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Startups Are Doing More to Disrupt Supply Chains Than You Think

While traditional apparel players may have been nonchalantly brushing startups off as pesky but hardly significant players, these innovative new disruptors are quietly upending everything in the supply chain.

“Many industries are getting disrupted by smaller players, and this will happen in our industry as well,” Li & Fung Group CEO Spencer Fung said during a keynote at the Sourcing Summit Hong Kong. “In the U.S. now, there are more than 50 billion-dollar brands that people just don’t know about.”

That startling statistic should be enough to wake the industry’s biggest players from the slumber many have been stuck in. And according to Fung, these small but big brands are coming up fast.

“The smaller brands are starting—whether Amazon or Spotify or not—to become billion-dollar brands and that’s eating into the market share of, of course, a lot of us who are sitting here. And it’s also affecting us because the way they do things is completely different,” Fung said.

The thing about startups, and a reason Li & Fung has taken to employing them to push itself further in its journey toward the supply chain of the future, is that they are innovating the unencumbered business models that deliver on today’s demands. They are also helping to teach bigger players how to get out of their own way.

“A lot of startups have great ideas, they challenge us, they ask questions,” Fung explained. “In the beginning when startups challenged us, we said…‘We know sourcing, we’ve been doing it for 110 years (at that time), just do it this way.’ Now we’re much more open minded.” Now, Fung added, when new ideas land on the table, Li & Fung will test them to see what happens.

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In one such case, the supply chain solutions company did an experiment with San Francisco-based startup Beta Brand to crowdsource product and sell it before sampling or making anything.

“Everything was done in 3-D design, we put it on the web, not a single sample was made, the consumer started buying it,” Fung said, explaining that the idea was to see whether consumers would buy product simply from a 3-D image. “I think the answer is a resounding yes. A lot of us are buying stuff on the internet, sometimes they’re not real, right, it’s a 3-D image and we don’t even know it. But the quality in the technology is getting so good now that the human eye is almost not able to recognize what’s real and what’s not.”

The idea runs almost completely counter to everything apparel supply chains have known.

“We were able to actually create something online, sell it, and then produce to it,” Fung said. “So it’s disrupting the flow of the traditional supply chain.”

And these disruptions are getting at some of the pain points that have plagued the sector, as things like crowdsourcing feel a lot like customization to the consumer, which means more of an emotional connection, which often means greater sales, fewer returns and a lot less leftover—or marked-down—inventory.

“You can see the markdown effect of a lot of these business models,” Fung said. “But again, these are just experiments. Eventually we’ll have to scale that and we have no idea which business model will work in the future. But startups are testing, they’re growing and they’re actually coming up with brand-new business models to do things.”

More than just saving on sampling time, 3-D design, which Li & Fung has targeted as a key area of focus, has gotten so advanced that companies can simulate draping, change materials on the fly, adjust pattern placement from a smartphone, see how the product looks in stores and generate fashion shows where simulated models move just like their human counterparts. And with each progression and improvement in quality, it’s getting more and more challenging for people to separate the real from the virtual.

“The only thing that’s standing between us and what’s possible today is really mindset shift,” Fung said. “We’re dealing with a lot of resistance even internally, and externally, with some of our customers and suppliers to adopt these new technologies, but it’s there.”

Startups, however, have “zero problem” adopting these technologies and strategies, according to Fung.

“Some of the startups we work with, they’re all over this kind of stuff and are just kind of skating toward the future as this speed as a rabbit [while the rest of the supply chain trails behind as turtles]. And these are the things we have to eventually catch up to.”

Referring to these silent supply chain killers, Fung added, “They’re growing exponentially, all employing completely new and different business models, so these are the things we have to start continuing to scan on the horizon.”