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R/EVOLUTION The radical changes apparel needs to battle back from the COVID crisis and insulate from future risk


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//WELCOME Accelerating Out of the Crisis There’s no question that the word of the year has been ‘unprecedented.’ A global health crisis. Shuttered stores. Stayat-home orders. Travel restrictions. Spiraling unemployment. And rising social unrest. It’s more than anyone could have imagined—and almost more than apparel and footwear could withstand.

While the mandate to overhaul product, processes and culture seems insurmountable, the pandemic has already brought about achievements that were unthinkable just six months ago. A perfect example is BOPIS and curbside pickup. Once luxuries, they’re now a lifeline offered across store chains, geographies and product categories. Overnight, retailers mobilized their physical locations, transforming them from experiential hubs to consumer-facing fulfillment centers. That swift action is proof positive it can be done. Now it’s time for the rest of the industry to act with similar alacrity, slashing timelines and eliminating layers of decision making. In an environment in which change comes fast and uncertainty is the only given, there is no other choice. In this report, thought leaders in apparel and the larger retail landscape weigh in on how to accomplish the most critical changes the industry must undertake to refashion the market for today’s consumer and tomorrow’s unpredictability. Sincerely, Caletha Crawford Publisher Sourcing Journal

CONTENTS

Rocked but persevering, the industries must re-engineer operations to usher in the initiatives that had already been in the works for some and on the distant horizon for others. Agility, traceability, speed, collaboration, accountability and environmental responsibility are the imperatives. And they must be achieved now. The time for incremental changes is over. It’s time for a R/Evolution.

04 R/Evolution 08 Tradewind Finance on Collaboration 10 Suuchi Inc. on Speed 12 Accenture on Accountability 15 Lenzing on Emissions 16 Kornit Digital on Agility 18 Lectra on Digitization 21 QIMA on Risk Mitigation 22 Alba Wheels Up on Importing 24 IBM Services on Marketing 27 Tommy Bahama on Sourcing 28 Eurofins on Audits


SOURCING JOURNAL SUMMIT 2020

R/EVO


LUTION Webster defines revolution as “a fundamental change in the way of thinking about or visualizing something: a change of paradigm.” For that reason, R/Evolution is more than just the theme for the 2020 Sourcing Summit. It’s a rallying cry. In the face of an international health crisis, which has rocked every aspect of everyday life, incremental change is no longer enough. The apparel industry has been confronted with the urgent need to overhaul long outmoded products and processes in order to emerge ready to meet the demands of today’s consumer.


/////// Tradewind Finance on Collaboration

TRADITIONAL APPROACH: Operating largely on a buyer-led supply chain, which leads to the prioritization of low costs above quality control, healthy working conditions and staff satisfaction. R/EVOLUTIONARY MANDATE: Take a more collaborative approach where suppliers have a say and priorities, like sustainability and fair, safe workplaces, are enforced at every level.

Eurofins on Audits

TRADITIONAL APPROACH: Focusing supply chain audits primarily on the performance of the product and the factory’s ability to manufacture proper quantities to meet demand. R/EVOLUTIONARY MANDATE: Conduct comprehensive, thorough audits that check for product safety, employee health and compliance with ever-changing COVID-19 safety regulations.

R/EVOLUTIONARY Lectra on Digitization

TRADITIONAL APPROACH: Being overly dependent on the “design, make, sell” model that has contributed to major overstocks throughout the apparel supply chain when products don’t sell well. R/EVOLUTIONARY MANDATE: Embrace the “design, sell, make” model through on-demand manufacturing and digitized supply chains to aid direct-to-consumer sales.

Suuchi on Speed

TRADITIONAL APPROACH: Relying on manual, disconnected processes within the supply chain, which are often time consuming and ultimately deliver outdated, incomplete or even inaccurate information from end to end. R/EVOLUTIONARY MANDATE: Improve supply chain speed to market by focusing on data collection efforts necessary to automate manual and disconnected processes and make smarter business decisions.

Accenture on Accountability

TRADITIONAL APPROACH: Operating in the dark and allowing harmful practices to flourish in the name of efficiency and cost savings.

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R/EVOLUTIONARY MANDATE: Bring transparency to incredibly complicated systems to drive sustainable and ethical practices.


IBM on Marketing

TRADITIONAL APPROACH: Offering products with generic marketing messages without regard for, or proof of, the provenance of the goods.

R/EVOLUTIONARY MANDATE: Market around products that are traceable and aligned with consumers’ values.

Alba Wheels Up on Importing

TRADITIONAL APPROACH: Taking an insular approach to operations that leaves companies vulnerable to geopolitical and trade disruption and uncertainty. R/EVOLUTIONARY MANDATE: Work closely with trade associations and customs attorneys to educate themselves on opportunities for better tariff rates and sourcing options.

QIMA on Risk Mitigation

TRADITIONAL APPROACH: Relying on partial data and manual processes to learn about the performance of suppliers and quality trends in orders. R/EVOLUTIONARY MANDATE: Leverage digital technologies to deploy automation, standardized quality processes and shared actionable insights, ultimately boosting transparency throughout the entire chain.

MANDATES Lenzing on Climate Change

TRADITIONAL APPROACH: Passively reducing CO2 emissions within the apparel supply chain by having few tangible goals and offering limited transparency into materials used and production processes. R/EVOLUTIONARY MANDATE: Actively reduce CO2 emissions within the apparel supply chain through the commitment to science-based targets, on not just an individual, but a collaborative level.

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Kornit Digital on On-Demand

TRADITIONAL APPROACH: Manufacturing without taking waste into consideration during apparel production. R/EVOLUTIONARY MANDATE: Leverage agile technologies, such as digital textile printing, to respond to customer demand for endless variety, fast delivery, and sustainably sourced and produced clothing.

Tommy Bahama on Sourcing

TRADITIONAL APPROACH: Pinching pennies at every turn as the sole means for differentiating products in the marketplace and driving profits. R/EVOLUTIONARY MANDATE: Boost margins by prioritizing a range of factors when it comes to sourcing, based on product category and customer. /7/


//COLLABORATION chain is now more important than ever, as we see how factors that are out of the apparel industry’s control, like the pandemic, can wreak havoc on all stakeholders. Supply chain finance is one way to generate working capital for both retailers and their suppliers, which may be something buyers and their partners want to consider in order to support healthy business relationships.

R/EVOLUTIONARY MANDATE: Take a more collaborative approach where suppliers have a say and priorities, like sustainability and fair, safe workplaces, are enforced at every level.

The COVID-19 pandemic has taught us that supply chains fall apart when the different gears operate without regard for one another. Peter Maerevoet, chief financial officer of Tradewind Finance, explains that if retailers and their supply partners fail to work on a unified front, the apparel industry may suffer more distress going forward, with less demand, less product and fewer opportunities that come to fruition, all of which can lead to their demise. Sourcing Journal: Despite the frequent use of the phrase “partnership,” the dynamic between brands and retailers and their production facilities and suppliers is often lopsided. How did this dynamic arise? Peter Maerevoet: The main driver of this disparity is the abundance of suppliers in a buyer’s market and the fight to get the lowest cost, which is the strategy of many retailers. Also, traditionally, in-store shopping has been the predominant channel used by consumers to buy clothing and other products, where on-shelf availability attracted shoppers to a store and helped drive a purchase. Visiting a physical storefront to shop, and the experience that came with it, sealed the retailer as the “face” of a brand. As such, the store, rather than the supplier, became the power player in the supply chain relationship.

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SJ: What are brands and retailers missing by not listening to their supply chain partners and bringing them into the decisionmaking process? PM: Suppliers are at the source of the production process, supporting teams who make the clothing and dealing with vendors and fabrics first-hand. There are insights that suppliers have that retailers may not have the full scope on, like factory conditions, staff satisfaction, local knowledge pertaining to pricing, and input that comes with intimate vendor relationships. Involving supply chain partners in the decisionmaking process can help create a better product and a more incentivized team, which can result in consistent supply. SJ: In what ways has the pandemic and the reaction to the drop in consumer demand played a role in the need to re-evaluate supply chain relationships? PM: Retailers have disregarded payment terms, leaving suppliers in a liquidity predicament. Now, some suppliers are taking a stand, threatening to exit a partnership with a customer if certain conditions aren’t met. Under these tensions, more focus has been placed on the negotiation process to protect supply chain relationships. Negotiations may include retailers’ yielding to more supplier demands and becoming more transparent with their sourcing partners. Cohesion along the supply

Cohesion along the supply chain is now more important than ever, as we see factors like the pandemic wreak havoc on all stakeholders.

SJ: What areas of the industry would benefit most if suppliers and factories were on a more even footing designed to foster collaboration? PM: Social responsibility goals could be more widely achieved if they were promoted at every level, with retailers implementing guidelines and training for suppliers so that all could work toward the same mission. Using trade finance can strengthen areas like R&D by freeing up working capital for retailers and their supply partners to perform such endeavors and pursue growth. SJ: What will this mean for the workers who create raw materials and finished goods? PM: This collaboration could lead to a better environment and labor conditions for factory workers, and hopefully an enhanced morale overall.

PETER MAEREVOET

CFO, Tradewind Finance


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CEO & Founder, founder, Suuchi Suuchi Inc. Inc.

//SPEED

SUUCHI RAMESH

complex and clunky that they limited who could use them, and the value companies could pull from them. Additionally, we see many businesses concerned about onboarding their factory partners that maintain manual practices. SJ: Where does data collection fit into improving speed to market, and how does it allow for smarter decision making? SR: When businesses start to marry all of their data from product development through the sales cycle, they can ensure data integrity for smarter decision making. For example, a company can see which SKUs are top-sellers and then see the production lead times for those SKUs. This data allows the merchandisers and buyers to invest in the SKUs that they can turn around the fastest and improve profitability.

R/EVOLUTIONARY MANDATE: APPROACH: Improving Improve supply supply chain chain speed speed toto market market byby focusing focusing on data collection efforts necessary to automate manual and disconnected processes and make smarter business decisions.

Speed to market is often looked at through the lens of fast fashion, according to Suuchi Ramesh, CEO and founder of Suuchi Inc. Because of this mindset, businesses feel pressured to adhere to short timelines and only pick vendors that can turn around high levels of inventory in a shorter timeframe. This quick fix only puts a Band-Aid on the broader issues that impede speed. Instead, companies must focus on improving specific operational tasks. They should ensure that their high-priority tasks are always running at maximum efficiency before addressing the low-priority items. Sourcing Journal: From your perspective, where is the most time lost in the product development and production processes? Suuchi Ramesh: Most businesses lose time during the vendor selection and sampling processes. When it comes to vendor selection, few companies have an optimized system for managing their vendor partners. That means employees waste hours searching for paperwork, negotiating payment terms and confirming capacity and capabilities.

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The sampling process is also time consuming due to the back-and-forth between separate pattern makers, technical designers and sample rooms. SJ: What role can technology play in helping apparel businesses become more efficient? SR: Historically, software in the fashion industry has been specific to individual stages (i.e. product development, distribution, etc.). Partially due to the digital revolution caused by COVID-19, fashion businesses are seeking out nimble systems to connect their entire supply chain. They improve connectivity across internal and external employees, teams and vendors, and help to digitize manual, on-location tasks using their streamlined software features. SJ: Why have companies still been reluctant or unable to digitize their processes? SR: While many businesses have technology investments slated within the next five years, we often see hesitation centering around outdated systems that were not built to reflect the users or the industry. Historically, supply chain systems were so

“

When businesses marry the data from product development through the sales cycle, they can ensure data integrity for smarter decision making.

SJ: In addition to historical sales data, what other types of data is vital when addressing speed? SR: The next step for truly data-driven decision making is to integrate their data across every point in the supply chain. As I mentioned above, vendor management data is critical to addressing speed to market challenges. Additionally, real-time work in progress (WIP) reports are vital to identifying where a company has optimized a process and where they need to invest in improving efficiencies. SJ: What areas of the supply chain would benefit from having more access to shopper data? SR: Technical design teams and merchandising teams need to approach their jobs as if they were data scientists. If a company can empower its employees who “touch� the product first to take a data-driven approach, it can significantly minimize the execution risk for new products.


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//ACCOUNTABILITY R/EVOLUTIONARY MANDATE: Bringing transparency to incredibly complicated systems to drive sustainable and ethical practices.

Traditionally, supply chains have been extremely—and some might say, willfully—opaque but today’s consumer is quick to cancel any brand or retailer that falls short of its stated values, so it’s time to pull back the curtain. Jill Standish, senior managing director and global head of retail at Accenture, says it’s possible for the industry to be both sustainable and profitable but it won’t happen without transparency and accountability. Sourcing Journal: What are consumers’ expectations today about retailers’ responsibilities related to product safety and the workers who make their goods? Jill Standish: In a world where retailers face jury by social media at every moment...a company’s purpose and responsibility is more important than ever. Consumers are more environmentally and socially conscious, turning to brands that not only talk about responsibility—but demonstrate it. Our research showed that consumers think retailers also have a responsibility to address wider social issues through their business practices and working conditions. How many retailers can honestly say they’re ready for that level of transparency? In their journey to become responsible businesses, retailers and brands need to act in tune with their values and ensure that their stakeholders—consumers, employees, investors, partners, and the planet—are with them every step of the way.

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SJ: How can retailers develop a culture that permeates their supply chain and consumer relationships? JS: Retailers and their supply chain partners will need to rebuild their supply networks to serve a radically different set of circumstances... and transparency and traceability must be the guiding forces. Data-driven ESG (environmental, social & governance) solutions are required to provide information and traceability. The potential benefits are huge, and given the scale of the process, there is a diverse range of opportunities. Strong partner relationships make or break retailers’ ability to develop the breakthrough business models that embed resilience and drive growth. As such, retailers’ work with partners ultimately informs how well they deliver to investors. SJ: How can the industry bring accountability into the equation? JS: The imperative for responsible retail and accountability is just that—an imperative. At Accenture, we have identified key considerations for restarting the supply chain post-pandemic: 1. Brands and suppliers need to make responsibility and sustainability systemic by making it integral to their strategy—a data-driven ESG management approach. This means aligning their existing purpose with, for example, sustainability goals and considering it against measures of business growth. This should

In a world where retailers face jury by social media at every moment, a company’s purpose and responsibility is more important than ever.

make sustainability equivalent to cost, lead time and quality. 2. Responsibility and sustainability works as it makes economic sense. It drives customer and employee loyalty. Investors look at ESG as a key indicator that a company is well run and managing future risk. 3. Organizations need to develop friendships and build strategic cross-tier relationships to put themselves on the leading edge of the industry. Cross-sector collaborations and ecosystem solutions are required to serve and solve. 4. The industry needs to find common ground when it comes to reporting language, standards and working practices…this should be an extension of existing practices, rather than a radical evolution. 5. Audits are an industry-wide challenge. If brands collaborate to standardize audit requirements and their frequency, they could radically improve efficiency and visibility. 6. Legacy systems need a radical restyle. Without the use of AI, predictive analytics, track & trace technologies and others, it will be difficult to improve inefficient processes currently challenging brands and suppliers. [Focus on] upgrading systems and unlocking the trapped value in the formidable amount of data they are already collecting and storing.

JILL STANDISH

Senior Managing Director & Global Head of Retail, Accenture


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VP of Global Business Management Textiles, Lenzing

FLORIAN HEUBRANDNER

at their sites. We find that most partners are very open to reducing emissions and often come up with great ideas to do so. I think a broad commitment to sciencebased targets by more leading industry players would be a very important action point. SJ: What types of government regulations or support would have the biggest impact in stemming climate change? FH: I think we need a good mix of positive incentives and certain rules or regulations. For example, why not ask companies to be transparent about a garment’s CO2 footprint at the point of sale? Additionally, governments can promote CO2 reduction actions such as the use of materials with low CO2 footprint or incentivize investments into energy efficiency and renewable energy.

R/EVOLUTIONARY MANDATE: Actively reduce CO2 emissions within the apparel supply chain through the commitment to science-based targets, on not just an individual, but a collaborative level.

The apparel industry has recognized climate change as a major threat not only for the environment but for the industry as well. As a result, more fashion firms are making commitments to reduce their carbon emissions. With aggressive pledges of its own, Lenzing wants to lead the way—and help the entire supply chain follow suit. Florian Heubrandner, vice president of global business management textiles at Lenzing, explains why it is crucial for the industry to create these goals and adopt sciencebased emissions targets. Sourcing Journal: Lenzing has pledged to reduce CO2 emissions by 50 percent per ton of product by 2030. How have you implemented this initiative across the organization? Florian Heubrandner: In a first step, Lenzing has done a very detailed diagnostic to understand where our CO2 emissions come from. Based on that, we’re developing specific initiatives and actions for each location to reduce the emissions. Ideas include investments in energy

efficiency, the use of green energy and working with our suppliers to make sure their raw materials become more sustainable. There is a central team coordinating all these actions. SJ: Why is adopting science-based targets important? FH: Adopting science-based targets shows that you truly care about the impact of climate change. It means that you put your money where your mouth is, because you’re committing to action and results. The textile industry has a huge CO2 footprint, but our industry can have a very positive impact on the climate if we adopt a different way of working. Sciencebased targets are the first step towards that commitment. SJ: How can companies go about measuring and reducing indirect emissions throughout their supply chains? FH: At Lenzing, we cooperate with our key suppliers and partners to understand their footprint and discuss actions toward how to reduce CO2 emissions

Adopting sciencebased targets means that you put your money where your mouth is, because you’re committing to action and results.

SJ: The industry is very influenced by consumer sentiment. What are some ways to get shoppers on board with this need to change? FH: I think we need to make it transparent to consumers that fashion is responsible for a portion of CO2 emissions. Secondly, we need to provide sustainable alternatives and encourage consumers to make a positive contribution since many are willing to pay (a bit) more for sustainable products. SJ: What’s your advice for those that want to maintain or even accelerate their sustainability initiatives despite the current challenges? FH: Stay the course. I think due to COVID-19, many consumers have become more aware of the environment and climate change. It’s a great moment to stand out from the crowd by offering truly sustainable alternatives and sharpening your company’s image in that respect.

//CLIMATE CHANGE /15/


//ON-DEMAND encouraging to see how many of them are being extremely resourceful and creative in developing new business models and seizing on new opportunities. It’s this shifting landscape that is forcing the fashion industry to accelerate trends that were already in motion before COVID— more sustainable practices, and a more agile approach to market demand and inventory. As more businesses observe the ease and success of this on-demand production model, buy-in will continue to snowball; it’s profitable, and it answers the sustainability imperative consumers demand these days.

R/EVOLUTIONARY MANDATE: Leverage agile technologies, such as digital textile printing, to respond to customer demand for endless variety, fast delivery, and sustainably sourced and produced clothing.

Sustainable manufacturing and flexible, agile supply chains are the only way fashion and apparel retail can survive in the secular shift to online shopping. Brands that don’t adopt both digital transformation and corporate responsibility will not survive, according to Omer Kulka, chief marketing officer at Kornit Digital. Sourcing Journal: Many companies are trying to lessen their environmental impacts. How much momentum could they gain by re-evaluating their traditional printing methods? Omer Kulka: The biggest conceptual jump they can make is to produce based on what the consumer actually wants, rather than trying to forecast what the consumer may want in the future. I’m talking about what the consumer has already ordered— even paid for. The technology digitizes the back-end fulfillment (connecting the front end to the back end), making production more agile and enabling brands to produce on demand. This leads to more sustainable production by allowing brands to cut down on excess, unsold products. SJ: How much time and resources does digital printing save? OK: Digital eliminates water and water waste from the process, completely. Considerable manhours are saved because digital production begins at the push of a button, removing

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every stage of setup from the equation. Relative to screen printing, for example, digital produces a finished piece within a few minutes. This means a considerable uptime boost; many digital-enabled fulfillers are producing 24/7. One ink set applies to a multitude of textiles, creating efficiency for manufacturing with different substrates. Waste ink is nearly eliminated from the process. SJ: Apparel has been facing overstocks for decades, all of which becomes waste. What role could on-demand play in correcting this? OK: We need to break the boundaries of “digital printing” and talk about on-demand decoration and/or production. Overstocks cease to be an issue when you are able to produce what the consumer wants, in an agile way, at a manufacturing site that is close to the consumer. You know what will sell because it’s already been sold and empowers the fulfiller to produce the piece at the speed of e-commerce. We call this moving from excess inventory to agile inventory. SJ: What do you think it will take for more of the industry to increase adoption of technologies like digital printing that aid in sustainable achievements? OK: While many of major players in traditional retail are no doubt hurting right now, it’s

Overstocks cease to be an issue when you are able to produce what the consumer wants, in an agile way, at a manufacturing site that is close to the consumer.

SJ: Sustainability is a huge challenge, one that is bigger than any one company. In what areas should the industry collaborate? OK: Efficient, intelligent workflow technologies eliminate waste from the end-to-end production process, while optimizing visibility throughout to ensure accountability and compliance. Furthermore, anything that supports proximity production is a step forward in this regard, as it tightens supply chains, eliminates transport-related waste and pollution, overproduction and discourages a continued reliance on overseas suppliers that do not show a commitment to sustainable values.

OMER KULKA

Chief Marketing Officer, Kornit Digital


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same day you order it is a reality today. Consequently, adapting to behavior changes must be fast. From a retail and manufacturer point of view, on-demand is a transformation of the business but can also be a very valuable addition to existing models. The future will certainly be a mix of on-demand and agile business models, fully connected and sharing the same information in one platform.

R/EVOLUTIONARY MANDATE: Embrace the “design, sell, make” model through on-demand manufacturing and digitized supply chains to aid direct-to-consumer sales.

Inventory pileups and the subsequent markdowns have plagued the fashion industry for decades. Owing to a fashion calendar that’s out of step with consumer buying patterns and a rigid supply chain, both progress and profits have remained depressed. But new tools that allow companies to amass and analyze shopper data as well as tech that more efficiently connects brands and their suppliers promise an overhaul of the entire product development and production processes. Edouard Macquin, president of Americas at Lectra, says the companies that get on board will achieve agility that will differentiate them in the long run. Sourcing Journal: “Design, make, sell” has resulted in massive overstocks—and that’s even before the pandemic. How can the industry get out of this damaging cycle? Edouard Macquin: The model of pushing products to the market and crossing your fingers in hope that they sell is coming to an end.

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It does not mean the end of massmanufactured products though. Agility is the new challenge within the entire supply chain. It means a strong anticipation and on-the-spot reactions of the consumers’ needs. A reactive supply chain is key and will become a matter of survival. SJ: We hear about digitization a lot but where should fashion firms start in order to see the biggest returns? EM: Where to start is a big question. Supply chain flows are relatively digitized today, but that’s largely not the case of merchandising, creation and development. Such processes must be fully digitized; they are critical in terms of brand image and time-to-market challenges. There are huge financial risks at the beginning of the life of a product. SJ: For companies that aren’t sure if on-demand manufacturing is for them, what do you say about its use cases for fashion? EM: Having your garment engineered and produced the

Agility means a strong anticipation and on-the-spot reactions of the consumers’ needs. A reactive supply chain will become a matter of survival.

SJ: Brands are attempting to shift more toward selling direct. What operational changes do they need to make to create a more responsive supply chain? EM: Brands with a real e-commerce identity have been more resistant to the crisis, whatever the market sector. This is the beginning of a structured digitization process. We see more integration happening between retailers/ brands and their supply chains, one of a more “open book” spirit. It is also a model where they must work with fewer partners, but fully integrated. In any case, big data adds a layer of analysis required for this transformation. It will also allow suppliers to adapt their tools to the shift of the brands to a mix of local and global sourcing. SJ: Which companies are best positioned to emerge from the COVID crisis intact and moving ahead of the competition? EM: We have talked a lot about why we needed smart technologies agile enough to respond to market demands and business challenges: it is about how to do it as soon as possible, not why anymore. The companies that can maintain quality, control, speed and efficiency through adversity and can adapt to market shifts more rapidly than anyone could have predicted will be better positioned for success.

//DIGITIZATION


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//RISK MITIGATION R/EVOLUTIONARY MANDATE: Leverage digital technologies to deploy automation, standardized quality processes and shared actionable insights, ultimately boosting transparency throughout the entire chain.

Apparel production has never been without risk but the recent pileup of natural disasters, geopolitical strife and rising costs have greatly increased the number of costly— and even devastating—challenges. The task of delivering high quality, safe and compliant products from facilities around the globe requires new tools and mindsets. Sebastien Breteau, founder and CEO of QIMA, explains how data provides transparency across a vast network of factories and suppliers, allowing brands and retailers the insight they need to remain agile in the face of a crisis like the pandemic.

consumer demand and emerging operational risks. The only way to survive was to explore new suppliers, a time consuming and costly endeavor lined with hurdles and potentially harsh implications for quality and transparency. Brands with a proper risk-mapping system in place—armed with 360° visibility on suppliers along their whole supply chain—were able to quickly respond to shutdowns, relocate sourcing to unaffected locations and schedule remote inspections when possible.

Sourcing Journal: What type of pressure does diversification put on quality control processes? Sebastien Breteau: As apparel brands diversify operations to multiple countries, they face a new set of challenges for tightening quality control and maintaining transparency across a larger decentralized network of suppliers. These challenges include fragmented and inconsistent data, siloed communication, lack of training and disparate systems that can significantly impact margins and quality.

SJ: What risks are companies facing when they barely have visibility into tier 1 operations? SB: Amid limited transparency, brands expose their supply chains to risky subcontracting practices, hazardous working conditions, poor quality, elevated environmental impact, supply chain disruptions and brand reputation damage. When businesses lose the ability to trace and monitor how their products are being made, these risks can cost them millions. To drive efficiency and continuous improvement, brands should be able to map their entire supply network from mills to stores.

SJ: How could a more transparent supply chain have saved brands and retailers both time and money during the pandemic? SB: When China shut the doors of its factories, companies were faced with unprecedented shutdowns, travel restrictions, backlogged orders, uncertain

SJ: How can data-powered inspections boost transparency across a vast network? SB: The more complex and diversified supply networks get, the greater the need for brands to make better and faster decisions based on data they can trust. Data-powered inspections,

implemented at every step of the manufacturing process and in every tier of their supply chain, empower brands and factories with real-time insights. In turn, these insights can be used to fine tune risk-based quality control programs, identify which suppliers or products are most at risk, manage corrective and preventative actions and reward high performing factories. This essentially builds a virtuous improvement cycle through the whole supply network with advantages not just for brands and retailers but also for suppliers and inspectors. In the long run, all parties benefit from continuously improving quality and compliance.

The more complex and diversified supply networks get, the greater the need for brands to make better and faster decisions based on data they can trust.

SJ: How can brands and retailers achieve transparency without expending excess resources on policing their supply chains? SB: This high level of transparency could be achieved through the digitization of quality and compliance processes. Apparel brands can optimize resources and deploy relevant risk-based inspections to their team, factories or third-party quality control agencies on the ground. Because they’re using real-time data, suppliers are empowered with best practices and given recommendations tailored specifically to their needs.

SEBASTIEN BRETEAU

Founder and CEO, QIMA

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VINCENT IACOPELLA

EVP of Growth & Strategy, Alba Wheels Up International

SJ: How can companies educate themselves more on free trade agreements and similar provisions to save money? VI: There should be somebody in your company that is leaning into the public discussions. I would encourage importers to join at least one group that is advocating for them on trade to learn what is actually happening.

R/EVOLUTIONARY MANDATE: Work closely with trade associations and customs attorneys to become educated on opportunities for better tariff rates and sourcing options.

To operate successfully in the middle of a pandemic, such as those that pivoted to PPE manufacturing, apparel brands must have a comprehensive understanding of where trade policy is going and the right partnerships to support their decisions, according to Vincent Iacopella, executive vice president of growth and strategy at Alba Wheels Up International. Sourcing Journal: Prior to the trade war with China, were companies as educated and engaged on these matters as they should have been? Vincent Iacopella: Some importers weren’t tuned in, especially if they had goods that were on the lower end of the duty rate, however if they were selling footwear and apparel, it’s more likely they were at the higher end so they probably were tuned in. A disengaged apparel importer or one that’s not leaning in on this has only made it tougher on themselves. I think importers must leverage their customs attorneys—the role of the customs broker in

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this process has been elevated like never before because of how heavily the importer relied on the broker and how quickly the tariffs change. SJ: Beyond tariff and duty increases, what are some other main areas brands and retailers need to weigh when determining where to source? VI: You have to be specific to what your business model is, what your product is, and determine how feasible is it that your product can be manufactured in Vietnam, Bangladesh, India or in Central America. The responsible answer is you have to somehow have an alternative to China to the best of your ability for a portion of your inventory, but it may not be immediately possible for you to leave China totally. Most of our customers have a hybrid approach. They stay in China, but if they have to shift production to another country, they don’t have to start from scratch since they have infrastructure relationships built in.

You forecast with the information you have, but you must be creative and agile on where you manufacture your products and how you distribute them.

SJ: What are some common misconceptions or pitfalls where these agreements are concerned? VI: To be eligible for trade agreements like the USMCA or CAFTA, there has to be a considerable amount of value added to the product within the new country you’re moving manufacturing to. For example, if you’re going to move Chinese goods to a new country to be finished, you have to make sure that the finishing is enough value added to be classified with a new country of origin. SJ: In light of the massive disruptions related to the pandemic, what do you suggest companies do today to insulate themselves from risk in the future? VI: I always say to retailers, you’re only as good as your next 60 to 90 days. Nobody has a crystal ball, but we looked at our companies that were doing well during COVID, both our company and our customers, and we looked at what those companies had in common. We saw that it was agility, the ability to pivot quickly to PPE and from brick-and-mortar to online. You forecast with the information you have, but you must be creative and agile on where you manufacture your products and how you distribute them.

//IMPORTING


//MARKETING R/EVOLUTIONARY MANDATE: Market around products that are traceable and aligned with consumers’ values.

Consumers are using brands as a proxy for the attributes they seek. So it’s vital that retailers and brands pay attention to what consumers are saying about them. To drive the conversation in the right direction, Karl Haller, partner, Consumer Center of Competency (CoC) Leader for IBM Services, retailers must operationalize their sustainability efforts, connecting and aligning their entire ecosystem toward sustainability as a driver of productivity and to engage the purpose-driven shopper with a verified supply chain. Sourcing Journal: Based on the NRF/IBM report earlier this year, ‘sustainability has hit a tipping point.’ How do retailers need to change their approach? Karl Haller: [We saw] a clear mandate for retailers and brands to embrace sustainability as a key piece of their business operating model, from short- and long-term strategy planning to day-to-day operations. Specifically, retailers and brands need to: (1) Understand what aspects of sustainability are important to their customers; (2) Earn consumers’ confidence through transparency and traceability; (3) Leverage sustainability as a driver for end-to-end operations; (4) Align sustainability initiatives to their core competencies; and (5) Factor in consumers’ willingness to contribute to the cause. SJ: Your report showed that a plurality of shoppers are purpose-

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driven with an almost equal number who are value-driven, eclipsing those who are brandand product-driven. What does that mean for retailers today and how have recent events impacted consumers’ thinking? KH: It’s still too soon to know the extent that COVID-19 will fundamentally change consumers’ mindset toward different brands or products. However, it’s certainly impacted shopping and buying behaviors, some of which will form into long-lasting habits. And for consumers whose personal/ family economies have been impacted, they have likely become more value-driven as they have to take care of their basic needs (in Maslow’s Hierarchy) before they can re-focus on the psychological or self-fulfillment. For retailers and brands, it’s imperative they understand their customers, how they split among the four segments, and which aspects of Purpose, Value, Brand, and Product are most important to them. Armed with that knowledge, retailers must tailor every aspect of their offer—products, digital/physical presence, service, marketing, etc.— toward the customers/segments they want to attract; the ones that are capable of driving their business/brand success. SJ: How should retailers be marketing their sustainability efforts differently? What are they getting wrong now? KH: Consumers do more than just check the list of ingredients

For retailers and brands, it’s imperative they understand which aspects of Purpose, Value, Brand and Product are most important to their customers.

on a label. Nearly three-fourths of consumers indicate that traceability of products is important to them. And among those who say it’s very important, 71 percent are willing to pay a premium for the ability to trace products. Traceability and transparency of how and where products are sourced, made and moved will become a critical capability for retailers and brands over the next five years. This is both to meet consumer demands, and also for the operational gains that come with having real-time knowledge across the entire ecosystem. This work takes time as it requires multiple parties, all of whom have different operational and technical capabilities, and some of whom still don’t see the benefits of sharing data across trusted partners. Retailers aren’t necessarily getting anything wrong, but some have still not convinced themselves that (1) this is the right approach and (2) that the capabilities exist. The companies who are moving now to build these networks will be in a position to set the terms for global trade, monetize the benefits from end-to-end traceability, and improve their brand positioning with consumers.

KARL HALLER

Partner, Consumer Center of Competency (CoC) Leader, IBM Services


REINVENTING THE SUPPLY CHAIN

SCHEDULE A DEMO TODAY AT SUUCHI.COM


JENNIFER SPOLJARIC

EVP Sourcing, Production & Sustainability, Tommy Bahama

specific. For example, we work with woven printed silk, and we want to be closer to that supply chain. We also consider the workmanship/needle in each country in terms of the category we place there. SJ: With diversification, what will the new sourcing map look like? JS: The sourcing map is and will continue to spread out and grow in different regions as we all continue to chase the key important attributes in terms of quality, sustainability, price and delivery.

R/EVOLUTIONARY MANDATE: Boost margins by prioritizing a range of factors when it comes to sourcing, based on product category and customer.

For decades, first costs were the key metric for determining how, where and when fashion firms would produce goods and the search for the cheapest needle saw these companies crisscross the globe from one factory to the next. But as consumer tastes have changed, environmental concerns emerged and the need for speed surfaced, how, when and where clothes are made is viewed through a different lens. Jennifer Spoljaric, EVP sourcing, production & sustainability, Tommy Bahama, shares the factors that are now on equal footing with cost. Sourcing Journal: The search for the cheapest needle has led apparel around the globe. What are the other main concerns today? Jennifer Spoljaric: Strong strategic vendor partnerships are a big consideration and have been more valuable to us instead of chasing the lowest cost. A partnership that you can rely on in which we equally help each other out during the good times and the bad is invaluable and we

are thankful to have those type of relationships. [For instance,] some of our vendors held/delayed some of our shipments during the early stages of COVID, helping us with our inventory flow. In addition, their sustainability stance in terms of both the social and environmental is paramount and takes precedence over chasing price. SJ: How has the change in shopping behaviors prioritized other metrics? JS: Customer expectations in terms of speed to market have heavily influenced how fast we can or should deliver products. In addition, the customer affinity for high-quality active or performance styles, which are usually more expensive, but have performance attributes that the customer values. SJ: Many companies have had a one-size-fits-all approach to sourcing. Is there an advantage to a more customized approach? JS: For sure we have to consider certain factors that are category

A partnership that you can rely on in which we equally help each other out during good times and the bad is invaluable.

SJ: Many sourcing executives are still rewarded on their ability to reduce first costs. How can the industry change its culture to encourage these executives to think differently? JS: I’m lucky enough to work for a company that prioritizes brand integrity, quality and our customer expectations over reducing first costs. It really all depends on the customer, showing samples and prices along with their attributes (sustainable, performance, etc.) and engaging in a conversation via the customer lens usually helps us. SJ: Factories often say they get competing requests from their partners’ sustainability teams and their buying teams. Can a focus on first costs and true sustainability coexist? JS: I understand that this is a real challenge and we have had some of these robust discussions internally. My teams of course want to support the sustainable choice, but they are also fiscally responsible as well. It takes leadership and vision from the top to let them know that its ok to go with the long-term value of a sustainable choice that may be more expensive.

//SOURCING

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//AUDITS R/EVOLUTIONARY MANDATE: Conduct comprehensive, thorough audits that check for product safety, employee health and compliance with ever-changing COVID-19 safety regulations.

Auditing during a pandemic has changed everything. In addition to piling on new requirements related to health and safety, the crisis has made the process both more burdensome and more important than ever. And meeting consumers’ expectations related to quality, price and performance are just part of the story. Stephane Barrau, vice president of global consumer product testing at Eurofins, says the landscape today hinges more on understanding risks that could lead to future business interruption. Sourcing Journal: What challenges are companies facing when it comes to ensuring product safety? Stephane Barrau: With public concern on safety rising, there are increasing regulations on the safety of the products themselves, and also the risks in the production processes. There’s also a lack of consistency of quality standards in merchandise being shipped from production countries, leading to challenges in the production and delivery timelines. There aren’t enough skilled employees, resulting in multiple quality issues and increased production costs, and there’s often a lack of consideration of the total cost of a product and the real costs associated with poor quality including returns, modifications and recalls. SJ: How has the pandemic not only compounded these issues

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in the audit process with three major questions. Does the operation have sufficient processes in place to: • Evaluate the risks related to business interruption, such as having a suitable supply of raw materials in the event of another major health crisis? • Effectively prevent, detect and address cases of infectious disease such as COVID-19 to prevent the operation from shutting down a reliable source of supply? • Operate as a viable business, including having sufficient capital and insurance coverage in the event of any type of interruption?

but created new ones? SB: For brands and retailers, it is not enough for them now to fulfill product safety from a regulatory aspect. They need to include the environmental impact and considerations of their products in the development, manufacturing and marketing phases. The cost of raw materials increased due to shortage of supply, with manufacturers forced to pay more for the same quality of goods being imported. At the same time, inferior-quality products are pushed into the market by brokers across the supply chain due to the supply shortage. SJ: What roles do performance/ regulatory testing play in ensuring the final product is up to par with quality standards? SB: Testing during the manufacturing process is important to ensure raw materials, including trims and components, are up to both buyers’ and regulators’ requirements. Product testing is fundamental to protecting brands from paying hefty penalties via product recalls and claims, maintaining strong brand image in the marketplace, and saving costs and increasing profit margins. SJ: What does it take to not only address health/hygiene practices, but also ensure business continuity? SB: In the post-pandemic environment, apparel retailers must consider business continuity

Manufacturers and retailers have no chance for any margin of error. Getting things right the first time is essential.

SJ: How can brands and retailers stay up to date on regulations and best practices? SB: Manufacturers and retailers have no chance for any margin of error. Getting things right the first time is essential. Retailers and brands must work with quality management partners to access subject matter knowledge beyond what it would normally have internally, such as insight on pandemicrelated hygiene; reopening practices; requirements for personal protective equipment; and elements to prevent, detect and correct infectious disease occurrences.

STEPHANE BARRAU

VP of Global Consumer Product Testing, Eurofins


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