Sustainability is fast emerging as a major deliverable in the growing fashion industry. Apparel is a prime spend category in each household, and yet a major consumer of resources like water, energy, fuel and the like. Most contemporary and large organisations are working on various efforts like building up green factories, using sustainable dye stuffs, reducing water through manufacturing process, designing eco-friendly showrooms/POS (point of sales), and a lot more. But is the impact really big? Is it measured and reported precisely in annual reports of all big or small organisations?
Globally, most brands are struggling with inventory as the biggest loss to profitability. This means if the sell-through is 70–75%, a decent 25–30% still remains as inventory in the process which never sees a customer or only partly reaches the customer at heavily marked-down values. This not only consumes warehouse costs and efforts, but is a major financial loss and profitability to brands too.
For the same reason, brands tend to hard-negotiate prices with manufacturers making them work on extremely thin margins or cut corners by sub-optimising work practices. Manufacturers are left with no major room for creativity/ R&D/ process innovation/service excellence, with their focus entirely on delivering the product on time to customers.
Does anyone gain in the entire supply chain here? Is any value being enhanced to the end-customer? Is this sustainable?
The answer is a firm “no”.
To my mind, the reason primarily is that unlike a typical automobile or FMCG (fast moving consumer good) setup where supply chains are seen more holistically and the attempt to implement ‘lean’ is visible across the entire supply chain, every cost or wastage incurred during each stage of conversion is seen as a loss towards delivering value to customer.
The bane of the apparel industry is its highly fragmented and disjointed supply chain. The customer, the buying houses, the garment converters, the mills, etc—all work in isolation and the KRAs (key result areas) for each remains limited. ‘Lean’ is mostly limited to a converter/ manufacturer which only adds < 15% of the final product cost to the end-customer, another 15% being the material costs. A lot of effort is being made to make this 15% efficient and effective through technology, training, process, etc—which is obviously good. However, very few tend to integrate the entire supply chain to make it agile, responsive, robust and efficient; monitor whole process of delivery, material, wastage and cost at each stage and the value related to the same.
In spite of so much of awareness towards supply chains and customers, even today a lot of manufacturers feel that the COGS (cost of goods sold) being 1:3 or even more for the retailer, the margins with the retailer are huge, and the price that he gets is minuscule and they get leveraged by the big retailers. The cost of inventory or loss of sale or logistics is not even hitting the mind here.
Similarly, the retailer will keep pushing the factory for lower prices despite ever increasing cost of labour, electricity and resources as his own margins are shrunk due to inventory and loss of sales; and eventually the power of negotiation becoming the most important deliverable not withstanding his own knowledge of SMVs (standard minute value), SAMs (standard allowed minutes) and minute costs.
I am obviously not discounting the negotiation usefulness as a part of the overall buying process, but I still feel that largescale buying cannot be done only though this, and this approach certainly does not improve anything—not tenable for sure. I have come across a pricing mechanism where a sourcing team would offer as CMPs (cut make profit) to a convertor, barely what needs to be paid as wages, or even lesser, at the best output levels ( as per SAMs!) and would tend to look at alternative vendors if this does not work out with one hoping that some vendor with desperation to fill up will agree and it does happen too unfortunately making it all a fait accompli in the short term.
Do we have a solution here? Is there such a marriage where every entity in the overall supply chain can work together cohesively and in a coordinated manner and benefit without compromising the value to the end-customer?
The answer certainly is ‘yes’.
This only can make the industry sustainable. How do we do this? Can we look at apparel as a process industry and not simply as a manufacturing or convertor entity? Processes need to work towards delivering value to end customers. Can we eliminate every activity, efforts or unit that does not add additional value to customer?
