With the covid-19 pandemic adversely affecting the global textiles and garment industry supply chains, companies and other stakeholders are grappling with the disruption by means of changed strategies, shifting priorities and raising safeguards.
Supply chain management (SCM) integrates key business processes from the end user to original suppliers who provide products, services and information that add value for customers and other stakeholders. It depends a lot on functional integration, especially in a dynamic industry environment like that of textiles and garments where demand is both uncertain and seasonal and product lifecycles are relatively shorter.
China joining the World Trade Organization (WTO) in 2001 and the expiry of the WTO Agreement on Textiles and Clothing on January 1, 2005, contributed to making that country an important centre of textiles and clothing global value chains (GVCs), according to the United Nations Conference on Trade and Development (UNCTAD), which attributes the shift in apparel production and sourcing to China and other Asian countries by global retailers and producers because of low labour costs to these two developments.
The novel coronavirus pandemic, which started in China, and the resulting lockdowns across the world gradually led to disruptions in the global supply chain of all industries.
Many companies in the textiles and garment sector were compelled to reconsider suppliers as they struggled to carry on with production demands. The fallout of the US-China trade war had already made the situation unfavourable for many of these having a large sourcing base in China. Cost mitigation by reconsidering supply chains was a dire need for many, and that warranted flexibility and agility.
Despite China being the world’s largest garment and textiles exporter, several emerging markets like Bangladesh, Cambodia, India, Vietnam and Indonesia have of late turned key players in the global fashion industry. But a prime hurdle is inexperience as suppliers in these countries are still in the infancy level of cultivating their production processes, regulatory certification and compliance and quality systems. Resource constraints of many such mid-level suppliers are also a genuine problem.
Advanced machinery and trained staff to operate sophisticated systems are absent in many such companies that act as a barrier to meeting global quality standards. The anxiety of not meeting production deadlines often leads to over-dependence on subcontracting, which leads to reduced quality and production transparency. Companies in smaller countries cannot quickly match the robust supply chain resources and capabilities existing in bigger ones like China.
Shifting makes little sense and results in a more complicated supply chain leading to longer lead times, supply disruptions and quality degradation when factories in potential alternative countries are already importing a substantial percentage of their raw materials and components from other countries, especially China. For example, 70 per cent of woven fabrics used in Bangladesh’s garment industry and 90 per cent of Myanmar’s are sourced from China. Therefore, early this year when China witnessed lockdowns, these supply chains were temporarily compromised. Despite investing heavily in infrastructure in recent years, most of these smaller countries are still far behind the developed world.
A just-released survey by Sedex, a leading ethical trade membership organisation working with businesses to improve working conditions in global supply chains, found 86 per cent of supplier businesses in the apparel sector and 62 per cent in the textiles sector have suffered reduced orders.
The pandemic has hit maritime transport networks, with a reduction in service frequency (blank sailings and idle fleet) and changes in routing affecting particularly Asia-Northern Europe services, a vital axis in the trade of fashion goods. Shipping lines reduced the number of port calls in the maritime services they offer to adapt to declining demand and cargo imbalances. This would have likely affected the liner shipping connectivity of sourcing countries both in terms of intercontinental as well as intra-regional feeder calls and, if this situation persists, could make economic recovery even harder, an UNCTAD article said in May.
The pandemic adversely hit every link of the supply chain, including around 100 million households directly engaged in cotton production across the world and an estimated 300 million people working in the cotton sector, taking into consideration those involved in ginning, baling, storage and transportation. Fabric suppliers witnessed alarming order reductions during the peak pandemic period. Similar was the plight of companies providing chemicals and dyestuff, machinery manufacturers, transporters and warehousing companies.
According to Dmitry Ivanov, professor of supply chain and operations management at the Berlin School of Economics and Law, epidemic outbreaks are characterised by three elements: unpredictable long-term disruption, the ripple effect propagating disruptions throughout the supply chain and concurrent disruptions in logistics networks and in supply and demand.
A research paper published in the Journal of Risk and Financial Management in August 2020 found while lean supply chain management is primarily favoured for its cost and waste reduction advantages, the structure is limited by the resulting lack of supply chain transparency as well as the increasing demand volatility observed even before the covid-19 outbreak. Although this problem might exist in an agile supply chain, it combats this by focusing on enhancing communication and buyer-supplier relationships to improve information exchange. However, this structure also entails an associated increase in inventory and cost.
The pandemic has caused supply and demand disruptions that have resonating effects on supply chain activities and management, indicating a need to build flexibility to mitigate epidemic and demand risks, the paper’s authors from Australia and China said. They observed a unique dimension in ‘epidemic disruption’: different parts of the supply chain will experience varying levels of disruption at different periods, either from a ripple downstream, or as a direct result of local lockdowns. While China’s covid-19 lockdowns began in late January, most European countries (excluding Italy) did not lock down until mid-March. The varying epidemic responses and infection rates among countries also affect supply chains. By August, supply chains in Africa faced significantly less disruption than those throughout Southeast Asia due to significantly lower infection rates.
In early 2020, when China implemented lockdowns, these supply chains were temporarily compromised. This also brings to the fore the geographically complex and interdependent nature of fashion, which makes it prone to epidemic disruption and its consequent ripple effect. China’s lockdown immediately affected its exports and in turn, delays propagated down the supply chains. Conversely, as Chinese factories and stores began reopening, the ongoing lockdown in Southeast Asia, Europe and the Americas continued to disrupt China’s production capabilities. These delays are problematic in the fashion industry, as clothes are often sold on a seasonal basis. Comparatively, in fast fashion, where clothes are often sold on two to four-week cycles, supply chain disruption presents an even greater challenge.
The pandemic has revealed a new set of SCM risks for multinationals. The lean supply chain, which relies on just-in-time and zero inventory management strategies, is overexposed to epidemic disruption. However, building agility is an expensive exercise and it would be impractical for firms to completely overhaul their supply chains to manage black swan events like this pandemic, the Australian and Chinese experts said in the journal. To tackle supply chain disruption, they suggested firms can look to build buffers to mitigate the ripple effect in the medium-term when a single supplier is compromised, and businesses should quantify support for partners for recovery of suppliers and identify where to implement these support to maximise benefits.
The Sustainable Apparel Coalition (SAC), ZDHC Foundation (ZDHC), Textile Exchange and the Apparel Impact Institute (AII) in September announced new partnerships to accelerate impact and drive new efficiencies for the industry. Based on their core competencies and complementary efforts, the organisations are forming an alliance of resources and offerings for the global value chain badly hit by the pandemic. They will connect complementary frameworks; consolidate efforts to benchmark impact improvements in key areas; co-investing in infrastructure, training, education and regional access; and seek a substantial decrease in resource expenditure on operational matters by engaging in shared services and creating economies of scale with external service providers.
Sedex, which witnessed a 50 per cent fall in the number of Sedex members ethical trade audits (SMETA) in April- June compared to the same period in 2019, has rebuilt its Risk Tool. The company strongly recommends that all businesses increase the knowledge of their suppliers beyond the first tier of supplier relationships to face such crisis situations.
A return of the supply chains to absolute normal will of course take time.
This article was first published in the November 2020 edition of the print magazine.
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