What does the corporate supply chain of the fashion industry look like? Which players are involved and what exactly do they do? In this article, everything about the supply chain is covered. Why do traditional fashion companies that follow the traditional supply chain strategy face a longer lead time and therefore a relatively long production cycle? Can it also be done faster, you ask? Spoiler: it can (more about that in section 3).
- The business chain and players in the fashion industry
- Everything about the (traditional) supply chain strategy
- The supply chain: can it go faster?
1.The Supply Chain: This is what the supply chain looks like and these are the players
The majority of fashion companies produce clothing in large numbers: this mass production is called ready-to-wear. Many different players are involved in making fashion, and therefore ready-to-wear clothing.
This is what the supply chain in fashion looks like:
1. Raw materials producer
The first player in the supply chain is the producer of raw materials.
Every garment requires basic materials. There are natural and synthetic (or artificial) materials.
Natural raw materials come from plants and animals, for example, cotton from the cotton plant. Other examples of crops are linen and hemp, and from animals; wool (from sheep), silk (from the silkworm) and cashmere (from goats).
There are man-made materials as well. These basic materials are made in chemical plants. Polyester is the most common synthetic fibre in clothing and is made from the fossil fuel petroleum. Other examples of man-made fibres include acetate, polyamide, spandex (elastane) and cupro.
2. Raw material wholesale
Raw material wholesale is the collecting trade, which brings together the [natural] basic materials of clothing. For example, the cotton grown by farmers in different countries. Artificial fabrics are usually delivered directly from the factory to textile companies (Player 3).
3. Textile industry
Textile companies create yarns from raw materials. The yarns are then made into fabrics, of which there are two kinds: woven and knitted fabrics. The fabrics are then dyed or printed.
4. Fabrics wholesale
The fabric wholesaler buys the fabrics from the textile industry (or its factories), and sells these fabrics to the manufacturing companies of the apparel industry.
Manufacturers and/or ateliers turn these fabrics into clothing commissioned by fashion brands and/or companies. Production then takes place.
In a ready-to-wear factory, garment making is divided into a large number of separate operations, such as cutting and sewing. For cutting, the sizes are more or less fixed - it is done through patterns in different sizes. By using standard sizes, mass production is easier and cheaper. Assembling a garment and post-processing often still require human handling. Usually different garment workers each take care of a small piece of the garment. There are those who insert zippers all day, while others make buttonholes or stitch back panels. This is considered the most efficient way of working and has a practical reason behind it: there is usually a machine for one type of finishing or operation.
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6. Clothing wholesaler
Agents, importers and fashion brands sell and distribute the garments to retailers: the shops.
Many fashion brands work with an agent or multiple agents so that they do not have to set up a branch abroad themselves. An agent is brought in to handle local sales and marketing. Advantages are that the agents already have a customer base of retailers, are fluent in the native language and know the local market well.
How does it work?
A commercial agent acts on behalf of the fashion brand. An agent does not own the goods and does not hold stock, he only mediates. The agent generates orders, but the fashion brand retains control over accepting the orders. The agent also supplies the customers and those customers become customers of the fashion brand, which can then deliver directly to the customers. The fashion brand itself bears the full account’s receivable (payment) risk and also does the pre-financing itself. An agent receives commission on all sales.
Fashion brands also often work with distributors, which has an important difference to an agent: a distributor acts on its own account and risk. So with a distributor, a fashion brand shifts the financial risk. A distributor, or reseller, is an independent company. This means that a distributor has more freedom and can, for example, decide at what price to sell the clothing and through which channels to sell the products. In this structure, the brand that develops and produces the products has less control over distribution, but also less risk.
"Fashion brands, and especially producers in more upscale segments such as bags or shoes, like to keep a grip on price, brand experience, customer base and sales channel, and therefore often choose to work with an agent," the Chamber of Commerce reported in its publication. Distributor or commercial agent, who do you choose?
Retailers order clothing from sales representatives (see player 6). Retailers sell the clothing to consumers. This is the marketing phase of the clothing’s journey.
We use the term retailers for companies who sell clothing to consumers. Retailers is a collective term for different types of businesses or fashion stores. The term can be applied to independent retailers or entrepreneurs with one or two fashion stores of their own, for example. Retailers can also be chain stores, such as Scotch & Soda, H&M and C&A as well as department stores such as Karstadt, De Bijenkorf and Selfridges. After all, they too sell clothing to consumers.
The consumer could be thought of as ‘party 8’ [of the corporate supply chain] but is not part of the supply chain in itself. It is, however, the end goal.
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2. Everything you need to know about the supply chain (and traditional supply chain strategy)
The value chain has many links. "The chain of the fashion industry, compared to that of the food industry, for example, is long," said sustainability expert Willa Stoutenbeek in a radio interview with ‘De Nieuws BV’ (BNNVARA). And players depend on each other: factories can’t begin production of a collection until they have received the proper fabrics. Fabric suppliers need four to eight weeks to make a fabric because they depend on yarn producers., etc.
The supply chain in manufacturing not only has many steps, over the past 25 years it has become highly globalised. That means: garments are often designed in one country, assembled in another and sold worldwide.
Most companies in the sector design the clothing and sell the clothing, but outsource production to manufacturers in countries with cheap labour (cheaper than in Western Europe and/or American countries). Typically, production takes place low-wage countriesin Asia, such as China, Bangladesh, Cambodia and Myanmar, while most of the clothing is sold in Europe and the US.
This strategy gained prominence in Europe in the 1960s, and by the 1990s was experiencing its heyday. Fashion companies that outsource production on a large scale include retail chains such as We Fashion and Primark, as well as fashion brands like G-star, Nike and Adidas, and even luxury labels. As most companies have adopted this way of working, it is referred to in the industry as the traditional or conventional supply chain strategy.
By moving [mass] production to low-wage countries, labour costs have gone down. This allowed clothing brands to produce clothes at a lower cost and thus make them cheaper for consumers (clothes at lower prices!). It also, however, led to longer transportation times and less flexibility.
The period from design to store delivery and making the clothing available to consumers is called the lead time and can take 9 to 12 months.
Traditional fashion companies sometimes can take up to a year and a half (!) to get a new design from drawing board to store shelf. So you could say that the fashion industry faces a relatively long production cycle.
As the production cycle is so long and ready-to-wear clothing is produced in such large quantities, fashion companies need to know well in advance of the selling season what designs and how many numbers of garments should roll out of the factory. Most designers and clothing brands therefore start developing their collections well over a year in advance. With everything beginning and scheduled so far in advance, the fashion industry faces a great deal of uncertainty and risk. After all, the industry is market-sensitive, meaning it must constantly respond to the demand for new trends with new clothes.
One of the challenges in the fashion industry – and perhaps the biggest – is that the industry must predict what consumers will want to wear in the future. Matthijs Crietee, secretary of the association International Apparel Federation, outlined the process in an interview with ‘The Correspondent’ in 2021, stating: “The sector is actually one big gambling machine, because who knows what people will want to wear in six months or a year from now?"
Speed and flexibility: the fashion industry can’t respond quickly
The supply chain cannot react quickly to shifts in the market. You could argue that fashion, which is all about "novelty", is old-fashioned and slow in how it operates.
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3. Can it be done faster than the conventional supply chain strategy?
There are also companies that are doing it much faster than traditional fashion companies [with a conventional supply chain].
The Spanish fashion chain Zara, for example, has taken the entire supply chain - design, (fabric) sourcing, manufacturing, logistics and stores - in-house as much as possible.
Another way to speed up is to produce closer to home. Which is also what Zara does, by the way.
Fashion is made closer to where it’s going to be sold
There is growing interest in the fashion industry for nearshoring, where production takes place closer to the sales market, and reshoring, bringing back production from low-wage countries. This is evident from the 2018 report ‘Is apparel manufacturing coming home?’ and the 2021 study ‘Revamping fashion sourcing: Speed and flexibility to the fore’ by the US consulting firm McKinsey. In it, 71 percent of chief purchasing officers (CPOs) surveyed by McKinsey indicated wanting to nearshore more.
The growing interest in production near the sales market is also stated by American (fashion) journalist Dana Thomas. Thomas wrote in her book Fashionolopis (about the rise and downside of fast fashion) that this nearshoring trend in America and England already started a few years ago. (Source: The Correspondent article "From Made in Bangladesh to Made in Europe" by Emy Demkes, from October 2019.)
Han Bekke, president of industry association Modint, said he sees "a clear trend". In the April 2021 article ‘Growing number of fashion companies want to get away from 'race to bottom' in China’, Bekke stated: "More and more orders are going to countries like Turkey, Portugal and Italy and Eastern European countries."
The most important and fastest way to accelerate the supply chain is vertical integration.
"Apparel brands that open their own stores and retailers that introduce their own clothing brands skip the pre-sale season (where retailers order collections)," explained trade magazine RetailTrends in a 2016 publication ‘This is how retailers can chase H&M and Zara’. In other words, wholesale is skipped over. "Clothing brands and retailers gain three to four months of time as a result. That means they can start designing clothes not 9 to 12 months, but 3 to 6 months in advance," according to RetailTrends. There is less demand uncertainty because they are closer to consumer demand.
Retail versus Wholesale: the definitions
Retail, is when the manufacturer or producer sells its product directly to the consumer.
Wholesale is when the manufacturer (or brand) sells the product in large quantities to an "intermediary" who then sells it to the consumer. (See lot 6 in the supply chain - paragraph one).
Many big names in the fashion industry operate both wholesale and retail. This means that their brand is sold through multi-brand retailers (independent boutiques) as well as through their own branded or flagship stores. For the fashion industry, opening flagships is a relatively new development that has been embraced by more and more fashion brands since the late 1990s.
Vertical retail as a business model
In the fashion industry, we call fashion companies that design, produce and sell their own clothing, vertical retailers, vertically integrated players, or verticals.
A few examples of clothing companies that are doing this are Gap, Victoria's Secret, Old Navy, and Zara.
-TMO Fashion Business School study that the undersigned of this piece followed, and specifically the book 'Mode-Adviseur' by Mirjam van den Bosch, Astrid Hanou and Hans van Otegem, publisher Stichting Detex Opleidingen, 2003, second edition.
-'Research into sustainability in the clothing industry', Bachelor thesis by Ties van Noorden, Management studies, Wageningen UR, April 2016
-'Traditional versus fast fashion supply chains in the apparel industry: an agent-based simulation approach' paper by authors Sabrina Backs, Hermann Jahnke, Lars Lüpke, Mareike Stücken & Christian Stummer, July 2020.
-Article 'Is this "Fast Fashion"?' van Rens Tap, fashion economist and business development expert at textile industry association Modint, originally published in 2015 and updated in August 2022.
-The radio fragment 'A sustainable fashion industry is possible, according to Willa Stoutenbeek', De Nieuws BV (BNN Vara) August 2022
-Article 'Distributor or Commercial Agent, Who Will You Choose?' Chamber of Commerce by author Sandra Visser-Meijer, August 2022.
-Textile article 'What is the difference between a distributor and an agent' by author Allet Douma, March 2015.
-The Correspondent article 'Fast fashion is everyone's favourite scapegoat – but that's not always right' by Emy Demkes, November 2021
-The Correspondent article 'From Made in Bangladesh to Made in Europe. That is the future of clothing, says this journalist' by author Emy Demkes, October 2019
-McKinsey report 'Is apparel manufacturing coming home?', authors Johanna Andersson, Achim Berg, Saskia Hedrich, and Karl-Hendrik Magnus, October 2018
-McKinsey report, ‘Revamping fashion sourcing: Speed and flexibility to the fore’, by authors Saskia Hedrich, Julian Hügl, Patricio Ibáñez, and Karl-Hendrik Magnus, November 2021
-NOS article 'Growing number of fashion companies want to get away from 'race to bottom' in China, by author Merel Stikkelorum, April 2021
-Retail Trends article 'This is how retailers can follow H&M and Zara', July 2016
-Content from the FashionUnited archive of authors Don-Alvin Adegeest, Huw Hughes, Caitlyn Terra and Esmerij van Loon (the original publications can often be found in the linked article text).