A recent McKinsey report indicates that, after years of shallow and fragmented supplier relationships, the clothing industry is now adopting a more strategic approach to its suppliers.
Historically, the apparel sector has been characterized by a lack of supplier collaboration and limited long-term strategic partnerships, particularly in comparison to other industries. This was due to the industry’s fragmented supplier base and the pursuit of low production costs across various regions by clothing and footwear manufacturers.
The report highlights that sourcing within the global apparel and footwear market has become increasingly complex in recent years, with brands facing numerous challenges. McKinsey identifies several key factors contributing to this complexity.
Firstly, brands are grappling with intensified pressure stemming from demand fluctuations and supply disruptions, which have led to order reductions or cancellations. Additionally, external factors such as regulatory changes and the entry of new market players are reshaping industry standards, emphasizing aspects like sustainability, speed, and digitalization.
In response to these challenges, the clothing industry is shifting towards deeper and more strategic relationships with its suppliers. According to a survey of chief purchasing officers (CPOs), apparel companies plan to increase their focus on such relationships, aiming to reach a 51% share.
McKinsey explains that this shift is considered essential to align with sustainability regulations, speed requirements, and digitalization expectations. Nevertheless, it emphasizes the importance of striking the right balance in supplier relationships, as both brands and suppliers value flexibility to address shifts in demand and leverage bargaining power for higher margins.
The survey also revealed that while apparel manufacturers have been prioritizing nearshoring for some time, the actual relocation of operations is occurring at a gradual pace. Furthermore, despite inflation concerns, most respondents anticipate a slight reduction in sourcing costs. Additionally, fashion brands are accelerating their adoption of digital innovation to enhance transparency throughout their value chains.
As the clothing industry reevaluates its approach to supplier relationships and adapts to evolving market dynamics, it seeks to enhance sustainability, agility, and competitiveness in an ever-changing landscape.
