So, is near-shoring a thing?

Sunday, January 12, 2020

In case you hadn't noticed, our industry is changing. For many companies, extended supply chains are out; sustainability is in. Cheap is out; how things are made is in. Greenwashed marketing is out; transparency is in. In the realm of international trade, import tariffs are in; free trade is out. A lot is going on.

Because of these changes, I think we're entering a period of consolidation, both in terms of fewer brands and retailers – at least in the developed world – along with lower demand, which will result in fewer suppliers. It's a right-sizing of our industry. Moreover, where those suppliers are located and how they serve their customers are more important than ever. In some ways, it's a generational change; what worked for the "baby boomer" generation struggles to work for "millennials."

I find it interesting – and somewhat ironic when I remember the old days of local manufacturing and sourcing – that it has taken the sustainability movement to bring people round to the notion that sending products and raw materials thousands of miles around the world in an effort save costs has also resulted in significant harm to our planet. Talk about a carbon footprint!

Sustainable sourcing at scale

Don't take my word for it; go check out a new survey from consulting giant McKinsey & Co entitled, 'Fashion's New Must-Have: Sustainable Sourcing at Scale.' It's a hot survey that I encourage you to read.

For my take, I want to focus on the four main factors identified by McKinsey affecting our industry over the near term. These factors, when taken together, suggest to me that any right-sizing of our industry to meet the demands of new consumers will include more near-shoring of production than has been previously the case. The case for near-shoring comes from a curious source: the desire for sustainably-made products by younger consumers.

But back to the McKinsey study. McKinsey's findings are based on a survey of 64 Chief Purchasing Officers (CPOs) at apparel companies responsible for sourcing a combined $100 billion worth of clothing a year. I have quoted the four major conclusions from the survey and then added in my commentary about each. Let's begin with sustainable materials:

"Embracing sustainable materials. The share of products containing sustainable material remains low today, but CPOs envisage a major scale-up in the next few years. The majority of those surveyed aspire to source at least half of their products with sustainable materials by 2025. That won't be easy: CPOs cite several obstacles to implementation, including availability, cost, and quality of materials."

In other words, the production of sustainable raw materials will become increasingly important. Why? In part, many young consumers entering the workforce expect sustainable materials – whether its fiber, yarns or fabrics – to make up the essence of the clothing they wear. A problem exists, though: how does the industry define sustainability? Randomly ask a dozen customers, "what is sustainability?" and you'll likely hear a dozen random answers. Sustainability remains fuzzy. How our industry defines sustainability and educates consumers on our products will be essential going forward.

"Driving transparency and traceability. Apparel companies are under increasing pressure to create transparency on their supply chains and to share that information with consumers – but few companies have yet achieved that transparency. Eight in ten CPOs surveyed have ambitious plans to step up transparency by 2025. Six in ten plan to go further and share information about their suppliers at the point of purchase. Again, the change required will be dramatic."

But there is one way to help define sustainability, and that's by embracing transparency. For too long, our industry – in its rush for profit – deliberately obscured how products were made. Today's consumers have asked us to lift the veil. They want to know not only what's in their products, but how the people are treated who make the products in far-off lands. Additionally, they want to understand how our industry affects our planet's environment. Transparency, in turn, helps to define what is or is not sustainable in terms of the ecological environment, worker conditions and economic viability. The opaqueness of "fast fashion" will increasingly be under pressure to show consumers more about how their business models affect the world.

"Turning supplier relationships into strategic partnerships. In supplier relationships, social and environmental sustainability is taking on much greater importance: two-thirds of CPOs surveyed said it would likely become a top factor in their supplier ratings. This is encouraging garment manufacturers to invest proactively in environmental sustainability, worker well-being, and fair wages. CPOs recognize that more is needed: collaboration across the value chain is key to achieving an industry-wide transformation in sustainability."

Okay, so the industry lifts the veil. Now what? It'll be critical to forging new relationships between manufacturing suppliers and apparel brands. And such links will not be possible unless supply chains are open and transparent, which in turn helps to define sustainability in terms of environmental impact and worker relations. For too long, our industry was shifting sourcing from manufacturer to manufacturer as economic conditions warranted. Costs played a significant role. It was the constant race to find to newest low-cost supplier and spurning of other suppliers that has resulted in so much overproduction globally. It fit the model of rapid-fire, quick turn, fast fashion for the masses – only now, the masses as asking: how do you do that? Cheap products come with high costs, not the least of which is consumer expectations.

"Reinventing purchasing practices. Our survey underlines the fact that sustainable and responsible sourcing has significant implications for purchasing practices, from planning to negotiation to order placement. Two-thirds of CPOs expect sustainable sourcing to add between 1 and 5 percent to their costs, with most agreeing that this is an investment in building competitive advantage. That said, there are important opportunities to improve the efficiency of internal product development processes."

So, according to McKinsey, the industry needs to reform, and as its survey explains, such reform won't come for free. Change will incur a cost. However, McKinsey rightly points out that the cost of adopting sustainable, transparent production isn't a cost at all, but rather it's an investment to meet the increasing demands of customers. Additionally, properly managed, sustainability is efficiency by another word. Sustainable production can help a company save money while making its product more attractive to its customers at the same time.

Returning full-circle: A more sustainable industry closer to home

Does it make sense anymore to rely solely on global supply chains to fill the shelves of our stores? Yes, it does for many companies. Frankly, I don't see that going away anytime soon. But I do see more transparency in how these supply chains function and impact the environment, workers, and consumers around the world.

Even so, I also believe that more companies will take another look at sourcing closer to the consumer markets for their products. Although essential, the cost of a garment isn't the only thing motivating consumers today. Story matters a lot; it's an explanation that can hook consumers, including how their clothing is made. In some cases, a more compelling story about a garment made closer to home – the consuming market – is worth at least the added cost of producing in the US or Europe, for example, as opposed to other more distant parts of the world.

I'm not suggesting wrapping a flag around some nationalist message; far from it. Instead, I see the possibilities of enhanced product development closer to where the designers live, and from that previous unseen – or simply, under-appreciated – efficiencies may be realized.

I remember those days when most clothes sold in the US were made in the US, but economics and some self-inflicted wounds undermined domestic manufacturers. From my perspective, it's little wonder that so many brands and retailers moved their sourcing offshoring about 30 years ago.

But the supply chains and business practices that have flourished over that time may have outlived their purpose. They're not sustainable. Yeah, products may be made more cheaply in developing countries across the Pacific somewhere, but what are the added costs of extended supply chains that ship raw materials and finished products back and forth across the ocean, let alone the environmental impact of such transactions? They are substantial in the opinion of many of today's consumers.

So, for some companies, returning closer to home to make their products may help them to craft better stories, underscore a commitment to sustainable production, and enhance the desirability of their products in the store.

Note: This article was originally published in just-style.com on October 21, 2019.

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