Fashion Supply Chains Need an Overhaul to Revive Demand: John Thorbeck – Sourcing Journal

The fashion supply chain is in crisis, and if a massive overhaul isn’t next on the list of things to do, the industry may not be able to stanch the bleeding.

Bankruptcies are rolling in almost daily, inventory levels have reached peak and cash flows are quickly drying up, which means the Chapter 11s will keep coming. It’s a state of emergency for the sector.

“This isn’t the usual situation where there’s a downturn and you expect to rebound in time by regenerating demand,” John Thorbeck, chairman of Chainge Capital, told Sourcing Journal in its latest ‘On the Ground’ video. “What we have here is a supply shock which is turning out to be, I think, even worse than the demand shock.”

As uncertainty gripped most companies in the industry, many backpedaled on finished garment orders, sending the crisis all the way upstream, often leaving factories without funds to pay workers or manage the business, which forced some of them to close up shop and cancel orders. With raw materials supply tied up, all other links in the chain have their hands tied. And even when brands and retailers decide they’re ready to restart production with stores starting to reopen, they’ll be adding new inventory to a pile that’s already too unwieldy to manage or sell through.

But it’s fashion’s business model that has brought it to this unmanageable moment in time.

“The plague before the virus was really inventory and an industry that operated on excess inventory, and really, it has become a major obstacle,” Thorbeck said. “We’re going to have to be very adaptive here and look for new models and new ways to recover.”

Those new models, he says, will mean moving away from the “lowest-cost sourcing, high-volume, long-lead-time environment” that has been the industry’s undoing.

“If you can’t count on demand to pull us out of this cycle, I think we’re going to have to look further upstream at the supply chain, closer to factories, closer to materials and I think we have to help to regenerate the productivity of this fashion supply chain,” Thorbeck said.

To do it, process innovation will be critical.

Fashion brands and retailers, according to Thorbeck, need to move from focusing on finished goods to components, and really partner with suppliers throughout the process.

“Instead of a finished goods focus, which means that my relationship with my factory is all geared to the lowest possible price and we arrive at that in somewhat of an adversarial bargaining environment, we want to change that focus on finished goods and lowest price into more of a collaborative relationship where we’re managing the process together,” he said. “So we’re making decisions on prepositioning raw materials and staging capacities and making commitments into production and then choosing transportation, which may be sea or air.”

That, he said, is what process innovation really looks like, and it’s not incremental.

“The ability to postpone even a portion of fashion goods for retail allows you to take literally months off of lead times. So if you can push those decisions closer to season, and in season, even for a percentage of a fashion line, the benefit of that is enormous,” Thorbeck said in outlining the four broad areas where the industry must collaborate. “All the alternatives have been exhausted and I think this is going to force us…into how to make a more equitable, more profitable supply chain become real.”

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Check out more in Sourcing Journal’s new ‘On the Ground’ video series, which brings new and needed voices in the supply chain to the fore.

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