Outlook Suply Chain 2018

What should apparel firms be doing now if they want to remain competitive into the future? Diversified supply chains, data, digitalisation and the smart application of artificial intelligence are key to addressing the top industry challenge of speed and complexity – and are the best hedges against uncertainty. Add in constant innovation, sustainability, and a focus on understanding your consumers and you have the ingredients to help to separate the winners from the losers in 2018 and beyond.

Marc Compagnon, group president, Li & Fung:
Industry players should embrace new technology and digitalise operations and supply chains to boost speed and innovation. Digitalisation will help companies enable speed and innovation within their organisations and supply chains and focus on the demands of consumers by gathering and analysing data. This will help get the relevant product to the consumer at the right time

Apart from embracing digitalisation, companies also need to diversify their supply chains as the best hedges against uncertainty. The direction many companies have been taking in recent years to narrow and tighten their supplier base as well as where they do business is actually the most vulnerable to disruption. Companies need to enable speed and focus on integrated supply chain strategies rather than on cost alone. If they can also recognise the value of having the right processes that deliver the right product at the right time, then it’s possible that disruption will have less of an impact.

Edwin Keh, CEO of the Hong Kong Research Institute of Textiles and Apparel (HKRITA), and lecturer at the Wharton School at the University of Pennsylvania:
To win in our turbulent marketplaces, apparel companies and their supply chain will have to be global, big and agile. With a wide global footprint, apparel firms can weather regional market ups and downs. Scale should mean reliance, and agility will allow companies to take advantage of opportunities in the various markets.

Dr Achim Berg, partner at McKinsey & Company and co-leader of McKinsey’s Apparel, Fashion & Luxury Group:
As the coexistence of low-cost and proximity sourcing demonstrates, the successful apparel-sourcing organisations of the future will not succeed on one sourcing model or cost focus alone.

As speed and agility become increasingly important, four success factors must underpin any transformation effort in apparel sourcing. These are:

  • End-to-end efficiency. Companies need to design their sourcing backbone to optimise agility rather than high-volume capacity.
  • Supplier collaboration. A shift is needed from transactional supplier management to strategic partnerships. This requires apparel companies to establish professional supplier evaluation and development processes, along with investments for strategic suppliers.
  • Country selection. Companies need to choose sourcing countries strategically – balancing costs, capacity, speed, quality, and compliance – and be ready to implement dual sourcing strategies.
  • Compliance and risk. Companies need to develop clear guidelines and procedures to proactively manage CSR and increase the transparency from cradle to point of sale.

The old purchasing price model, with its relentless focus on shifting sourcing volume to the next sourcing country, is beginning to outlive its usefulness. Instead, apparel-sourcing organisations need to adopt a much more holistic improvement approach built around these four success factors. Crucially, this will enable them to react quickly to make changes – a capacity that is required today more than ever before. As innovation in the industry accelerates, apparel players need to act fast to up their game; those that start the journey too late may be left in the dust.

Robert P Antoshak, managing director, Olah Inc:
Apparel firms should diversify their sourcing. Companies need hedges against the unknown. Say the unthinkable happens: a shooting war breaks out on the Korean peninsula. What would that do to shipping in the Sea of Japan? Say, unthinkably, China somehow got drawn into a conflict, what would that do for companies sourcing directly from the Mainland? It could be catastrophic. Asian supply chains? Forget it, they’d be disrupted – potentially for a long time. It’s hard to contemplate.

But halfway around the world, there’s another unthinkable: the US withdraws from NAFTA (the North American Free Trade Agreement). What would that do? If I’m a fabric mill in Mexico or a yarn spinner in the US, I’d freak. Without the tariff benefits afforded by NAFTA, there would be little that would keep low-cost textiles from Asia overrunning the North American market – save for some disruption of Asian supply chains.

Which brings up the really, really unthinkable. Both happen at the same time. Talk. About. Panic. It’s possible, although not likely. Even so, the possibility should encourage apparel companies to diversify their sourcing. Now.

Here’s the smart hedge: buy from suppliers in your home market and diversify your sourcing elsewhere. Because these days, it’s increasingly hard to know where the status quo begins – and ends.

Rajiv Sharma, group chief executive, Coats:
Digital doesn’t just need to be part of the commercial mix, it must form the foundation of everything a company does. Companies reinventing themselves for the digital age are more likely to be winners in the future.

Harnessing technology to address the key industry challenge of speed and complexity is necessary. The winners will have a much broader approach that uses digital to help transform every single part of their operations. Apparel firms need to look at the area of data science, machine learning and artificial intelligence to raise their game and push the industry towards greater efficiency and speed.

Constant innovation is another vital competitive advantage. The demand to be able to link products to a digital medium is ever increasing, so a company that has an innovative mindset to create ways to apply intelligence and smart properties to its products will be able to separate itself from its peers.

But there is a balance. Without technology you are not in the game – but without the right talent to interpret the vital information and act on insights, you are not even on the pitch.

Matthijs Crietee, secretary general at the International Apparel Federation (IAF):
The apparel industry consists of many sub-sectors, which all have their different ideal strategies. But for many, creating real partnerships in the supply chain is necessary to simultaneously improve transparency, improve productivity and increase speed and flexibility.

As several studies point out, just focusing on ‘first costs,’ on the lowest production price, is very often not effective anymore. Winning buyers are active in forging longer term relationships with their suppliers. They are scrutinising the impact of their buying behavior on their suppliers’ ability to grow more competitive. Winning manufacturers are not waiting for production orders but are offering production as part of a broader service package. They are helping to source the right raw materials, to improve flexibility and to provide a greater level of transparency upstream. Winning buyers and manufacturers invest, sometimes jointly, in machines, processes and, most importantly, in people.

Helen Mountney, managing director of Kurt Salmon, part of Accenture Strategy:
Fashion brands and retailers must look to intensify collaboration and integration with suppliers to better respond to consumer demand. Differentiated supplier capabilities must be leveraged along the entire value chain, from planning, through design and development, material management, costing and logistics. Intensified collaboration will also mean more common standards, definitions and KPIs.

An integrated cloud-based database can provide end-to-end transparency and control, internally as well as with third party suppliers. Furthermore, it allows dynamic access to big data insights across the entire value chain and enhances predictive analytics for improved merchandise and production capacity planning. By reshaping the fashion value chain, technology will prove to be the key enabler to provide the tools for analytical optimisation. Data transparency and the smart application of artificial intelligence will give retailers and brands the power to drive new value.

Dr Sheng Lu, assistant professor at the Department of Fashion and Apparel Studies at the University of Delaware:
The question in my mind is not what apparel firms should change to stay competitive into the future – but what companies should keep doing regardless of the external business environment?

First, I think companies should always strive to understand and impress consumers and control their supply chains. Despite the growing popularity of e-commerce and the adoption of transformative new technologies, the fundamental nature of apparel as a buyer-driven business will remain the same.

Second, companies should always leverage their resources and stay “unique,” offering differentiated products or value-added services, maintaining exclusive distribution channels or keeping the leadership position in a particular niche market.

Third, apparel firms should always follow the principle of “comparative advantage” and smartly define the scope of their core business functions instead of trying to do everything. Additionally, winners will always be those companies that can take advantage of the mega-development trends of the industry and be willing to make long-term and visionary investments, both physical and intangible (such as human talents).

Rick Helfenbein, president & CEO, American Apparel & Footwear Association (AAFA):
The apparel losers will be the proverbial frogs in the frying pan. They won’t feel the heat until it’s too late. The winners will be the ones that will spend their time focusing and understanding the “buying habits” of today’s consumers. If a company can grasp how the consumer shops, then they will understand the best channel to sell.

Once they understand that specific direction, they can then build a supply chain to accommodate.

If companies continue to march along their comfortable pathways, they will fail. The consumer shopping pattern has rapidly changed, and every company needs to understand this new shopping dynamic, and be able to adapt.

Julia K Hughes, president, United States Fashion Industry Association (USFIA):
Sustainability, sustainability, sustainability. It’s no longer about price; in fact, for the best companies, finding a socially compliant and sustainable product at an okay price is much better than finding a non-compliant product at a cheap price.

In USFIA’s 2017 benchmarking study, 89% of companies said social compliance and sustainability are more important to their decisions now than they were five years ago – and the 11% who said “no change” are most likely some of the companies who have been at the forefront of these issues.

Companies need to build their sustainability network, and proactively reach out to their peer brands and retailers, their suppliers, their service providers, and especially third-party organisations with expertise in these issues, like Worldwide Responsible Accredited Production (WRAP), the Sustainable Apparel Coalition (SAC), the Better Cotton Initiative (BCI), and the Conflict-Free Sourcing Initiative, to name just a few that USFIA will work with next year. There are many resources available – and many companies who are now sharing what they are doing through these organisations – so companies just need to reach out.

An internal network is necessary, too. The sourcing, compliance, customs, and government affairs teams can no longer remain in their own silos; everyone must work together and share information to ensure a compliant, sustainable business practice.

Mike Flanagan, CEO of apparel industry consultancy Clothesource:
Retailers:
1: Stop wasting your shareholders’ money on real estate you can’t trade and management consultancy fads;
2: Spend more time on the shop floor (literally) looking at how your customers buy and listening to what they tell your staff;
3: Then listen to why they’re buying their clothes from someone else. The overwhelming majority do indeed spend their apparel budget elsewhere;
4: Then try to work out why clothes are accounting for an ever-smaller proportion of your customers’ spending anyway.

Suppliers:
No retailer’s going to be bothered doing any of the above: they’re too busy debit-noting you. In every other industry, successful suppliers do all this themselves, process the findings, then sell them back to retailers in the form of premium-priced products. Why can’t you?

Rick Horwitch, vice president and global retail lead for supply chain strategy at Bureau Veritas Consumer Products Services:
Jeff Bezos, when asked about planning for the future, said: “What will be different 10 years from now? I think the more helpful question is what will be the same 10 years from now? You can build a lasting company on things that will stay the same. It’s harder to build one based on predictions of things that may change and you have no control over.”

To remain competitive in 2018 and beyond, we should ask the same question. Here are five things I believe will be the same:

  • Consumers will continue to buy things. Where they buy; how they buy; when they buy will vary. Speed, Speed and more Speed. Sourcing executives need to be ready to meet their demands.
  • Consumers will care about their products from a social, environmental and overall sustainability perspective.
  • Consumer engagement technologies will continue to accelerate. Augmented Reality (AR), Virtual Reality (VR), Chatbots, etc.
  • Data Analytics is shaping the future. Artificial Intelligence (AI) and Predictive Analytics (PA), and other technologies, are providing critical real-time insights for creating a more collaborative, personal and engaging value chain.
  • Quality and compliance are absolutes. As consumers, we expect that our products work and are safe. Do not assume quality just happens.

How retailers, brands, and their partners across the entire value chain respond to these challenges will ultimately affect their ability to build and maintain consumer loyalties and will separate the winners from the losers.

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