The return of fashion manufacturing in the vicinity is uncovering a series of needs and new objectives regarding the operating model, organization, CSR and sustainability, supplies and structure of the textile and fashion industry.
The productive muscle of fashion in the sourcing countries close to two of the most important international markets such as Europe and the USA, namely Turkey, Eastern Europe or Mexico, has a very different characteristic from the powerful Asian manufacturing countries. For instance, in the McKinsey report we are analyzing, we are told that imports from the five largest production markets close to the USA do not even represent half of the imports from China.
The fashion production scene in central and eastern Europe is divided and largely follows the model of external processing of sales. Labor productivity and its level of efficiency at some of the nearby manufacturing origins are more unstable. To this we must add that each of these sourcing countries has its own environmental problems and compliance risks as far as CSR is concerned; although, as we know, much of the industry’s controlling institutions are currently focused on the large Asian production markets.
The challenge of neo-relocation is to re-create a vertical industry nearby.
One of the most important current goals of the textile and apparel industry in close proximity is to achieve an adequate and permanent supply of accessories, raw materials and fabrics necessary for the manufacturing of the finished product. Only a vertical supply chain, fully integrated geographically, can generate the agility and maximum speed that today’s fashion supply demands. Otherwise, longer lead times impact the value chain. Right now this is not the case because a large part (most) of the consumption and industrial production of the main types of textile fibres are regionally concentrated in Asia. The Asian Giant has a fundamental role as a supplier of yarns and fabrics, not only for its own production but also for neighboring low-cost sourcing countries.
Current industrial capacity in the vicinity limits neo-relocation.
In the manufacturing countries located near the fashion markets of Europe and USA, current industrial capacity is limited and the local supply of yarns and fabrics varies substantially. The highly efficient and developed European weaving and yarn industry is fundamentally focused on high quality and luxury brands. The installation and operation of new textile production units requires a high degree of investment, new resources and time. In order to attract manufacturers in the sector to invest in the development and expansion of manufacturing capacity, fashion brands, global leaders and retailers need to act as partners, forming strategic alliances and partnerships based on a firm commitment to medium- to long-term planning.
Discussion of regional supply chains is on the agenda and is becoming increasingly compelling in light of innovations in sustainability and closed-loop recycling such as re:newcell. Four out of five respondents to the study conducted by the international consulting firm McKinsey believe that closed-loop recycling will increase in the future. I recommend you read this previous article: Circular fashion.
The backbone of neorelocalization is the strategic partnerships between fashion and suppliers.
63% of those surveyed by McKinsey believe that it is possible for fabric production to shift towards nearby locations to support regional sourcing with a view to 2025. As for the probability of investments from fashion and retail companies in weaving mills and finished product factories, the professionals surveyed are divided: 49% have a positive view and 48% are skeptical. Meanwhile, fashion brands will have to make do with increasing agility and speed in the production and finishing phase of garments, expanding their fabric libraries (selected basic qualities), integrating them into their 3D design software for at least part of the product range and importing raw fabrics and generic yarns from China.
What is smart sourcing?
To make the best and right sourcing decisions today, it is critical to focus on the total profitability of the product rather than just on its cost of freight at destination. The old, outdated sourcing model focused solely on unit cost is no longer viable, much less recommended.
However, the fast-cycle model or fast-replenishment double sourcing systems can only be applied to a selected part of the total production volume or product range, so we need a mixed sourcing model. Successful sourcing executives will manage and develop a more complete perspective of product profitability while ensuring their margin. This is the way to support, manage and develop the change from a supply-driven model to a demand-driven model. Of course, all successful brands in the fashion market are moving towards the demand-based model.
Fashion industry organizations have begun to develop the skills, generate the analyses and implement the tools necessary to manage this intelligent sourcing approach. Senior apparel executives even point to the need to eliminate the terminology of “sourcing” and instead use the most up-to-date expression “supply chain and decision making departments”.
Neorelocalization requires production automation.
Nearshoring – and local production – will make much more sense and economic viability as technology develops, because automation will increase labor productivity, offsetting the higher current labor cost of nearshoring and local production.
From the point of view of retail buyers and mass-market brands, the strategy of manufacturing certain styles or a considerable part of the collections in proximity and locally will not focus solely on the commercial importance of short delivery times and the cost improvements discussed above. They should take into account the promise of automation (we will discuss this in depth in the next post) as a decisive factor in moving production to nearby locations. Bringing manufacturing closer to consumers will require local government agencies and apparel industry organizations to develop the necessary regulations, training and skills for advanced industrial manufacturing with each country’s own workforce.
Nevertheless, the fashion sector – its brands and retailers – should not delay the project. It is desirable and advisable that they begin to make progress and produce in proximity as automation technological advances are created and developed. Without a doubt, they should take advantage of the situation and set out to explore the prospect of nearshoring right now. They will gain time and experience by becoming familiar with the new supply regions and their particular circumstances.
We will meet here again to continue analyzing this shocking phenomenon of the neorelocalization of fashion!