The textile and apparel industry is among the largest industries of the world, generating a global value of approx. $3 trillion (2% of global GDP) and employing around 100 million people. The major driving factors are unrivaled creativity, diversity, and innovation. Which means, businesses of all sizes can make their pace in the industry.
The apparel industry is running on the road of success by continuously conquering the challenges with a right trading strategy, good market knowledge, advanced automation, and smart sourcing.
Sourcing decisions of apparel brands and retailers can make or break their business in a constantly changing environment. Smart apparel sourcing offers high efficiency and flexibility through the entire supply chain.
Brands and manufacturers define sourcing differently, brands define sourcing by a manufacturer who can deliver quality apparel at the right price and on time, while for the manufacturer it is the vendor from whom the raw material is being procured. Then, come buyers with an entirely different phenomenon.
Buyers across the globe are shifting their focus on factors like cost-effective, Agility, proximity sourcing, re-shoring, onshoring, and sustainability. Reshoring and onshoring are two different terms with a slight difference. Let’s talk about each of these in details and how its effecting apparel industry.
In the constantly changing world of outsourcing, reshoring is all set to transform the global supply chain and economy. Reshoring is not easy or cheap, as many counties have lost manufacturing skills because of previous offshoring.
According to a “Global Outsourcing Survey 2018” conducted by The Deloitte, nearly 49% of respondents are considering reshoring their operations by 2020. This is largely driven by increased wages in offshoring destination like China, Philippines, and India.
Factors making offshoring a more attractive to apparel factories and manufacturers are: Proximity between R&D, product development and manufacturing, reducing time to market, helps in streamlining processes, cutting down costs due to supply chain complexity.
Another major factor contributing to the decision on whether companies should have an overseas presence or not is access to foreign markets. With overseas presence, a business can build a good reputation in the market and an amazing brand value in the local market for their products. That’s why companies don’t reshore their business completely.
Another outsourcing explored here is onshoring. Also known as domestic outsourcing as it refers to the relocation of the business process to a lower-cost location within the national boundaries.
In onshoring outsourcing, apparel business hires supplier to perform work in the national borders. The two major factors responsible for the growth of onshoring are – rising labor cost and transport costs.
According to a study conducted by McKinsey & co. and the Sourcing Journal, most of the sourcing executives of apparel industry said, “a step-change in onshoring will accelerate the apparel market in the years ahead”. Factors driving this growth are
speedy fashion, advancement in automation, and sustainability concern. The apparel trading is here to change turn around the offshore-onshore equation.
Onshoring makes more economic sense with advance technologies as automation will increase labor productivity and offset higher labor costs. Majority of apparel brands and retail buyers consider automation capability while deciding the sourcing destination. Rest of the garment industry also need to build the skills needed for advanced manufacturing among their personnel.
Two years back, the net worth of the global fashion industry was $2.5trillion. The top 20 companies make 97% of the profits with most apparel business squeaking by on paper-thin margins. McKinsey also predicted the margin to go thinner in 2019 with the growth rate of 3.5 to 4.5 percent, straight 4 to 5 percent down to the previous year. Sky-high turnover rates present major supply chain challenges for organizations. No matter whether apparel businesses are constantly refreshing the style or offering a limited collection in a year, a streamlined supply chain is fundamental to get ever-evolving Stock Keeping Units (SKUs) to market.
The other driving factor is sustainability: Some 78% of sourcing managers believe that sustainability will also be somewhat or highly like a key purchasing factor for mass-market apparel consumers by 2025.
Apparel and fashion industry is cost-conscious since always and businesses are tightening their belts even further amid worries of an impending economic downturn. 52% of industry executives cite say cost-cutting is one their top supply chain priorities over the next three years. And onshoring and reshoring are the most cost-effective way of outsourcing. Industry players work to balance with speed, a centralized supply chain platform can help apparel businesses gain a better understanding of end-to-end operations and identify to run more efficiently.
TexPro: A platform that helps brands, manufacturer, and retailers to gain global market transparency and to manage their business relations more efficiently.