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Fashion Supply Chain Disruptions : Impact of Covid-19

Zilingo Editorial Team
April 23, 2020
Understanding supply chain disruptions caused by CoVid-19 and the way ahead for the Fashion Industry
A worldwide crisis is here. While China was originally the epicenter for this pandemic, the infection has disturbingly spread at a hypersonic speed across the globe. Now that countries like Italy, Spain, France have somewhat stabilized, the world has a new epicenter- USA.
Testing times for the Fashion Industry
The Covid-19 pandemic has quickly exposed vulnerabilities of organisations that rely heavily on South East Asia for raw materials, parts, and finished goods. Global transport restrictions have further exacerbated the issue even with companies that have a diversified supplier base. But the buck does not stop here as organisations understand that supply chain implications go beyond sourcing and production issues.
Like every industry around the world, the fashion industry has also been adversely impacted by Covid-19. High-profile fashion events have been cancelled, retailers have closed stores, and factories have pivoted to manufacture essentials instead of apparel. Government implemented lockdowns have resulted in factories halting production. This translates into supply shortages for the current season and delays for the rest of 2020. According to logistics startup Zencargo, losses for U.S. retailers between March 9 and April 20 could amount to $700 million. Asia’s $290 billion textile industry that accounts for 60% of the world’s readymade garments, footwear, and textiles has deeply intertwined sourcing lines. Decreased demand and postponed orders have raised working capital and liquidity concerns among apparel exporters in India. India exports 20-25 million kg of cotton yarn per month to China. As exports bring in 60% of the revenue for Indian apparel makers, this is a real cause for concern.
According to the Bangladesh Manufacturers and Exporters Association, about 1089 garment factories have had orders worth $1.5 billion from European retailers cancelled impacting the lives of 1.2 million workers. These countries in south-east Asia are dependent on China for cloth, buttons, and zippers and the demand cannot be met locally. As transactions fall, global supply chains are facing a crunch in liquidity.
Covid-19 Vs. Global Fashion Supply Chains
Fashion giant Zara has closed 3785 stores worldwide triggered by a 24.1% drop in sales in the first two weeks of March. For popular brand H&M, 50% of the total value of products sold comes from China, and its sales there decreased by 24%. Brands in India claim sales have fallen by 70% since the beginning of March. While the government-mandated lockdown has hurt offline stores, online purchases have also dropped by 15%. Multi-brand retail chain Shoppers Stop has switched focus to its online store and is offering up to 70% discount on a range of products.
While this challenge is not unique to the fashion industry, delays in worldwide deliveries and missed shipments along with dropping customer demand are forcing brands like Gap, Abercrombie & Fitch, Under Armor and others to respond by issuing statements of uncertainty, stating inability to quantify the financial hit they will face and even retract earnings forecasts.
The seasons ahead
Depletion of working capital, cash crunch due to delayed payments, downsized requirements and cancellations have pressured companies to move towards outsourcing and reshoring.
The lessons we can learn about managing such large-scale disruptions involve:
- Learning and maintaining relationships with more upstream tiered resources
- Understanding the dependencies that make the company vulnerable to risk, e.g. relying on Asia to produce 60% of the world’s clothing and textiles
- Building flexibility for contingencies that include alternate sources, transportation, communications, outsourcing to external agencies and cash flow options
- Managing people, creating remote working options, planning for constraints and considering automation
The supply chain’s design could also be revamped. If materials are unable to move easily from and to different parts of the world, supply chains need to be agile enough to respond to rapidly changing conditions. Multiple sources without compromising quality could be identified. Cost-effective local options could be considered subject to local laws and regulations. But a vital practical step would be building transparency in the supply chain. A digital supply chain leveraging the power of the internet may help. It will allow teams at all stages from material source to retailer to be on the same page regarding the production process. It will increase transparency between brands, manufacturers, transporters, and retailers. Pre-empting of production and quality issues in real-time will be possible. A digital supply chain will make every stage of the process, from virtual design and material sampling to the production process, and beyond to logistics, visible to all stakeholders. It will bring all partners onto a single platform that shares real-time information allowing organisations to respond quickly to economic turmoil.
Global crises are a certainty. The task ahead will be for the supply chains to holistically step- up and protect against future disruptions. Long term resilience, end-to-end transparency and response to risk will be an integral part of business.
Zilingo Editorial Team
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