How unpredictable can things get in the fashion industry supply chain? In 2019 India's fashion and apparel industry was projected to grow to $59.3 billion by 2022. And then, the COVID19 pandemic struck. Now with the end of the pandemic in sight, the Indian fashion industry has bounced back better to reach revenues worth $87.6 billion in 2022 and is estimated to grow to $102.6 billion by 2026. What explains the roller coaster ride that the Indian fashion industry supply chain is on? Outlined below are some risks and the inherent opportunities in addressing them:
Demand Diversity Across Geographies, Cultures, and Time: Fashion choices can change depending on geography, culture, and time of the year. To elaborate, people in cool climates prefer jackets, coats, gloves, scarves, earmuffs, and warm undergarments. Conversely, those in hot conditions opt for bright colors and breathable, lightweight clothing allowing easy movement.
Likewise, people dress according to cultural affiliations. Some people may choose garments made of indigenously manufactured fabric. On the other hand, people with a relatively higher level of global exposure may absorb transnational fashion trends. Moreover, the influx of hybrid and work-from-home models of employment over the last 3 years has also altered the tastes and preferences of people.
Similarly, the time or seasons of the year can decide what to wear. In the same regions, costumes during summer, monsoon, and winter can differ. Globally, many fashion designers use the colors of seasonal fruits and vegetables in their collections. Customers connect easily with such colors due to their subliminal influence.
Digital and Social Media as Catalytic Agents of Disruptions: Digital and social media are also major elements exerting an enormous influence on the fashion choices of consumers across all regions. Moreover, the emergence of immersive technologies like augmented reality, virtual reality, and mixed reality has transformed the way fashion and apparel brands display outfits to customers. Digital customer journeys in the fashion supply chain are 14 percent shorter than offline ones. The combinatorial impact of digital and social media has led to shorter product lifespans, and disruptions in demand patterns, and makes it difficult to come up with accurate projections on the endurance of fashion trends.
Low Technology Integration and Fragmentation of Supply Chain Processes: As sustainable manufacturing practices gain greater traction; large enterprise customers are turning their focus on supply-side vendors in the small-scale segment. Unlike big brands, there is very little awareness among MSMEs about ESG imperatives. This is not surprising since barely 5 percent of small vendors have access to technology integration tools. The fragmented nature of the fashion supply chains makes it challenging to check if these units comply with ESG norms since there is no ‘fit for audit’ data trail in the absence of a digital footprint.
Lack of Just-In-Time Working Capital for MSME Suppliers: The demand-driven supply chain in the fashion industry means that there is no scope for having accurate projections which translates into spot buying of raw materials, bulk orders with no precedence or role model to follow on labor, and material substitution, and no case study on shifting plant, equipment, and machinery in the factory assembly lines. For MSMEs, this means working capital is required just in time as liquidity is necessary to purchase raw materials at short notice.
Raw Material Availability: Although substantial volumes of clothing are produced from synthetic materials, there is increasing pressure on brands from eco-conscious customers to use organic, natural, and sustainable fibers with a lower carbon footprint. While many brands have switched to apparel made from natural fibers, the threat of supply disruptions is always present if sustainable substitutes aren’t readily available at scale.
Time-to-Market Hurdles: Most apparel brands outsource their production to countries with cheaper labor costs since it minimizes operating expenses. Often, such production units are in Asia and Africa. Yet, while operating costs are reduced, the time to market increases. The additional lead time inflates the risks from fluctuating demand since the perishability window is shorter.
Opportunities in the Fashion Supply Chain
Amidst the backdrop of the risks outlined above, large enterprises and MSME suppliers could explore three opportunities:
Compliance With ESG Framework: Many may not be aware that global greenhouse gas emissions of the textile industry surpass that of other industries. Part of the problem stems from its supply ecosystem where vendors in the value chain don’t adhere to compliance norms, primarily to reduce costs and maximize returns. Additionally, the fashion segment’s linear business model of ‘take, make, use, and throw’ produces an incredible 13 million tonnes of textile waste worldwide that is either burned or ends up in landfills.
A recent Harvard Business School study suggests that between 1990 to 2020, companies that prioritized ESG issues in their procurement and supply chain reported better shareholder value creation than those that did not. The finding holds true for large enterprises in the fashion and apparel supply chain.
Companies can invest in technology solutions such as blockchain that facilitate supply chain traceability, transparency, and visibility. Moreover, a recurring review process can be instituted to periodically audit production processes, materials, inventory cycles, and the working capital capabilities of suppliers. Thereby, large enterprises could meet the compliance norms of diverse countries plus the expectations of varied stakeholders, including investors.
Apparel Labeling: Customers are rarely aware of the mix of fibers in making a garment. Brands could label clothes as per the number or percentage of environment-friendly raw materials used. The label can also specify the percentage of water, energy, and chemicals used. Like star labels that denote the green quotient of air-conditioners, apparel labeling can play a similar role and act as a USP for eco-friendly brands. Such apparel labeling can pave the path for voluntary carbon emission declarations, better compliance with global climate change regulatory frameworks like the Glasgow Pact, and help suppliers to build sustainable processes from the ground up.
Women’s Empowerment: Empirical evidence indicates companies with greater gender equality have more productive outcomes. This is primarily because women have diverse skills to complement those of their male counterparts. Second, the addition of women to the workforce, especially in verticals like textiles, dying and color pigmentation, and retail which have forward and backward linkages with the fashion supply chain can lead to positive spillover effects of job creation and secondary spending waves due to consumption multipliers in the economy. The World Bank suggests that the addition of 25 percent of the total woman population to India’s workforce can add as much as 5 percent to the country’s GDP growth rate.
The Future of the Fashion Supply Chain in India
Large enterprise customers, MSME suppliers, and end customers have all been through a learning curve and these lessons are here to stay. There is a paradigm shift towards connecting loose ends such as raw materials, working capital, people welfare, and ESG norms by replacing piecemeal processes, devices, production lines, data records, and credit with one single thread. Technology integration and adoption will be on the rise. Supplier payments will be anchored to performance through procure-to-pay solutions that will string together sourcing with financing. And above all, there will be more sophisticated decision support systems backed by data for more accurate projections. That said, it will not end the roller coaster ride but make it possible for each stakeholder in the fashion supply chain to deploy crack teams to respond to disruptions with agility at scale.