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Sourcing Journal Podcast: Episode 14 Nearshoring, Automation & the Future

The current retail climate demands brands and retailers find new ways to shorten their development and production timelines. With consumer tastes shifting rapidly and e-commerce setting expectations for instantaneous fulfillment, the winners in the apparel space will likely be those that figure out how to read and react in near real time. To achieve this goal, fashion firms are tackling the problem from many angles. Meanwhile, one in particular could be the ultimate catalyst for change.

In this episode, we share a presentation and panel from the 2018 Sourcing Summit New York on how automation is set to drive nearshoring. Karl-Hendrik Magnus, partner at McKinsey and Company, starts off by sharing findings from the firm’s apparel supply chain report, including McKinsey’s prediction that automation will take up to 70 percent of the labor time out of the supply chain by 2025.

Magnus is then joined by Reebok VP of product operations; Erika Swan, Under Armour chief supply chain officer; Colin Browne; Ramesh Fernando, CEO of MAS USA; and moderator and Sourcing Journal president Edward Hertzman for a discussion about the opportunities and obstacles ahead.

Below are some excerpts from the conversation:

Magnus on one reason why the survey underpinning the report found the industry believes a significant step change in nearshoring will take place:

“The industry has been very successful [with the] move to offshoring production to Asian markets, and it was a tremendous source of value generation. Nevertheless, the 30-day lead time on production from China to the U.S./Europe is eliminating some of the opportunities for flexibility for differentiation. And in addition, the economical advantage is coming down. China used to be 1/10 of the U.S. labor cost and now it’s 1/3 and in Europe the difference is still a bit bigger but overall, it’s coming down.”

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Browne on the complexities of nearshoring beyond Tier 1:

“Figuring out how we’re going to engage our Tier 2 suppliers is really important. Over 50 percent of our cost is Tier 2 suppliers, and if you don’t get that bit right, if we don’t figure out how to engage those suppliers, it’s going to be really difficult for us to actually make that shift. From an Under Armour point of view because of the specialized materials we use in much of our apparel, unless we have really good Tier 2 suppliers within region, it becomes really difficult to do that.”

Fernando on the timing of a potential move toward nearshoring:

“We’ve established ourselves in onshore and nearshore locations already, but I don’t think the shift can happen overnight. It’s going to take some time. There’s a lot of things that need to come together to make this happen. But if you consider some of the brands we work with, they’re already doing their own investigations into the potentials of the region or combining their efforts with us and working together to see where the opportunities are. In the next year or so we may not see a significant change but in the next two to three years you might start to see a significant shift happen.”

Swan on what automation means and where the real value will be found:

“The new frontier is almost digitalization. [It has to do with] data and data exchange and how can I really get faster by exchanging my brand’s consumer data with Tier 1s and somehow build the trust between Tier 1s and Tier 2s to actually transfer that data too because data is not a P.O. it’s just a forecast—so how can we really action it and how can I gain speed for my consumers based on it?”

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This podcast episode is made possible by Cotton Incorporated, a not-for-profit company funded by U.S. cotton producers and importers, and whose mission is to increase the demand and profitability of cotton. Discover What Cotton Can Do.