The fashion supply chain isn’t evolving quickly enough to meet the challenges of economic stagnation, geopolitical tension, and climate change.
The industry needs to break up with the waste-making offshore production model it has relied upon for decades and develop a more diversified network of suppliers, both near- and on-shore, to complement it, according to Bill McRaith, retired chief supply chain officer who worked for Tommy Hilfiger and Calvin Klein owner PVH Corp and Walmart.
Despite greater awareness about fashion’s impact on the environment and steps to mitigate carbon emissions, the industry still struggles with mass overproduction—an issue that is exacerbated by its reliance on overseas production in countries like China. A combination of poor inventory planning practices and high supplier MOQs long ago solidified a system where over-ordering is the norm, and mass end-of-season waste is routinely shipped off to landfills. “Inventory is a bad thing,” McRaith said at Lectra’s Ideation on the Road conference at the Fashion Institute of Design and Merchandising (FIDM) on Thursday. “Every day you should be working to eliminate, not secure, inventory.”
Today, retailers are being “punished with the inventory sitting in their warehouses” following the rush to secure product during last year’s supply chain slowdown. “We are at the highest level of inventory that we’ve seen in the U.S. in a long, long time because so many things have hit us,” McRaith said, pointing to the Russia-Ukraine conflict’s impact on Europe to new compliance legislation. These issues aren’t the only reasons companies are struggling to move product off store shelves, but they have exposed the inefficiencies associated with getting it there—and getting it right.
“Right now, roughly 20 percent of everything that is ordered in apparel is waste at the time that the [purchase order] is placed, because we have this affinity to over-order to make sure we never lose a sale,” McRaith said. In reality, if consumers love a product, it will end up out of stock no matter what, “and you’ll never catch” every opportunity to sell, he added. “If the customer hates it, you don’t just have the 20 percent extra—you’ve got the fact that they never even bought what you thought they would buy.”
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McRaith is now advocating for the adoption of a new value chain countering the offshore, months-long norm—the Multi-Dimensional, Dynamically Optimized network (MDDO). American brands should be working with a system of overseas, nearby and domestic suppliers and titrating sourcing based on need and speed-to-market. “Products manufactured on-shore have higher first costs, however, maintained margins increase as a result of higher full-price sales, lower markdowns and lower inventory carrying costs,” he said.
Most companies are more focused on chasing low-cost production rather than developing nuanced models for profitability, according to McRaith. Offshore production can be used to create products that a brand knows will sell through. “You don’t want to on-shore your core items,” he said. “You want to bring on shore the most unpredictable products to get an early read that you can respond to.”
Developing new value chains will be pivotal for companies that hope to succeed in an evolving retail landscape. “We often think we’re victims of the supply chain, but retailers and brands could rearchitect it by redoing the way they operate internally,” he said. “The suppliers will react incredibly quickly.”