) we still see capacity constraints and increasing cost (labour, material, transport) resulting in reduced margin and lengthening lead-times. Midstream (wholesaler level) we see a cash issue and the cost to finance merchandise is increasing. Excess stock is literally chocking wholesalers. At the same time, wholesalers are trying to reduce operating cost. Downstream (retail level) we see an increased competition (new channels) and a reduction and/or a delay in consumer spending. Again margins are under pressure.
Helle Svana Kristjánsson, marketing manager, Trimit
- Too long leadtimes, thus not being able to react fast enough to customer's demands and/or changes in trends.
- Smaller margins increase the need for working as efficient as possible.
- Expanding sales channels.
- Staying in control of outsourcing.
Ram Sareen, head coach and founder, Tukatech
Gone are the days when we considered 'cheap labour' as an advantage; we now need to find ways to do more with less, no matter where we make it. The vendors need to improve on skills. Why is it that countries like Bangladesh, India, Pakistan end up getting $6 to $7 for men's denim jeans while Sri Lanka, Vietnam etc get $11 and up for women's? The cost of labour, fabric etc is almost the same; it is the skill which dictates pricing. Understanding fit and getting it right the first time requires skills. Same is true for high end children's clothing and garments that require higher standards for fit. Developing better relationships may avoid transactional business now.
Mike Hill, Asia business development director, ecVision
The retail dynamic in 2012 has created a new norm of doing business. Brands and retailers are feeling increased pressures in their supply chains; they're being squeezed tightly by rising costs of goods and uncertain consumer demands. Raw material and component prices, production and labour costs, and transportation prices have been fluctuating as much as the economic outlook. Consumer confidence has impacted spending habits since the recession, and now shoppers expect better "deals" every time they buy. As global sourcing becomes more complex, so do supply chain challenges for brands and retailers. Long, unpredictable order-to-delivery cycles, increasing risk factors, higher labour and raw material costs, shifting supplier base, and stringent import regulations
are just a few of the problems they face.
Michael Hung, CEO, Core Solutions
What we know from our customers is that costs in sourcing markets, especially for labour and commodities, continue to rise. It is hard to pass these costs onto consumers, especially in the US and Europe where unemployment and a weak economy are still forcing consumers to spend cautiously. In this climate, despite modest recovery in the US and Europe in the first quarter, retailers and brands face a big challenge in growing their revenues and maintaining their profit margins. As major retailers and brands look to developing markets for growth they will need to overcome operational challenges along with capacity issues as they compete with local brands.
Multichannel is another challenge the larger retailers are facing. From a supply chain perspective, the challenge will be to integrate supply chains across channels to reduce costs.
In today's apparel world there are more seasons and styles. At the same time, the just-in-time principal is also forcing buyers to place smaller more frequent orders. The two trends are driving up internal process and management overheads, especially given that many internal processes are still manual.
Another challenge is often last on the agenda, but supply chains will face increasing pressure in meeting quality demands and ethical manufacturing standards.
Stuart Aldridge, chief executive officer, Maple Lake
We see one of the biggest challenges being how retailers can accommodate the continually increasing number of channels to reach their customers; especially understanding the mobile customer vs the traditional shopper. The need to maintain an efficient supply chain and minimise the number of exceptions and deviations from a standard process is in conflict with the exploding diversity of the channels to market.
Brian Marsden, president, EMEA, TradeStone
One of the biggest challenges facing the global supply chain is the rise of omni-channel. Retailers are looking to expand internationally, develop their private label strategy across channels, leverage franchise opportunities and morph from a pure retailer to a retailer/wholesaler model. This means they need to look across their omni-channel demand picture and look at their supply network simultaneously. This will enable them to control inventory remotely allowing them to leverage postponement strategies and respond to local demand and what's trending.
There is also the new role of the purchase order. Many retailers' processes are held hostage to a rigid PO. TradeStone is finding that leading retailers are decoupling rigid process and using a collaborative Merchandise Lifecycle Management platform to support collaboration left of the PO, providing earlier visibility and preparation time for suppliers. The same platform is being used to better support the changes in demand in an omni-channel world.
Visibility into online showrooms is another challenge we're seeing. As retailers leverage multi channel opportunities and adopt certain wholesale models they will require new technology to support them. For instance many clients leverage online showrooms to provide early visibility to their internal channel customers and gain valuable early feedback.
Karin Bursa, vice president, Logility
In 2011 we saw a lot of knee-jerk reactions to mitigate the exposure apparel companies had to softer consumer demand, and rising supply and production costs. Moving forward there are four key challenges apparel companies will continue to face as they grow into new markets, work to improve margins and stay ahead of aggressive competitors.
- Fluctuating commodity prices, especially cotton and petroleum based goods, are placing tremendous pressure on apparel companies. In a price-sensitive economy, any pressure on margins drives a need to remove costs elsewhere. Instead, the focus should be on improving the forecast to maximise procurement opportunities, synchronise production and distribution to drive down costs and improve service levels.
- The apparel industry continues to lead the market in developing innovative sourcing strategies in response to changing global market conditions. What was once a focus on low-cost suppliers or manufacturers has changed to multiple suppliers and manufacturers to help spread the risk of production issues and fluctuating labour and commodity prices and ensure reliable distribution. This has driven a lot of complexity into the apparel supply chain. It is important apparel companies look for ways to effectively synchronise the global network.
- Selling seasons are shrinking. Instead of the traditional spring, summer, fall, and winter seasons we now have two to three times as many. The addition of promotional seasons means products can have a relatively short shelf-life. Apparel companies run a higher risk of inventory obsolescence if they are unable to accurately forecast demand.
- The focus is shifting towards fashion. This shift creates incredibly short product life cycles. At the same time if a style takes off, it is up to the supply chain to manage the replenishment of that product or family of products. Fashion cycles quickly and forecasting for fashion is inherently difficult requiring a more flexible and responsive supply chain.
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