Supplier Management and Sourcing in the Fashion Industry – Under the Spotlight
- Supplier Management
More than virtually any other sector, sourcing and supplier management in the fashion industry have been exposed to intense scrutiny in recent years, while the functions have become of increasingly strategic importance to business success. Digital transformation is delivering benefits to many of the world’s leading fashion companies, especially in Italy, where roughly half of the leading fashion concerns have implemented JAGGAER solutions.
Factories around the world produce millions of items of clothing and accessories for top European and American brands, which are packaged, shipped and sold in every country worldwide. Supply chains are multi-tiered and therefore difficult to manage. In recent years, these complex supplier networks have posed difficult challenges for the purchasing teams that are charged with ensuring that goods are made at the right price, are delivered on time and meet the right ethical and quality standards. Performance management must be done regularly in order to be sure of always choosing the best supplier, while also educating others on how to improve their performance and grow their business.
The fashion industry is also, by nature, uniquely dynamic, even mercurial. With the price of high street fashion having fallen dramatically in recent years, many companies need to stay in consumers’ minds. For some, this means launching new collections several times a year, in direct competition with many other brands, which are often within the same corporate group. Information security – the ability to keep all of this secret – is therefore a critical success factor. The “fast fashion trend”, which means that collections are distributed in shorter, and shorter periods of time, has transformed the procurement function. The challenge today is for purchasers to find suppliers that are flexible, reactive , and able to develop a product very quickly assuring, additionally, the expected quality level.
For other companies at the luxury end of the spectrum, quality is the number one priority, as luxury brands must defend their reputation and never let down a customer. But the word “quality” has taken on new dimensions, posing further challenges. For example, nowadays sustainability is top of mind, which means that manufacturers and suppliers must not only ensure quality from an aesthetic perspective, but also be able to demonstrate that human, animal and environmental rights are respected. This is not easy given the current volatility in supply markets.
For these and many other reasons, the role of purchasing and supplier management is highly strategic in the fashion industry. Its main role is to make the necessary fabrics and other products for the collection process available to other functions from design to production, packaging and distribution. The procurement function also manages supplier relations, negotiations, competitive intelligence and key performance indicators.
Also, the service must constantly provide fresh ideas to help drive the purchasing strategy of the company to mitigate risks. For example, a small up-market Italian or French brand will need to contend with issues such as whether to encourage ethical suppliers in Asia, or to “near-source” from Eastern European, or to local source from nearby artisanal producers? Some of these suppliers may be very small and “non-replaceable” for certain lines, collections or brands. Every strategy involves benefits and challenges, and the procurement function must understand which one is the best, depending on constraints.
A further complication in fast-fashion market segments is the perishable nature of the product. Once a season is over and the collection has reached the end of its lifecycle, any garments that remain will have lost more than half of their value. Buyers will get some guidance from demand analysis to help them buy the correct quantity, but again, this can never be an exact science given the capricious nature of the industry, and variables such as the weather. Leftover stocks and the cost of storing and disposing of them can make a serious impact on a brand’s bottom line.
Procurement teams know that their brands are now in the spotlight. They need to contend with a great deal of risk from volatility in the currency and commodity markets, to geopolitical unrest and the adherence to ethical standards within the supply chain. Corporate social responsibility (CSR) became a very important issue for the industry in recent years following a spate of tragedies and scandals, notably the collapse of Rana Plaza in Bangladesh in April 2013, Bangladesh, which brought to light shocking work conditions, seriously damaging the reputation of brands that were its customers.
The world’s leading apparel groups are listed and open to scrutiny by regulators, the media and the general public. The sourcing and supplier management functions are therefore intimately linked to other services within any fashion brand or group, including production services, quality, marketing, CSR and finance.
Digital Transformation of Procurement in Fashion
The strategic nature of procurement in fashion has made the function especially ripe for digital transformation. Digitalization alone can give it the visibility that companies need to thrive in a complex, dynamic and fully globalized industry. Information and insight into supplier performance enable the creation of a supplier base that will become a vital corporate asset to a fashion company.
For many years JAGGAER has worked closely with customers in this vertical industry to develop solutions that meet its specific needs. JAGGAER’s sourcing, contracts, and supply chain management solutions have been fine-tuned to the nuances of the sector. These have been validated by the “who’s who” of the global fashion world.
The unique structure of the industry, in which large corporate groups contain competing brands, also calls for a technology approach that enables a clear partition between brands while capturing, where appropriate, scale economies at group level, for example through common shared processes. Typically, eSourcing is not appropriate for fashion purchasing, given that many suppliers are unique (ie there are no suitable substitutes), but will use online tools for managing supplier onboarding, quality, contract compliance, supplier performance and audit.
JAGGAER technology provides a way to involve all stakeholders in the process, even if in different locations worldwide, and promote their individual competences with a view to collaboration: closely aligning all of them to the group’s code of ethics, while enabling strict separation at a more granular level.
Fashion companies that have implemented JAGGAER ONE spend management solutions have succeeded in increasing the number of qualified suppliers working with them. On-boarding of suppliers and their periodical evaluation become more efficient, and buying organizations are able to manage more collaborative improvement plans with their strategic and preferred suppliers.
Transparency is of critical importance in meeting the new demands placed on corporate governance. Supply chains are frequently anything but straightforward, with main contractors and several sub-contractors often involved in the supply chain. Companies must be able to monitor the risk and the quality of the whole supply chain and report to internal auditors and demonstrate compliance to external regulators.
A further requirement in meeting these needs is native integration with ERP systems, information providers’ tools and databases, to get fast and easy access to supplier information, including enriched information on sustainability and reputation as well as certified financial data. With so much of the business decentralized through brands, business units and production plants, the procurement function in fashion concerns also need powerful collaborative tools with the most sophisticated IT security governing authorizations and permissions etc.
Thanks to our long collaboration with the industry, many of its leading players now rely on JAGGAER solutions to meet their needs in procurement and supplier management, including roughly half of Italy’s leading fashion groups.