A new report from the Boston Consulting Group makes a bold statement in its title and subject — “Apparel at a Crossroads: The End of Low-Cost-Country Sourcing” — a far cry from the manufacturing mantra that was instilled the last few decades of “Following the Low-Cost Needle.”
“Global apparel makers must halt the migration of production from one low-cost country to another if they are to generate efficiency gains and improve speed to market,” said BCG’s report.
Noting that production innovations have allowed apparel companies to place manufacturing centers closer to their customers for better speed, the reports suggest, “apparel companies need to adopt a new framework for tracking costs to gain control over expenses and provide principal production partners with incentives to push through productivity improvements.” The report notes how sourcing evolved with the priority that labor costs must be kept as low as possible in order for apparel to be produced at competitive prices, causing the industry to country-hop as labor-cost increases took hold in a particular market.
“One day, and possibly soon, this journey will come to an end,” said the report. “Cheap labor is becoming a rare commodity and the number of low-cost countries is dwindling. Apparel makers need to get ahead of this trend by assessing what they can do in their existing facilities to generate sustainable efficiency gains, improve their speed to market and take the pressure off labor-cost management.”
BCG said the challenge calls for companies to view their production processes and partners through three strategic lenses: innovation, collaboration and proliferation. It said by adopting production innovations that improve speed and efficiency, firms can locate their manufacturing facilities closer to market and increase their responsiveness and better manage raw-material needs. The report notes that even when cost advantages still exist, infrastructure problems such as frequent power outages and phone and Internet disruptions can generate additional costs and supply-chain challenges.
“In severe cases, poor production conditions can be fatal, as demonstrated by the Savar building collapse in Bangladesh in 2013, and political instability remains a potent threat in many regions,” the report said. The conflict between shorter trend cycles and the longer production lead times needed in new low-cost nations such as Myanmar and Ethiopia can offer new avenues for low-cost sourcing, “but their cost advantage is likely to be ephemeral and may already be eroding as nonlabor costs add up,” BCG said.
New techniques and technologies, from digitally enabled design and printing to waterless dyeing and automated cutting and knitting, are helping to reduce production costs and enable quick turnaround. New ways of pricing garments, going beyond the standard labor-cost models, have companies establishing a per-minute basis for producing garments that allows them to compare suppliers across geographies and determine which are the most efficient.
Companies are also beginning to better manage their raw materials, generally through one or more of four principal means. “Materials-Engineering Excellence” enables firms to work with suppliers to optimize fabric selection and manufacturing techniques. “Reduced Portfolio Complexity” comes through consolidation of resources, using fewer yarns and weight classes and reducing the complexity of raw materials. “Value Chain Orchestration” calls for companies to better time their production to level the load over time instead of relying on often unstable projections, while “Integrated Supply Chains” allow fast-fashion firms to ramp up production or transition to new styles.
“Today, apparel makers are tallying the costs associated with issues such as production inefficiencies, skilled-labor shortages and political instability, and they are questioning whether fleeting labor-cost advantages are worth the trouble of relocating,” the report concludes. “Innovation in technologies and development strategies are creating a new source of cost-efficiency…Industry participants that seize these opportunities have the potential not only to halt the decades-long migration to low-cost countries, but to effectively head others off at the pass. With speed to market so important these days…the spoils will fall to those that free themselves from the widespread fallacy that labor costs are the industry’s only lever left to pull.”