That’s according to Edwin Keh, chief executive officer at the Hong Kong Research Institute of Textiles (HKRITA), who discussed supply chain trends in the fashion industry at Lectra’s Fashion Forward event in Bordeaux, France, on Tuesday.
He pointed to three particular instances in recent history: the end of the quota system for apparel products in 2005; 2008’s global financial crisis; and the uptick in e-commerce sales in Christmas 2010.
“As a result of this, the role of what the supply chain does in companies changed,” Keh said, explaining that it shifted from a cost center to something that could be a competitive advantage. “In addition, our supply chains changed from a hierarchical supply chain—designers at the top, manufacturers at the bottom—to a peer-to-peer relationship in which because we need things fast and we need things real time and because there are so many variables, we have to talk differently.”
Companies that are failing today are those that have not taken note of this. So, who’s going to win in the next 10 years? Technology companies that become fashion companies or fashion companies that adopt technology? Keh said the jury is out, but he left attendees with plenty to ponder.
Over the past decade, phones have evolved from devices that only make and take calls into ones that play a central role in most people’s lives, while watches—once worn just to tell the time—now keep tabs on what’s going on with the phone. Clothes, however, have stayed the same.
“Clothes are still dumb—we have to take care of our clothes! When it’s cold we have to put on more clothes. We take some off when it gets too hot. When they get dirty we have to clean them and they come with complicated instructions,” Keh said. “This is not what’s going to be defining our clothes in the next 10 years. Our apparel will have to be smart systems that take care of us, that protect us, that keep us safe and healthy.”
Several such technologies are already in development at HKRITA, including self-cleaning clothes, hypoallergenic clothes, a fabric that’s effective against the likes of Ebola and fabric-based sensors that measure physiological changes.
Something else worth considering: engaging the heart and mind of the consumer.
“When we buy things, we want to feel good,” Keh said. “How we consume and why we consume has a lot more to do with aesthetics and has a lot to do with our hearts and minds and values. And so what we make has a lot to do with not only how it looks in the traditional considerations that we have but it has much broader considerations that we need to be thinking about as we brand ourselves.”
Apparel has more or less been made in the same way for the last 100 years. That system is no longer acceptable, partly because a growing faction of consumers increasingly asks where things are made and what the manufacturing process does to the environment and the lives of the workers.
“All of our supply chains are under the microscope and, as brands, everything that happens upstream is going to be under our brand so how things are made has to reflect the values and high standards of our brand,” Keh said. “The challenge with manufacturing is that a lot of times we are fixated on FOB (freight on board). And oftentimes what we need to do is not so much think about the FOB as we should be thinking about the model of our business and the value that we bring.”
It’s also time to stop blaming the weather for a bad quarter. Rather than explaining the past, apparel companies should be harnessing analytics to predict the future.
“We’re one of the last industries in the world that still does batch manufacturing. We make a whole lot of stuff in the hopes that we can sell a whole lot of stuff,” he said. “But there’s lots of data we can use that can help us be smarter at what we manufacture so that we don’t end the quarter selling stuff off at discount.”
Not-so-fun fact: apparel is a deflationary business. Clothing costs consumers 4.3% less today than it did 20 years ago, while the price of food, medical care and textbooks have skyrocketed.
“This is why we get obsessed with chasing these FOBs,” Keh explained. “Oftentimes that’s not really where the answer is. We have to really look at our total value chain and figure out where we can make things smarter otherwise we’ll run out of third-world countries if we keep chasing this low number.”
Not only do apparel companies need to quit chasing cheap labor and start investing in innovation, they also have to stop filling 40-foot containers with a lot of SKUs—what Keh called an X-shape supply chain.
“And then we expect the consumer to go to stores to pick up stuff. We inconvenience the consumer so that the shipping company can have everything easily in a 40-foot container,” he said.
A Y-shaped supply chain is the marketplace of the next decade.
“The consumer says I want one of all of these things that I like and I want you to consolidate all of them and I want you to send them all to me as quickly as possible. Whether I do it online or offline doesn’t really matter but I want everything and I want it at my convenience,” Keh said. “What we need to do is blow up the X-shape supply chain, figure out consolidation, satisfy that customer and get into this idea of continuous manufacturing. Sell the stuff before you make the stuff.”
“Where things are made is important but it needs to be something that’s thoughtful, it needs to be something that’s intentional, it needs to be something that we think about for the next 10 years,” Keh said, noting that a supplier’s value no longer lies in labor, but in creativity and problem-solving.
Here’s some food for thought: structural issues in your company.
“Do you have a training issue (are you equipping people with new skillsets) or do you have a recruitment issue (you just need new people)? Because one won’t solve the problem of the other,” Keh said.
A top-heavy apparel company weighed down by 50-something-year-old vice presidents bonused on quarterly and annual performance and sales are not thinking 10 years out and won’t take any risks because they’re close to retirement.
“You need to have an incentive scheme that makes sense,” Keh said. “You need to have a consistent decision-making framework that you can say all think alike, all know how to make this thing work.”