With trade and travel restricted, and industries’ CO2 footprint under the microscope, what does “deglobalisation” mean for Global Sourcing?
If you believe in the mainstream news, we are reaching the end of globalisation and entering deglobalisation.
In 2020, countries have been restricting trade, banning international business travel, cutting shipping routes, and doubling the price of expensive air freights. On top of this, the US-CHINA trade war is now pushing all countries to be more self-sufficient. Since 2016, the growth in imports to the European Union has slowed down. From 2020, the forecast is that we will go back to the figures of five years ago. Imports will go back to levels below 150Bn EUR, according to econometric models (EUROSTAT source).
How is this affecting Global Sourcing Fashion?
Covid-19 has shown that at least Western countries were not prepared for this crisis. Fashion brands find themselves in a climate of uncertainty like we have never seen before. Many have zero visibility in a highly unpredictable scenario.
Will stores be open next week? What about Christmas? The most important time of the year, turnover-wise, for retail. We cannot predict any of this. And this uncertainty will continue until lockdowns no longer happen, so likely another one to two years.
Given this scenario, we need a “contingency sourcing strategy” for the next three years. As many Western brands organise more than 95% of their sourcing from Asia, with production lead times alone often being four months, the total lead time easily totals 10 months.
What Global Sourcing Fashion Strategy is next?
For many years, lowering cost was the key driver for Global Sourcing. Searching new countries and new suppliers was first priority. That development benefitted from an increasingly free trade climate, with open borders and plenty more transport routes. Free trade agreements have given buyers an open field for “specialisation” (countries specialised in a certain product class giving the best quality and price relation). The objective was clear: Global Sourcing to maximise the incoming margins and create a cushion for the “next sales” . This was the bread and butter of sourcing fashion.
But with China and the US’s trade war and the ongoing pandemic, priorities change. What was a fashion sourcing advantage just a few years ago becomes a burden today.
The four ingredients for Regional Sourcing Fashion in 2020
Regionalization is a Sourcing Manager’s dream, and time will tell whether that becomes a global trend in the years to come. But on a small scale, as a manager sourcing fashion you certainly can contribute to address regional sourcing in fashion. In fact, some key trends emerging post-Covid may force you to deliver a more regional sourcing faster. Here are four ingredients which could help you.
Ingredient 1: Address uncertainty with more local suppliers
Covid had a different impact across consumer markets. But one thing is common all over the world: A high share of uncertainty on retailers’ mid-term sales. Will stores be open? Will consumers come back? Do we need to place less or more orders? Nobody has a trustworthy forecast on that question. But one thing is clear, a high share of regional suppliers with shorter lead times gives you more options to react to trends. Given another one to two years of that uncertainty, strengthening local suppliers is smart in any case.
Ingredient 2: Get products faster to market
Making products in smaller, more frequent batches means the company can respond to what consumers are actually buying, too. Find the eligible suppliers that can deal with small batches, in between 5 to 14 days of production, and identify the barriers and time to send goods to market. This will give a lifecycle of two to three weeks on the shopfloor. To make that happen it is important you use new technologies and the ability of product development teams to collaborate with factories digital (read my tips on this here).
Ingredient 3: Increase adaptability
Even the shortest lead times won’t help you cope with unpredictable store lockdowns. Consider not only looking at cost and transit time from factory to the warehouse, but what truly reduces inventory and sales risks, and exposure to international trade variations and restrictions. Negotiate more long-term supplier contracts with built-in flexibility to increase or reduce manufacturing, postpone shipments, etc. Adaptability is key in reacting to crisis.
Ingredient 4: Reduce trade war risks
Review the country mix of our supply base, in a new way. Look at your three sourcing modes (“traditional sourcing” – “Fast to market/Speed” – “NOS”) and decide where to produce each program differently. Pandora is out of the box, more and more governments likely will threaten other countries if that brings votes for the next election. Consider tradewars to be the new normal, that may support your vision of regional sourcing.
Flexibility and agility is top priority
We have all learned lessons in sourcing this year. Speaking from my own background and working on changes in the industry, “global sourcing mania” is a thing of the past. Flexibility and agility are new top priorities in best practice Global Sourcing Fashion. With the actual scenario, it is important you make a plan to address the 4 ingredients in the months to come.
About the author
Agustin Caprile is a long-term experienced fashion buyer, working in sourcing for 15+ years for top retail fashion brands in EU. He had experience in the textile production industry all over the world, and a strong spirit to keep elevating the apparel business to a higher level of quality and consumer respect.