Cheap labour is becoming a rare commodity, the report says

Cheap labour is becoming a rare commodity, the report says

Apparel businesses need to end the race from one low-cost sourcing country to another and rethink their entire sourcing philosophy in the future, according to a new report.

The authors of 'Apparel at a Crossroads: The End of Low-Cost Country Sourcing', published by Boston Consulting Group, base their report on the decades-long race by apparel companies from one low-cost sourcing country to another in an effort to keep costs down and maintain competitiveness.

“One day, and possibly soon, this journey will come to an end,” they write. “Cheap labour is becoming a rare commodity, and the number of low-cost countries is dwindling.”

Instead, they argue, companies would be better served by assessing existing facilities to generate sustainable efficiency gains, improving speed to market and taking pressure off labour cost management.

“The challenge calls for apparel companies to view their production processes and partners through three strategic lenses: innovation, collaboration and proliferation,” the report says.

“By adopting production innovations that improve speed and efficiency, such as new bonding and gluing technologies, they can more readily locate their manufacturing centres closer to customers and increase their responsiveness to fashion cycles.”

Furthermore, adopting a standard unit of measure for production – in collaboration with suppliers – will help bring cost transparency to the supply chain, also giving partners an incentive to improve their productivity.

The report charts the migration of sourcing across Asia and Africa, from China to Thailand, and now to Myanmar and Ethiopia, before noting that cheap labour is becoming an increasingly rare commodity.

New sourcing destinations are also typically compromised by a limited pool of skilled workers, poor infrastructure, the necessity to import raw materials, and production inefficiency.

“Cost comparisons are largely anecdotal because the industry lacks a widely used standard for measuring worker productivity,” the report says.

“When workers from one country are less productive than those in another, the differences can go undetected.”

Such concerns are compounded by modern fashion trends and a fickle consumer market, which means that companies need to get product to market more and more quickly.

According to the report’s authors, the previously typical one-year lag between the emergence of a trend at designer level and its wide dissemination to consumers has been reduced to as little as three to five weeks.

“A conflict is emerging between these shorter trend cycles and the longer production lead times needed in new low-cost nations,” the report notes.

“That’s why industry leaders are weighing the costs and benefits of staying put.”

The report describes opportunities to improve speed and efficiency, such as the use of bonding and gluing technologies to reduce the reliance on traditional cut and sew production, and the increased use of techniques such as digitally enabled design and waterless dyeing – which could “reshape the apparel manufacturing landscape”.

Better cost analysis could also boost efficiency and transparency, with per-minute costing measures enabling comparisons between sourcing countries and promoting a collaborative approach between producers and suppliers – also with the potential to improve margins and increase efficiency savings.

And, further down the supply chain, some apparel businesses are becoming more deeply involved in managing their raw materials needs – choosing fabrics and manufacturing techniques, looking at the types of yarn used, any colour effects required and the dyeing technology employed.

They are also beginning to reduce the complexity of their product portfolio, using fewer yarns and product weight classes in an effort to promote the cheaper and simpler sourcing of raw materials.

Finally, companies are learning to manage production demands more uniformly, spreading production over the year to reduce peaks and troughs, and thus making the supply chain more efficient.

“Industry participants that seize these opportunities have the potential not only to halt the decades-long migration to low-cost countries, but [also] to effectively head others off at the pass,” the report concludes.

“With speed to market so important these days – and likely to be even more so in the future – the spoils will fall to those that free themselves from the widespread fallacy that labour costs are the industry’s only lever left to pull.”