For the fashion industry, 2020 was a lesson in preparedness and flexibility.
The coronavirus’ staggered spread throughout the globe halted production, stalled shipments and slowed retail spending. As business as usual got turned on its head, brands and retailers and their suppliers had to scramble to adapt. The silver lining was that Covid-19 caused companies to reconsider their usual practices and embrace new manufacturing models, technology and sourcing opportunities.
Sourcing Journal’s Sourcing Report 2021 indicates that supply chains are still recovering from the disruptions of 2020, and it will take time to return to a sense of normalcy.
“2021 won’t be a normal year,” said industry consultant and sourcing veteran Carlos Arias in the report about the situation in Central America. “We have the risk of partial closings and economic uncertainty, and this will weigh until the pandemic is controlled.”
Despite the obstacles that remain due to the ongoing pandemic, the industry is setting itself up to be able to better weather any further disruption.
Even before Covid, the geographic footprint of fashion and footwear supply chains was changing as firms sought to guard themselves against risk.
“A balanced country-of-origin mix and vendor mix protect us from trade uncertainty and pandemic issues,” Fran Horowitz, CEO of Abercrombie & Fitch Co., told Sourcing Journal. “We avoid relying too much on one supplier, while still maintaining meaningful partnerships and relationships.”
In recent decades, China has become the dominant sourcing hub for apparel and footwear. But due to issues including the trade war and a shift away from fast fashion, companies had been diversifying beyond China over the past few years. Now, with reports of forced labor in the Xinjiang Uyghur Autonomous Region, there is an additional obstacle for brands sourcing from China. With the Biden administration just settling in, it also remains to be seen whether the new president will roll back some of the trade policies that have made it more difficult to manufacture in China.
As some sourcing may move away from China, locations including Bangladesh, India, Vietnam and Pakistan could be poised to pick up orders.
Another trend that is on the rise is U.S.-based manufacturing. Fueling fashion’s interest in onshoring are the ability to mitigate the risk that comes with importing from overseas and the shift away from mass produced, inexpensive goods. Some aspects of U.S. production that have been hurdles—including limited capacity and higher costs—are actually a positive for brands seeking small-batch or on-demand manufacturing. By shrinking production runs or even producing made to order, the added costs are negated due to fewer retail markdowns, more productive inventory and savings on logistics.
Nearshoring, such as producing in Central or South America, also has the benefit of shorter lead times and more demand-based ordering. In the North, industry insiders see the potential for Canada to return as a denim sourcing destination for the U.S. due to its close proximity, trade status and transparency.
Early in the pandemic, with factories closed and cancelled orders, making do with less SKUs was a necessity. But throughout 2020, companies including Abercrombie & Fitch Co. and Macy’s discovered the financial benefits of leaner inventory strategies.
As some companies take a more conservative approach to buying, it has become a competitive advantage for factories to be able to fulfill requests for smaller order sizes. Increasingly, even large retailers want to be able to test out a small batch of products at retail before committing to a bulk order.
Since there are set prices for product development steps including sample making, producing in smaller quantities is more expensive per unit. However, one aspect that could help bring down costs is digital design tools, which streamline the sample making process. While fashion had previously been dragging its feet to adopt 3D design, digital sampling took off amid office closures as a means to continue collaborating remotely.
From technology adoption to shifting sourcing tactics, it will take collaboration between suppliers and retailers in order for fashion to execute on these targets. Last year strained buyer-vendor relationships, as order cancellations and extended payment terms left manufacturers and suppliers in the lurch. Aside from taking responsibility and committing to their orders, experts suggest that brands focus on areas including factory worker well-being to rebuild trust.
Partnerships between suppliers and brands also play a key role in delivering on sustainability and transparency. With this in mind, last year, Ralph Lauren established a supplier engagement strategy to identify its key suppliers and raise its portion of production with these partners from 60 to 80 percent by 2022.
“Uncertainty and volatility in the supply-demand space are here to stay,” Halide Alagöz, executive vice president, chief supply chain and sustainability officer at Ralph Lauren Corp., told Sourcing Journal. “Therefore, making sure we have the right balance of agility and resilience to face future unexpected global disruptions is so important. And, as part of this challenge, we’re also accountable for ensuring that we, as a company, along with our partners and suppliers, are acting responsibly during this unprecedented environment.”
Learn more about the state of apparel and footwear sourcing, including the outlook for trade and raw materials. Download Sourcing Journal’s Sourcing Report 2021 here.