As the fashion industry continues to grapple with the far-reaching impacts of the pandemic and new global challenges, it has become clear that the ability to swiftly respond to changes in the supply chain is a defining factor for companies to achieve success. Industry stakeholders from ultra-fast fashion player Shein, sustainability strategy and operations consultancy GoodOps and management consulting firm Boston Consulting Group (BCG) discussed the challenges and opportunities of an agile supply chain in the recent webinar “Agile Supply Chain and the Future of the Fashion Industry”.
When are supply chains agile?
In the fashion industry, supply chains are considered agile when they can move products from the design phase to retailer shelves in two to eight months (or less), replenish inventory in season based on demand, and keep end-of-season remainders to a minimum. Some of the key challenges are cost management, end-to-end collaboration and quality control.
“In other words, companies with supply chain agility are able to respond quickly to short-term changes in demand by building a customer-oriented, end-to-end product-supply mechanism. This requires close collaboration and the quick coordination of merchandising, design, production, and channel needs,” states the BCG report “Agility Is Fashion’s New Source of Competitive Advantage”.
Challenge 1: changing customer behaviour
Veronique Yang, managing director and senior partner at Boston Consulting Group started the discussion by explaining how customers’ behaviour has changed: “They are expecting more diverse and ample products that come to them faster through faster deliveries and with free returns and exchanges. All the while expecting quality and a competitive price, which adds pressure on brands.” That is the customer-driven business model and according to Yang, ultra-fast fashion exists because of that need of consumers.
“It’s a tall order and we’re trying to meet it,” agreed Shein’s executive vice chairman Donald Tang. “Nobody has the answer of what the new normal is but consumers have become quite demanding and the battle has intensified and moved online,” he added. That is the battle for their attention, business and best deals: While inflation and economic uncertainties have pushed prices up, consumers are looking for ever more affordable prices. Tang stated that a survey among 25 percent of Shein’s customers revealed that while 13 percent are looking for more responsible choices in the current scenario, 87 percent have changed to more affordable brands.
“Those changes were happening already before the pandemic but the pandemic accelerated it,” explained GoodOps’s CEO and co-founder Divya Demato. “While there is no denying of the climate crisis and different industries having a role in that, companies are often at odds with that reality and consumers are at different levels of understanding this; they align themselves to brands according to that.”
Challenge 2: linear business models
For her, a linear business model does not work any more, especially in fashion. “The pandemic caught many off guard; the ones that managed had close relationships with their suppliers but there were still a lot of unknowns,” she said. “Brands are challenged with inventory management. They need to identify a supply chain eco system and build resilience,” she advised.
“Everybody would like to satisfy responsible consumer choices,” said Tang. A transformation that worked for Shein was to digitise small and medium size factories. “A few years ago in China, you saw small factories disappear. We digitised everything and connected small factories so that together, they could become one big company and compete,” recounted Tang. “This has increased their visibility, they can now see their own capacity and we can pay them fast, which leads to better liquidity.”
Opportunity 1: digitisation and transparency
For the Shein executive, sustainability comes back to technology and the platform. “We have to use technology for the planet and to improve working conditions,” he said. In this respect, Tang sees Shein as an “empowerment company”.
For Yang, it is not only technology that has made a difference: “Companies have realised that a supply chain can be really valuable and they started checking how it can be more stable while holding on to quality and competitive prices.”
For her, there have been three major changes: globally, the emergence of redesigned supply chain networks and even models; more openness and transparency across the supply chain, which includes new technology and digitisation; and finally, a high awareness of sustainability. All this, according to her, leads to resilience, responsiveness and responsibility, which is all very important as Demato pointed out “more is coming as the pandemic showed”.
Opportunity 2: on-demand
In terms of the tools to make all of this happen, Yang who manages different kinds of product categories, admitted that the fashion supply chain is the longest and most complex. “It involves many internal and external stakeholders and is quite fragmented,” she said. It requires the coordination of a large group of parties of different complexities, sophistication levels and digitisation levels and managing all that is challenging, which is why the complexity of the fashion supply chain can be a bit overwhelming. “Everybody needs to learn from the best but carefully select what fits their own business model,” she advised.
“Agility is the new source of competitive advantage, even before the pandemic,” emphasised Tang. Through its on-demand model - which Tang calls ‘a game-changer’, Shein also makes sure there is no waste, manages its inventory well and focuses on consumers’ needs, which for him is crucial for growth. “We want to be more inclusive; colour of skin, location, orientation, etc. does not matter but you have to reimagine the supply chain. At the end of the day, the consumer wins and you have to find a way to do go good while you’re doing well and do well while you’re doing good,” he summarised.
Demato agreed and compared Shein’s on-demand model for retail to how Walmart revolutionised prices through its wholesale model and how Amazon revolutionised e-commerce. “There could be less wast upstream but what about downstream? What can technology do? Consumers are still going to buy.” For her, it will be about more sustainable materials and innovations in textile recycling as only one percent of garments are recycled today because the technology is not there yet.
Opportunity and challenge: sustainability
“The infrastructure is there and many elements are in place but from a circularity perspective, we have to think of the whole life cycle. Consumers will ask ‘is it worth it to buy this? Or will this go to landfill?’. This is an opportunity for brands to get ahead of that,” Demato said.
“This moment has probably come already,” chimed in Tang, adding that “we have to figure out the preferred materials.” He also pointed out that “so far, we are only getting the half life here, not the full life cycle”. For him, it all comes down to cooperation: “Nobody is going to be big enough to sustain it and figure out the end-of-lifetime approach on their own.”
Yang agreed that industry players have to come together and use their power, scale and know-how collectively. “Fashion is a discretionary category that has a social and environmental impact. The supply chain needs to be of service to build a future of fashion and consumers. Technology helps us to reduce products, maximise resources and select more eco-friendly choices when it comes to dyeing, washing and other processes,” she concluded.