The novel coronavirus has heightened the impetus for fashion companies to move away from business as usual and actively plan for supply chain disruption.
As fashion faces its own wake-up call, many of the business’ own long-term challenges, such as speed to market hurdles and an over-reliance on China, are reflected in the struggle to bring enough medical face masks to market.
Even though fashion is not apt to face a run on T-shirts or socks that is on par with the purchases of medical equipment during a health crisis, there is still room to grow in apparel when it comes to handling unexpected spikes in demand.
“[This] highlights the need…to shift away from the old historical model of a long product development life cycle sourced offshore with long production runs and lots of inventory in the system,” said Steve Riordan, partner at Kalypso, a software delivery and consulting firm. “In the crisis management world, there’s an adage, ‘Never waste the opportunities that a crisis creates.’ So I think to some degree, this is going to accelerate some trends that are already underway.”
COVID-19 has further highlighted the problems tied to depending solely on China. As China is the prime producer of face masks, representing about half of all units before the outbreak, this protective gear has been in high demand but low supply as factory output slowed. As searches for masks spiked, product sold out in stores and online. Some nations, including South Korea and Germany, have even banned exports of masks to prioritize their domestic needs.
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Similar to the mask scarcity, the fashion industry is expected to face its own understock issues in the coming months. While firms always prepare annually for closures during Chinese New Year, the extended holiday this year followed by quarantines stalled production. Because the lead time for fashion tends to be multiple months, this shortage is likely to hit shipments of summer goods.
“You’re not only losing business because those items are not on the shelves, but you’re losing customers and they’re going elsewhere,” said Mark Hudson, vice president of global marketing and communications at technology company CBX Software.
Even ahead of the coronavirus, some companies had started looking beyond China as they faced pricing pressures from tariffs. However, even with production shifting to new locations, there is still a strong reliance on China for raw materials.
“Before this epidemic, because of the tariff situation, there was a lot of production already moved out of China,” said Peter Chau, vice president at logistics firm Dynamic Worldwide. “So unfortunately, the production countries that they’re moving out to, like Vietnam or Cambodia or Indonesia, don’t have a vertical industry [that is] as well established as China. So therefore…even though you have a capacity for the finished garment, you don’t have the supply locally of the fabric or the trim. You still have to rely on China.”
Diversifying sourcing beyond one country is more complex, but in times of a crisis, it can be a means to reduce manufacturing shortages. For instance, if a company only produces in one country or region and disaster strikes, they’re left scrambling to find new vendors or factories and vet them. However, if companies have established production in other nations, they can shift a greater amount of their manufacturing to unaffected areas.
Hudson suggests staggering shipments from different regions so that in the event of an emergency, a portion of products still makes it to the distribution center. “It’s more work, but once that supply chain is set up that way, you never have to do it again,” he said. “Put the hard work in now, so you don’t have to put the hard work in when a disaster happens, like we’re dealing with now. That way you always have an inflow of goods coming in, and although the store shelf might be light, it’s not empty.”
With China-produced masks in short supply, some U.S. manufacturers have seen more interest. While fashion production in the U.S. is typically more expensive, Riordan foresees manufacturing shifting to smaller batches made in closer proximity to where there is demand. Some of Kalypso’s clients have already moved a significant portion of their assembly to Mexico or the U.S.
Along with protecting against localized delays, diversification and nearshoring can enable companies to achieve better speed to market. This also enables a nimble reaction to demand spikes. Jung Ha-Brookshire, professor and director of graduate studies in the Department of Textile and Apparel Management at the University of Missouri, explained that a company could balance production across factories in different regions. For instance, trendy fashion that requires a shorter lead time could be made in Central or South America, whereas basics can be shipped from farther factories in Asia.
While there are increased labor costs tied to nearshoring, companies can partially make up for this expense through stronger investments in automation and digital development. For instance, 3D design and digital product development can cut the number of sample iterations needed, reducing time to market. Additionally, experts agree the added nearshoring costs likely do not compare to the financial risk of halted manufacturing and lost sales during a crisis.
Apparel companies also have an opportunity to bring manufacturing even closer to home. “I think longer term, we’re heading to a world where there’s going to be more and more capability to have production super close, maybe in your basement or your own back room with 3D printing capability and digital downloading capability,” Riordan said. “We’re not really anywhere near that at scale, but at some point…we need to be prepared for being able to fulfill that need.”
The lessons from the face mask shortage also extend to managing fulfillment. With the scarcity, some governmental organizations such as the Centers for Disease Control and Prevention in the U.S. have allocated masks. Some frustrated customers who had placed online orders received notifications that their masks were now backordered due to this stockpiling.
Fashion could be facing its own fulfillment delays and potentially disappointed retailers and customers. According to Dynamic Worldwide’s vice president of global sales, Charles Romano, as shipments are delayed, it will also be up to the retailers to decide whether or not to take goods late and risk markdowns.
Just as COVID-19 has strengthened existing trends towards diversification in the supply chain, it is also expected to raise the already high bar for creative retail experiences. The crisis also opens the door for potential alternative ways of making old fashion new again, such as resale and upcycling.
“Today’s retailers have to change their mindset, that they’re not just selling products, they’re selling stories, they’re selling the experiences, they’re selling the whole lifestyle of the consumers,” Ha-Brookshire said. “If you 100 percent rely on product for your company’s benefit, this is where the problem happens. So as much as [companies] have to diversify production locations, they also have to think about or diversify the sources of sales. All sales don’t have to come from products. Products are there, but the stories may be the first ones to sell.”