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Nicola Mira
Oct 22, 2019
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Sustainable sourcing now a strategic priority for fashion industry, says McKinsey

Translated by
Nicola Mira
Oct 22, 2019

Each year, the range of eco-sustainable apparel available on the market multiplies by five, but its overall market share remains tiny, with less than 1% of the products launched in H1 2019 labelled as ‘sustainable’. Sustainable sourcing has become a strategic priority for fashion labels but one that seems to be hard to implement, according to a survey by management consultancy firm McKinsey, which highlighted the need for a radical transformation of the fashion industry.

The fashion industry must rethink its sourcing model - McKinsey & Company

McKinsey interviewed 64 purchasing directors, representing altogether over $100 billion worth of goods sourced. In addition, it sought the opinion of experts and consumers in the USA and Europe, producing a report entitled ‘Fashion’s new must-have: sustainable sourcing at scale’, which incorporates also an analysis of fashion e-tailers carried out by UK retail technology company EDITED.

“The clear majority of survey respondents expect the industry to transition to a much more sustainable model by 2025. They foresee wider use of sustainable materials, an improved ecological footprint, increased transparency, and strengthened supplier relationships and purchasing practices. But most apparel companies will need to shift current practices dramatically if they are to deliver on such bold expectations,” noted McKinsey, underlining the fact that “the industry lacks a common language on sustainable sourcing, let alone a shared set of standards.”

Such a shift is all the more urgent now that the fashion industry is transforming its business model, leaning towards more flexible sourcing practices and dealing with increasingly volatile consumer demand, and needing to come to grips with an equally volatile, rapidly mutating environment. Something that is illustrated by the heightening of international commercial tensions sparked by the USA-China trade war, resulting in changes to the countries from which apparel products are sourced.

China losing ground in sourcing stakes
In the USA in particular, the search for suppliers alternative to China has become a major preoccupation. Nowadays, the main supplier countries to the fashion industry are China, Bangladesh, Vietnam and India. China’s and Hong Kong’s share of the total value of apparel exports worldwide has been diminishing steadily since 2013, and a further reduction is on the cards. According to the survey, Bangladesh and Vietnam will be the main beneficiaries of the tension between China and the USA.
The majority of fashion brands are preparing for the battle for sustainable sourcing, which they are set to wage quickly and on a massive scale, tapping technology innovations, regulations, manufacturing processes, materials and communications. The McKinsey report highlighted four priorities.

The first concerns the materials and products sourced. According to the survey, the majority of purchasing directors interviewed are looking to source sustainable materials for at least half of their products by 2025. A policy that will be tough to implement, notably due to material availability, costs and quality issues.

The sourcing priorities of apparel companies according to McKinsey - McKinsey & Company

The second priority is about transparency and traceability. Garment manufacturers are increasingly under pressure to render their supply-chain practices transparent and to share this information with consumers, but few actually do so. The McKinsey report showed that the will is there, although implementing it is complicated.
The third priority for fashion brands is the relationship with suppliers, which needs to become a strategic partnership. Two thirds of the purchasing directors interviewed think that this kind of relationship will probably become an essential element in the grading of their suppliers. It would also encourage garment manufacturers to invest proactively in sustainable development, in the well-being of their workers and in fair wages.

Cost hikes of up to 5% 
The fourth and final priority is reinventing purchasing practices. Sustainable sourcing has a significant impact on these practices, from planning to negotiation to order placement. Two thirds of the purchasing directors interviewed expect that sustainable sourcing will cause costs to rise by between 1 and 5%, the majority of them acknowledging however that it would be an investment to boost their brands’ competitive advantage.
The old model, which saw fashion brands continually shifting from one low-cost supplier country to another, doesn’t seem to be in favour any longer, given that cost differentials between countries have shrunk and that fashion labels must deal with increased consumer demand for sustainable products.
On the other hand, fashion brands have not focused strongly enough on improving purchasing practices. “There is a considerable margin for improving the costs, speed, flexibility and sustainability of end-to-end product development and sourcing processes in the apparel industry,” noted the McKinsey report. Starting from the digitalisation of the process itself, an upgrade that is essential according to the purchasing directors interviewed.
Finally, fashion brands need to communicate to consumers about the progress they are making in terms of sustainable sourcing. This too is an arduous task, according to Edwin Keh, CEO of the Hong Kong Research Institute for Textile and Apparel: “We don’t yet have the vocabulary or the language to explain to consumers what we’re doing.”
The McKinsey report concluded that “sustainable sourcing at scale is a must for apparel companies over the next five years — and (...) consumer demand for sustainable fashion is growing rapidly.  At the same time, margin pressure is making it even more important for companies to improve the efficiency of (...) sourcing processes.”

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