What will be the new stop of the fashion sourcing caravan?
McKinsey asks the same question in the report “The apparel sourcing caravan’s next stop: Digitization”. As you can see, the very name of the report gives us the answer. The new stop of the clothing supply will be digitalization.
Through this new report we can clearly observe the overall situation of the most important trends in fashion sourcing which include: the need to stabilize and reduce costs, compliance and productive capacity, navigating global instability and exploring different growth alternatives in sourcing regions such as Bangladesh and East Africa – more precisely Ethiopia.
In this previous post – Digital Supply Chain – based on the McKinsey Clothing Supply Roundtable held in Hong Kong in October 2016, we expressed that digitization was an extremely important development for businesses around the world. It is also an area where companies need to take a big step forward, as is currently evident. As one executive said at the event in Hong Kong: “Most of us in apparel sourcing are lagging behind; we are far from being digital”.
Many companies are already making significant progress with digitization: shortening lead times, increasing innovation and collaboration, better understanding and meeting consumer needs. This latest report highlights the advances and it analyzes what is needed to unlock the potential of digitization across the industry. Going beyond the limits of fashion, pointing out priority areas and practical processes that should take place in business is the most important goal we can set.
The four keys to success.
But also, and in a timely manner, the report tells us that digitization could become a disappointment if it is not integrated into a broad transformation towards a customer-centric operating model. To realize the promise of greater speed and versatility, organizations must double their efforts to optimize four key success factors: the correct selection of the origin of their productions, the close and strategic relationship with suppliers, compliance and risk, and the highest possible efficiency from end to end of the supply chain. These 4 factors represent still today a massive improvement in the entire fashion industry.
This report offers a perspective for the future – interwoven with the interpretation and experience of the international consulting firm itself – under these four categories:
Sourcing in a volatile world: the macro-state in action.
Managers of textile companies and fashion brands must continue to deal with an increasingly uncertain environment, with abrupt changes, along with growing competition and increasingly connected, demanding and intelligent customers. This generates an urgent search for greater efficiency and versatility from end to end of the supply chain.
Looking for the next stop of the sourcing caravan.
In recent years, buyers – producers of clothing and accessories – have redirected the sourcing process to countries with lower costs. That is why “the next stop of the fashion sourcing caravan” until now has always been a new manufacturing origin offering the possibility of reducing FOB and increasing margins.
Right now, the process of searching for the next caravan stop is more active than ever, but new dynamics come into play. Some traditional low-cost origins are becoming less attractive, while supply professionals are showing great interest in new countries – particularly Myanmar, Bangladesh and Ethiopia. Equally, as companies seek to improve their speed and agility, interest in nearshoring and relocation increases.
Digitization, “the next source of supply”.
Digitization can enable apparel brands to make a fundamental change in performance, move to a customer-centric operating model, and create transparency in their global supply chains. For this reason we believe that digitization will be the next stop in fashion sourcing.
But the apparel and accessories industry is still at the beginning of its journey to digitization: companies must accelerate digitization and integrate it into a broader transformation. Those who succeed will break down the barriers between sourcing and product development, tighten lead times, reduce costs, and create transparency to manage sustainability.
The future of sourcing.
While the industry will face constant uncertainty and complexity, supply executives surveyed also expressed hope that they will be able to manage this volatile environment. Digitization will optimize predictability, efficiency, decision making and management accuracy, not only in the supply chain, but across the entire organization and third party partners.
Without a doubt, now is the time to digitize!