By Leonie Barrie | 17 October 2018

While consumers increasingly crave instant gratification, one-of-a-kind merchandise, and more options than ever before in terms of products and how and where to buy them, retailers and brands are being hampered by supply chains that are legacies of a previous era. Is a fundamental redesign the answer? Or can existing ones be improved?

"The supply chain that we're living with today is not going to be how we're going to make money or satisfy consumers in the future," believes Edwin Keh, CEO of the Hong Kong Research Institute of Textiles and Apparel (HKRITA). "It's really exciting, but it's also really terrifying," he adds.

Pointing out that today's apparel supply chains are "legacies of a previous era," geared towards serving developed economies such as the European Union (EU), the US and Japan, he notes that consumption is instead moving towards Asia Pacific, India and China. "How are we going to serve these customers?" he asks.

Another layer of complexity comes from the fact "people are consuming differently; [they're] buying online, offline, more frequently. Consumption is a personal expression – and it should be a seamless experience." And of course buying online is a completely different fulfilment challenge to manage.

"Today we work in an X-shaped supply chain: we optimise everything to the 40-ft container and retailers expect customers to come to them. The consumer today wants a Y-shaped supply chain: take one of many SKUs and deliver them to me; I want everything to be optimised to me.

"So however good we make our traditional X-shaped supply chains they can't fulfil the requirements of this Y-shaped customer. That's our big challenge.

"We [also] have to begin to touch people not only at the performance level, not only at the price/value level, but in their lifestyle and in their beliefs."

But while there is demand from consumers for supply chains that are transparent, responsible, sustainable, "they don't want to be inconvenienced or pay more for it. So we have to figure out how to meet both types of diametrically opposed demands from consumers. The way we manufacture, the way we look at raw materials, has to be different."

What are the options?

When it comes to the options, is it a case of optimising existing supply chains or is there a need for a fundamental redesign? If it's the former, it's going to get more and more difficult, Keh believes.

  • Keep going and look for new low-cost producers. "The challenge is that consumers want transparency, sustainability, traceability; the further we go, the more difficult this is going to be. What has worked for the last 30 years is probably not going to [work for] us in the next 30 years. The cost and the price of developing these countries, and the infrastructure around these countries, are going to be quite challenging."

  • Make closer to market – shorten the supply chain. "We don't have to mess around with currency, political changes, but the challenge is this is not where the growth is going to happen; the growth will happen in China, India."

  • Optimise everything that we do today – robotics, automation. "In the last 10-15 years, improving efficiencies in our manufacturing has been the only reason why we have been keeping up with the appreciating RMB and 15% minimum wage growth every year [in China]. This will buy us some time, but we are reaching the point of diminishing returns."

But there is another alternative, Keh suggests. "Today we make decisions about placement based on what's happening in macro things that we don't have a lot of control over...politics, currency, minimum wages, bilateral trade agreements."

Instead, how about: "A decision-making model on how to manage our supply chain based on the characteristics of stuff that we're making and where everything is under our control."

As shown in the illustration at the top of the page, he suggests there are four main product types in the supply chain: commodity items (T-shirts), unique manufactured products (a Louis Vuitton bag), those that are capital intensive (shoe lasts), and those that are labour intensive (sewing).

Where each product sits in these quadrants should determine how and where it is made. "If you're making commodities, price is sensitive and supply is important. Unique manufactured products (a jacket or shoe) is not particularly price sensitive, but demand is important.

"Capital intensive types of manufacturing have a 'sticky' supply chain; you're going to invest in that supply chain and stay there a long time. But if you make stuff that's labour intensive it's also quite portable and easy to move from country A to B wherever the price is right."

This means that for a labour intensive commodity product, such as a white T-shirt, "you should orchestrate your supply chain where you get the cheapest cotton, leverage scale, pull everything together to get the best, cheapest product. It's not 'do I go to Vietnam or China', it's 'how do I behave, do I understand what I'm making, do I understand what my customer expects from me?'"

He adds: "Our challenge is how do we pull our supply chain apart, and how do we behave in our supply chains so that we can become more and more competitive."

Optimising product development

Another challenge at the top of the agenda is increasing speed to market, believes Janice Wang, CEO at apparel business expert Alvanon.

"Great product alone is not enough: you have to have it when and where your customer wants to buy it. The right product, if not delivered when and where the consumer wants to buy it, is not the right product."

Her take is that increasing speed to market means focusing equally on processes, people and the opportunities provided by proximity – and that all three have to be aligned in order for speed to happen.

"Today's consumer has too much choice; we've conditioned them to want, expect and demand so many options. And then they start to look at the product: style, colour, details, price/value, brand, and fit that flatters.

"Why is fast important? It's about higher sell-throughs, less markdowns, increased inventory turns, and reduced obsolescence. But the product has to be right."

Wang says one of the main issues is that companies recognise they have to get faster, but they can't figure out how. "A lot of the designers and merchants and buyers are in one silo within the organisation; every time they see a sample they change it a little. [Meanwhile] the technical teams are trying to get the fit right by looking at multiple iterations from suppliers. And those two silos, the technical and the design and the manufacturing, they don't talk to each other."

In contrast, fast-fashion retailer Zara buys and positions fabrics well in advance, "and they sit on more than 8m metres of fabric in Spain; they make decisive adoption decisions, and it's not after the third or the fourth or the fifth sample that they decide, it's after the first prototype. They manufacture the majority of their products close to home and they have world-class logistics.

"We all have the ability to have better collaboration in the product development process to avoid scrambling at the commercialisation stage," she explains, adding: "The problem is that the design team has to figure out where to start and where to stop. And decisiveness, discipline and delegation are the keys.

"We [also] have to stop thinking about apparel design as a creative process. For companies that treat design as a science and engineering it becomes much easier to be decisive.

"We talk about excellence in lean manufacturing, but we never talk about excellence in lean product development. We allow creative teams to go on and on. And that needs to stop."

Another area where there are potential gains is in building bridges between brands and their suppliers. "Collaboration is key, but we do not see a lot of manufacturers working side by side with product development. This is one of the key places where a lot of advantages could be had."

But of course these processes are only as good as the people who actually implement them. "A lot of brands and manufacturers don't invest in the people who are critical to their success. But we have to take the time to invest in them, continuing their education in keeping them up to speed – but also continual feedback. The people who work for your companies have ideas and probably want to be heard."

Circular economy

"It's very clear the current system can't be sustained," agrees Professor Steve Evans, director of research in industrial sustainability at the University of Cambridge.

"We belong to a system that digs stuff up, turns it into a little bit of money for a moment, and then it just disappears, often into landfill. And we are accelerating that system."

The idea of circular manufacturing is to keep every fibre, fabric or product within the system that creates value for as long as possible. "And what we've seen from companies who are trying to solve this problem is that they've found interesting ways of generating value. It is commercially sensible."

Why do it? "We continue to put all our effort into labour productivity. But there are lots of costs that we haven't squeezed with as much enthusiasm – [and when you do this] money appears quite quickly.

"Find a way to maximise returns from the value you put in. If you can learn how to unlock that value you can massively increase your commercial performance." For starters, he suggests tackling waste in materials, energy and water – and "learning how to collaborate with people from other sectors outside your current supply chain."

Examples include Elvis & Kresse, which makes and sells accessories such as handbags from reclaimed materials such as end-of-life fire hose from the London Fire Brigade. "The materials are free; the product has a story."

Looking ahead over the next 30 years, Evans believes manufacturing will shift from east to west, wages around the world will start to level, and there will be more automation, even in the clothing sector.

"The predictions are very clear: in 2050 the factories of the world will produce four times more value output than they do today: there's a market four times bigger than today to go for. How we deliver that value without destroying the planet is an interesting question.

"There won't be very much left to make products out of, [and] those relying on cotton for example, will be competing with food for land."

Why isn't everyone already jumping on the circular manufacturing bandwagon?

"If the solution was obvious, you would probably already have done it," Evans points out, adding: "There's [also] a sense of fear about doing things that look so obvious that potentially you would be criticised that you didn't do it 15 years ago.

"You've got to look for problems and you've got to enjoy solving them. It's OK to be wrong sometimes in order to continually improve."

Tagged in this post: Sourcing Strategy

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