Resetting the apparel supply chain
After Covid-19 hit the fashion industry hard, many companies are rethinking their supply chains to protect against future disruption.
2020 was the worst year on record for the fashion industry. Profits were down by 90% and sales down between 15% - 30% as the pandemic took its toll.
The global apparel supply chain is comprised of millions of small, medium, and large manufacturers operating in every region of the world. As such, it is particularly exposed to risks such as natural disasters, heat stress and pandemics.
A 2020 McKinsey survey of supply chain experts found that manufacturers can expect disruptions of one to two months in length to occur every 3.7 years on average, highlighting the need for companies to be agile and attuned to risk.
Fashion is a fast-changing industry with commercial success largely determined by a company’s flexibility and responsiveness. The labour-intensive nature of the apparel value chain, as well as its geographic footprint, means it is particularly prone to shocks.
In response to disruptions caused by the global pandemic, fashion supply chains are being reorganised and further consolidation is likely, with brands expected to diversify their geographic sourcing footprint more permanently.
The fallout from the pandemic means there is likely to be sustained volatility and uncertainty until well into 2022. The winners will be the companies that learn to embrace the changes and adapt to the new normal.
Covid-19 has driven home the importance of managing operational and supply chain risk. Shifting geopolitics is producing more trade disputes and tariffs, while weather disasters are causing billions of dollars of damage every year. And in 2020, the pandemic brought to light the risks of concentrated supplier footprints and the vulnerability of procurement partners, forcing companies to accelerate plans to rebalance their supply chains.
Up to one half of global apparel exports could shift to different countries in the next five years as companies look to improve supply chain resilience still further. Even before Covid-19 hit China, many apparel companies were shifting manufacturing to Bangladesh, Vietnam, and Cambodia due to rising labour costs and uncertainty surrounding the US-China trade war.
And now, after the pandemic exposed the vulnerability of companies that rely on a limited number of trading partners, global apparel supply chains look set for a major reshuffle.
Supply chain shocks as a result of the pandemic have had a significant impact on company profits and a vast majority of firms are now looking to shift production. According to DP World’s inaugural Trade in Transition report on private-sector sentiment towards global trade, 83% of executives surveyed stated that their firms are currently in the process of reconfiguring their supply chains. So how can retailers build resilience and remain competitive in the future?
In today’s environment, it is essential for companies to be agile in order to compete. Apparel brands and retailers are now using the pandemic to analyse their business models and develop more sustainable supply chains for the future. Practical strategies for making supply chains more transparent and resilient require making long-term investments or accepting a slightly higher cost of goods.
Lockdowns in China last year sent ripples around the globe as supply chains became stretched, handing an advantage to larger-scale suppliers with multiple country footprints. Many experts are now predicting that companies will alter their supply chains to be less dependent on China in the wake of the coronavirus pandemic in order to improve resilience. With traditional supply chains facing increasing pressure and further shocks expected, mass-market apparel brands and retailers will need to shift to a demand-focused model if they want to keep up with their more nimble competitors.
Deeper partnerships between brands and suppliers will also bring greater agility and help make supply chains more resilient. Central to these partnerships will be a digitisation of processes that will be critical in creating new levels of transparency and visibility in apparel supply chains. Creating supply chain transparency through digitisation can boost both productivity and resilience in the fashion industry and DP World is well placed to help firms with this through our digital supply chain platforms.
With digitisation, retailers can make decisions based on changes in demand, while emerging technologies such as artificial intelligence and blockchain can help them prepare for unexpected circumstances. Linking manufacturers, warehousing and logistics data gives retailers and brands more control, allowing them to act on issues quickly and effectively. DP World can help supply chain partners identify growth in international markets as well as provide world class digital cargo tracking technology via blockchain.