The apparel supply chain will look very different in 12 weeks’ time. Operational and tactical answers to the coronavirus will have consequences on product design, development, sourcing, and production resiliency for years and years to come.
Here are some likely scenarios that the apparel industry can begin to prepare for today:
Post-Pandemic Supply Chain Consolidation
The pandemic has set out the lights for several SME manufacturers and suppliers in markets such as India, China, and Bangladesh, with authorities small-business support obsolete. Tier 2 and Tier 3 providers will be consumed by larger entities to localize manufacturing and benefit from the benefits of vertical integration for supply chain management, resiliency, and risk management. Brands and retailers will see that the diversity of the supply chain partners might be shifting in the months and years to come.
Post-pandemic, upstream consolidation provides producers the capacity to offer integrated solutions and become a strategic partner to its global retailer and brand clients, achieving faster product innovation and lead-times. Welspun in India began with a solitary textile mill, and it has invested Capex in buying yarn spinning capacity locally to encourage it is textile manufacturing, which makes it vertically integrated from fiber to finished product.
Brands and retailers will be trying to de-risk product development with each step along the supply chain under scrutiny — from yarn spinning, weaving to dying to cut and sew. Those retailers who have money may now even invest funds in their core vendors and producers for equity or perform joint-ventures. Integration, investment, and consolidation can ensure a more reliable supply chain system for your future.
Inventory Management: From “Just-In-Time” to “Just-in-Case”
Inventory management from raw materials to semi-finished to finished goods will proceed from”just-in-time” into”just-in-case.” Every merchant and manufacturer is affected by this catastrophe in some way; in January, it was the absence of fabric availability from China; in April, an upgrade from Italian yarn providers suggests that the industrial lockdown and anticipated production constraints will continue until at least early June. Supply chain roadblocks are coming from all around the world.
From yarn manufacturing to cut-and-sew, some manufacturers have ceased production entirely, some have observed greatly reduced demand and many others have noticed a massive increase in demand. Businesses with limited product offerings may have greater control of their distribution chain output in emergency times. Levi’s is a good example of how its principal attraction of denim jeans supplies upstream visibility for materials sourcing center replenishment and downstream assortment stability, where inventory can be transported to future seasons mitigating discounting and margin erosion.
Real-time visibility to the availability of raw materials, finished products, work in progress, etc. could be the perfect toolkit, exposing potential constraints into first-, second- and – third-tier providers. The upcoming pandemic “playbook” may entail raising security stock, alongside combined stock management strategies that maintain rapid access to core materials on a regional and product basis.
Diversification of Materials Sourcing and Production Ex-China
Trade tensions of US and China began a diversification process two or more decades back. The pandemic is accelerating this trend, as business leaders go through the supply chain threat of a nation whose factories are shut.
To what extent governments will subsidize domestic production remains to be seen. At the start of the coronavirus, the Japanese government pushed its businesses to move production, announcing over $2 billion in aid to shift production from China and into regional suppliers.
Even without government intervention, the anticipation is that contingency planning for sourcing and manufacturing will become a consideration alongside the price benefits of creating manufacturing economies of scale. Areas like Turkey, Jordan, and India might now see their attempts to win larger orders and bigger market share pay off.
These markets will have to reveal a cautious transition post-pandemic into productivity. In the factory-level, investments into strict worker health monitoring will be critical, ensuring that there is sufficient capacity to screen tens of thousands of employees at scale whilst maximizing output given the probability of government-stipulated caps on working hours.
Near-shoring will be accelerated in response to an increased desire for goods made closer to home, according to McKinsey. New manufacturing hubs may emerge inviting brands to think laterally about manufacturing, with capacities and performance tested through smaller capsule collections. The ability to quickly deliver on trends that near-shoring affords may allow a greater sell-through and offset concerns about the gross reduction from low-cost manufacturing from Asia.
Coronavirus and Sustainability; Demand-pull and Supply Pushback
Post-pandemic, there’ll be a conundrum; customers are thinking hard about their decisions and the need for a more sustainable way of life following the coronavirus, making decisions based upon values. On the other hand, many in the apparel industry won’t have the funds to invest in transparent supply chains and responsible sourcing applications in a meaningful manner.
Online sales for apparel and footwear retailers dropped 37 percent in March, based on Rakuten, and foot traffic to U.S. stores dropped 58.4 percent in late March, according to ShopperTrak. Online retailers from high-end to athleisure showed deep reductions of over 30 percent in the previous weeks, crushing earnings and earnings, and contributing to many business liquidations and insolvencies.
And if there are any category winners — possibly value players and discount merchants — sustainability isn’t necessarily an agenda item. As priorities for manufacturers and retailers concentrate on survival, sustainability will have to reinvent itself in the supply chain as a cheaper, faster, better version driven by innovation and transparency tools.