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.
As the fashion industry continues to grapple with the far-reaching impacts of the pandemic, it has become clear that the ability to swiftly respond to changes in the supply chain is a defining factor in achieving success.
On 6 June, 2023, SHEIN hosted a webinar that discussed how digitalization and agile supply chain models are helping fashion industry players gain a competitive edge in today’s market.
Panelists:
- Donald Tang, Executive Vice Chairman, SHEIN
- Divya Demato, CEO & Co-founder, GoodOps
- Veronique Yang, Managing Director and Senior Partner, BCG
As the world recovers from the standstill that was the pandemic, the customer purchase decision process has changed, as have the products being prioritized. Customers are demanding greater product variety, including more responsible options and faster product fulfillment to feed their desire for almost instant gratification. Veronique Yang, Managing Director and Senior Partner, BCG, said consumers are demanding more inclusive products with speedier delivery. She added that the growth of ecommerce channels during the pandemic has also driven customer demand for speedier delivery times – while holding expectations on quality and price.
“Consumers are becoming quite demanding and less forgiving, and the battle for those hearts and minds has intensified. And the battle has moved online,” added Donald Tang, Executive Vice Chairman from SHEIN. He further referenced results of a recent survey of over 2,500 SHEIN customers, where 87% reported shifting to more affordable fashion choices as a result of inflationary pressures.
With increasing global economic pressures, there has been a notable shift in supply chains, with companies increasingly having to adapt their models to survive. Said Divya Demato, Co-Founder and CEO of GoodOps, “These changes were happening before the pandemic, but the pandemic exacerbated it.” This was echoed by Donald Tang, who shared SHEIN’s business model of on-demand production. Veronique Yang further explained that companies are rethinking their global supply chain network – diversifying their supply bases “and sometimes even changing their supply chain models to prevent disruption.”
This drove the conversation towards the topic of resilience, which all speakers agreed was fundamental for the advancement of the fashion industry. While Donald Tang further shared how SHEIN had made it its mission to empower the supply chain since the start of SHEIN’s business, whether it was by funding their adoption of new tools and technology, or providing training and up-skilling to their workers, or even offering flexible settlement terms that are much shorter than the 90-days standard of the industry. Veronique Yang also added that resilience required creating more openness and transparency across the entire value chain – from suppliers to retailers. “They have to work together to problem solve the potential frictions… and digitization is a big part of that.”
Speaking to the recent report, Creating Agile Supply Chains in the Fashion Industry | BCG, Veronique Yang shared key learnings from BCG’s research:
- Digital technology can help improve performance across three measured commercial areas: balancing cost, speed to market and quality
- Digitalization helps streamline supply chain tasks and save time for suppliers. For example, an online fabric ordering database and order system makes it effortless for suppliers to carry out material preparation ahead of production
- People think it’s hard to control quality while keeping cost down. In reality, a digital system can predict and pre-empt potential quality issues, containing them from the very start of the value chain.
Donald Tang agreed, adding how on-demand fashion enables a brand to minimize waste while addressing the “fashion trilemma” – offering the broadest amount of choices, with frequent refresh while addressing inventory management. In this way, bespoke production can actually cost less than mass production.
Divya Demato countered that while there could be fewer articles of clothing upstream, fashion brands still need to consider downstream and post-consumption. She raised a call to innovation and investments in technologies and materials to support more sustainable fabrics for upstream.
In closing, speaking to forward looking change, Veronique Yang added: “Fashion industry companies – you have the responsibility and power and influence and to shape this together.”
In the short Q&A segment, there was much interest in SHEIN’s ability to replicate its business model in other markets. Donald Tang invited Marcelo Claure, Chairman of SHEIN Latin America, who was in the audience, to share about his plans and experience in rolling out manufacturing for SHEIN in Brazil.
If there’s one takeaway from the pandemic, it’s that an agile supply chain can make or break a company.
The pandemic exposed supply chain vulnerabilities that caught many fashion brands and retailers by surprise. Companies that didn’t have the agilities to pivot around isolated problems, solid supplier relationships to gain access to limited resources, or supply chain visibility beyond Tier 1 to appease an increasingly demanding consumer, were left out in the cold. Shifting consumer priorities also put pressure on fashion brands to produce faster, more broadly, more sustainably and without added cost—a four-way challenge if there ever was one.
The webinar “Agile Supply Chains: The Future of the Fashion Industry,” outlined how nimble supply chains offer a major competitive advantage, including improved customer responsiveness, faster time-to-market, reduced inventory holding costs and enhanced collaboration with suppliers. The discussion tapped into the knowledge of Donald Tang, executive vice chairman of global fashion and lifestyle e-retailer SHEIN; Veronique Yang, managing director and senior partner, Boston Consulting Group (a recent study outlined SHEIN’s supply chain advantages); and Divya Demato, CEO and co-founder of sustainable supply chain consultancy GoodOps.
Achieving supply chain agility is not easy, but digitization that empowers suppliers along the value chain to be more efficient, self-sufficient and make smarter choices is a sure path. It also requires a cultural shift and revolutionary rethink on the scale of Henry Ford’s auto assembly line, Walmart’s everyday low prices or Amazon’s overnight shipping.
And with consumers wanting more, more, more—from endless trend options to more inclusive sizing—brands must strike the delicate balance of creating more while keeping production waste to a minimum. This can only be achieved by really knowing what the customer wants, then using shared information and services, material economies of scale, and sharp manufacturing technology to do it efficiently.
“We reimagined the supply chain, which is a daunting task, and we have done it by digitizing the small- and medium-sized factories to give them visibility to see their own capacity, continued order flow and seamless efficiency. [We also] give them better liquidity because we pay them very fast and give them volume discounts on the raw materials,” said Shein’s Donald Tang. “All these benefits help them make better choices in terms of investments and how they run their factories.”
It comes down to collaboration and shared goals, so all stakeholders are on the same page. “The pandemic also drove the different parties of the ecosystem—suppliers, manufacturers, brands and retailers—to work together to solve frictions and problems,” said BCG’s Yang. “And digitalization is a very important foundation to enable that.”
Digitization links the chain
To get the best commercial performance out of the supply chain, companies must balance cost, speed to market and quality, said Yang, who noted SHEIN’s accurate demand forecasting, digital sampling to reduce inefficiencies, and new DTC approaches.
As fabrics account for approximately 65 percent of a garment’s costs, SHEIN takes steps to help all its suppliers, no matter their size, optimize their textile buys. Based on market forecasts, SHEIN consolidates the fabric early on, then digitizes fabrics so its suppliers can instantly and easily place orders. Digital analysis then looks at which factory is optimized for an order, reducing redundancy and wait time.
On speed to market, digitalization streamlines production and orders, removing admin and coordination time, while preset criteria creates alignment with all players. On quality, a digital feedback system helps “identify and contain” quality issues.
“People think it’s very hard to control quality when you’re trying to control a call center, but with the digital system, you can feed all the quality issues back into the system. And then this can lock into the average crux of the supply chain,” Yang said. “So starting from the design, you are already pre-answering the potential quality issues.”
Sustainability must drive end of life
As most of fashion’s impact happens upstream, it’s up to the brands to cut production waste and harmful emissions—without passing along the costs to consumers who say they are willing to pay more for sustainable goods but don’t always demonstrate that with their wallets. SHEIN’s on-demand agile supply chain facilitates sustainability by effectively addressing over-production through the alignment of production with customer demand, responsive order fulfillment, reduction of excess inventory and waste, and enhancement of overall supply chain efficiency.
But there’s also an urgency to explore what is happening downstream, especially since fashion demand isn’t going away. And more fashion merchandise coming into the world means more must be dealt with on the other end.
“Sustainability is very challenging. Yes, there can be less waste upstream, but how many articles of clothing downstream are going into the world?” said GoodOps’ Demato, noting that only a miniscule percentage of fashion is recycled, and even garments made from recycled bottles don’t remove fashion waste from landfill. “What can we do upstream with more sustainable materials to help what happens downstream? From a circularity perspective, we have to think about the entire system. That’s a very critical piece in this entire conversation.”
As a major fashion retailer, SHEIN is taking this seriously, but concedes it must be a global effort.
“It’s all going to come down to whether we work together or not, because if we tried to do these things separately, then everybody will fail,” said Tang.
One sustainability action SHEIN recently took was to partner with Queen of Raw, a company that sources existing materials from brands and retailers looking to responsibly clear out their excess fabric inventory rather than have it go to waste in landfills. The company says that diverting 1 million yards of fabrics from excess inventory would set SHEIN on the trajectory to become one of the global leaders in repurposing deadstock materials, helping conserve water and preventing the creation of carbon dioxide equivalents that would have been generated through conventional production methods.
“We have to take bigger steps to really address that through a point of view,” Tang added. “If you can find a way to do well while doing good, and do good while doing well, that’s a great resource.”
