Bill McGraith, formerly of PVH Corp, an apparel manufacturer that own brands such as Calvin Klein and Tommy Hilfiger, gives his take on the various supply chain issues that have traditionally pervaded in the sector and how digital technology can help.
Bill’s background dates back to a time when apparel that was purchased in the UK was also made in the UK. In addition to PVH Corp, Bill has also worked for Walmart and Victoria Secret in supply chain roles and has also set up manufacturing operations during a spell living and working in China. He picks up the story.
BM: What drives me is the amount of waste and inefficiency within the apparel supply chain that we’ve created between manufacturing and retail, primarily due to ignorance of the other’s position. One of the benefits I have is that I’ve lived on both sides of the equation.
I’ve been at apparel manufacturers who have been the primary cause of their own inefficiencies and waste. It was rarely understood that the vast majority of excess cost paid for products was actually their own issue and were embedded into the cost of business, rather than in the supply chain.
Over time I have become very passionate about stripping out that inefficiency. Every element of the supply chain has challenges however, the sector traditionally created a false hierarchy where somehow, the retailers thought they were the most important element and dictated terms all the way through the supply chain.
The reality is that we’re all peers and if we actually start to work with each other, we can strip the waste and excess out of the system and allow everyone to be more profitable; and when we talk about waste that is in terms of time, materials and product.
There is an alternative model in the apparel industry, and I’ve tried to push the sector to apply that model faster than the small incremental steps that we’re taking right now.
Juggling sustainability
The truth is that stability and sustainability haven’t always gone together. There was a time where it was a case of sustainability OR profitability and manufacturers had to choose between the two. There is a defensive mechanism for CEOs or leaders of businesses to not make a move rather than lean into change and potential risk.
However, we left that world years ago. There is no choice when it comes to sustainability. What does still exist is a hurdle that manufacturers have to get over. But if you can make the leap to the other side of the equation by embracing ESG, then you’re going to be more profitable as you’ll inevitably be stripping waste out of the system at every level of operation.
It’s that initial hurdle that is proving a struggle, and one that hasn’t been helped by the pandemic. Pre-COVID, many were on a journey towards a new more sustainable world. However, we then had all the disruption caused by the pandemic, to say nothing of the war in Ukraine, the ongoing impact of Brexit, US/China trade disputes and tankers stuck in the Suez Canal. Such disruption means that it’s very quick and easy for businesses to retreat back to less long-term financial models.
However, I don’t buy into any concept that suggests that being more sustainable requires you to be less profitable. And the more you embrace change, the faster you will get over that hurdle.
Exciting use cases for supply chain technology
As the trend for moving manufacturing offshore grew over the last 20 years, we quite frankly diluted our systems down. There was a time when product was made in the UK for the UK. I was a big supplier to Marks and Spencer; they would call on a weekly basis and we would only make goods off the back of that. This resulted in minimum inventory in the system and an almost immediate, one week reactivity.
As supply chains were stretched, we became less accurate and our ability to react was diminished. I’m not sure all big companies will survive the transition that we are currently going through; eventually some will fail because they’re too large and have too much legacy to succeed.
As the saying goes, in no time in history has the last customer willing to pay full price for an item, walked into a store and bought the last item available at full price. Think of that as the crosshair of the target that we’re aiming at. When we made locally and were fast, we were still missing that concept. Now that we have extended supply chains the situation has become exacerbated and we’re miles away from hitting that target.
As the apparel industry went through a period of transitioning away from more vertical structures, department store markdowns increased dramatically, and that meant waste. Indeed, marked down product is generally the least used product that goes to landfill and that has increased dramatically as supply chains have become elongated.
Consumers buy garments which often just hang in the wardrobe unworn. They may even still have the label on when it gets taken to the charity shop. The reason it was purchased in the first place is not because it was needed, it was because it was cheap, and that’s a trend that has increased throughout the industry.
ESG impact
However, it’s interesting to notice where the spotlight has shone in recent years. During the pandemic there were multiple headlines in the mainstream media associated with the issues facing the apparel industry, from crises around inventory, heavy financial losses and supply chain woes. Yet, very few of those headlines spoke about the ecological, environmental or social impact of those issues.
As the pandemic wore on, goods in warehouses began piling up and waste increased. And it is worth remembering that the apparel sector is often considered the second dirtiest industry in the world, with 98 million tonnes of waste to landfill every year. That equates to one refuge truck every second.
The sad part is that around 25% of that waste results from planning issues because the industry has a habit of over ordering and then not selling what has been ordered. Shipping apparel by sea equates to approximately one percent of the total carbon footprint of that product over its lifetime.
However, when you move to air freight (which increased significantly over the pandemic to meet demand), that figure increases to 30%. For any business that air freights more than two percent of its product, that two percent represents the same carbon footprint as the remaining 98% of the product that is moved by sea.
The carbon footprint of a garment when transported by sea is 24g of CO2; when it is transported by air that jumps to 1,051g. It is a horror story to air freight goods, and yet we were doing that everywhere during COVID without it being reported.
During the pandemic, UK retailers had a glut of inventory that they didn’t know what to do with, but not once was the social impact of that mentioned. When we talk about ESG, for me, it’s a capital E and a silent S and G. Everyone’s talking environmental today, yet no one really speaks about social and governance.
That extra inventory meant that orders were being cancelled or orders that were forecasted were not being placed. No one took into consideration the devastation that was having on workers all through the supply chain – millions of people were no longer able to work and earn, all due to these extended supply chains that existed and planning capability that was dumbed down.
An obvious solution of course, would be for brands and retailers to introduce new integrated business planning (IBP) tools. However, if these are merely plugged into the same supply chains that already exist, then the outcome is going to be no different.
The industry has made an effort to improve environmental and social credentials, lower costs and the need to carry huge inventories. But ultimately, businesses are still crossing their fingers and hoping when it comes to sales.
The apparel industry operates in a world where 25% of product is over ordered and will have to be marked down or liquidated in some fashion (indeed, years ago there were brands that were discovered to be burning product). Another 25% of product gets outsold, which represents a huge profitability margin loss caused by the length of the supply chains.
Therefore, the opportunity that exists is huge. The sector still uses terms like MOQ (minimum order quantity) instead of OOQ (optimised order quantities). Apparel is at the point where it needs to radicalise and change its operating model. However, the sector is currently moving too slowly and being too cautious.
Building in resilience
When I was at Walmart, I triggered and then drove a period of reshoring, specifically in electronics. We proved that we didn’t need to manufacture product in Asia and could make it locally – even though it was more expensive, it was more profitable, because it allowed us to be reactive.
Currently the apparel industry operates a low and slow model, which involves large purchase orders, typically three, four or five months in advanced, from one location and one factory that makes one end product. Businesses then keep their fingers crossed that it sells.
A credible solution would be to evolve from long linear supply chains to a MDDO (Multi Dimensional, Dynamically Optimised) supply network which includes three capabilities; offshore (low and slow – 70% of production), which is critical and should still be part of the supply chain; near shore (high and fast – 20% of production), Turkey and Portugal would be an example for the UK; and onshore capability (express – 10% of production).
I’ve been working on what’s called an onshore UK eco park for apparel, which will focus on leveraging all three models for the exact same item. Many have failed in their onshore processes by trying to bring whole products back.
We’re not advocating that; rather we’re saying there are skews and fringe items, that instead of ordering them all up front and getting a low price (and then having to discount 25%), some product can actually be held offshore prior to discovering what the customer actually buys.
Businesses can then react through a series of onshore and offshore models. It will mean paying significantly higher prices, but you will still be more profitable. One of the misses in our industry is the idea that the key factor is to achieve the lowest price.
Getting the lowest cost for an item is not the end goal. We’re instead employed to drive profitability. If you simply operate an offshore model, you will more than likely get product for a low cost, but you will also get low profitability. However, if you actually use all three models, you will pay more overall, but your profitability jumps significantly. And we’ve run data on this a number of different ways to prove it.
The challenge here is that there is currently no planning system of doing this; no dynamically optimised system that can manage time over cost through multiple locations, and recognise all the variables including material, positioning, etc.
Predictions
While consumers are undoubtedly more switched on to where products come from and their impact on the environment, which in turn is driving purchasing decisions, the truth is that the online apparel sector is growing at a huge rate and a number of markets are going to be coming online in the next few years.
Europe and the US (which constitute the vast majority of the current market), represent only 15% of the world’s population. The remaining 85%, which includes the significant Indian and African markets, are still to come online in a meaningful way.
Legislation will be a great leveller. And one of my biggest frustrations is trying to get retailers to come together in a pre-competitive environment, and work together to recognise that they are all trying to solve the same challenges.
I’m working on an initiative with the Tony Blair Institute in West Africa to set up a mass regeneration centre, a new model for apparel to be built on. Everyone gets excited until you ask them to work together. Because of the competitive nature of the industry everyone wants to be different and everyone thinks they’re unique.
Therefore, legislation is crucial to drive collaboration forward. It will draw clear lines in the sand around the importance of collaboration when it comes to solving the currently challenges, and if companies worked together, we could solve the problems that exist significantly faster than we are today.
Of course, an obvious risk of legislation is if there is differentiation required for the same item due to varying legislation requirements across different countries or regions. That could make the problem more complicated so there needs to be central focus to the legislation.
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