McKinsey CPO Survey: Apparel Sourcing Executives Yet To Digitise Supply Chains

Machinery and Technology

McKinsey CPO Survey: Apparel Sourcing Executives Yet To Digitise Supply Chains

Chief Purchasing Officers (CPO) and apparel sourcing executives know the old paradigms must shift and are looking to technology as a catalyst—yet they are slow to embrace change.

A new McKinsey study, ‘Digitisation: The Next Stop for the Apparel Sourcing Caravan,’ describes the traditional method in effect for decades–a shirt manufactured in a far-away country based on a months-old design and then shipped for weeks across the ocean before reaching a retailer. Then the consumer might eventually buy it at half price in an end-of-season sale—a routine event in an industry whose long lead times and big batches give it little flexibility to adapt production to shifting consumer demand.

Apparel sourcing executives virtually all agree that this must change and they are looking to digitisation as a major enabler of the transformation needed to improve its disappointing returns, please increasingly choosy consumers and compete with nimble start-ups, McKinsey notes.

Yet, as the study shows, apparel remains an industry that has not yet fully embraced digital technologies. The company surveyed chief purchasing officers from 63 of the world’s leading apparel companies, and the majority rated their organisations’ digitisation maturity as low or very low. They had the same view of their suppliers.

“Five years from now, sourcing executives hope to see a very different picture: in an industry forever in search of the next sourcing country, digitisation will be the sourcing caravan’s next stop,” the report said.

More than 80 per cent of CPOs in the survey expect digitised end-to-end process management, including centralisation of product development and procurement processes in one cloud-based system. More than two-thirds of sourcing executives expect to have digitally enabled capacity planning in place, helping them to allocate production capacity more efficiently and spot bottlenecks earlier. A similar number expect to have digital portals up and running to foster transparency and collaboration with external suppliers and internally.

Automation, Speed and Efficiency

The majority of CPOs surveyed aspire to reduce their average lead time by two to eight weeks, helping them achieve the agility needed in a demand-driven market. Most of them are also targeting cost reduction of at least 2.5 per cent through digitisation alone.

Pioneering companies are already providing a glimpse of this future. For example, businesses that have implemented 3D design and virtual sampling report shortening the sampling process by two weeks or more, and they often see reductions of 50 percent in the number of samples needed and the cost involved. Apart from reducing the time and cost of the design process, this is also reducing the environmental footprint of production, the study stated.

“As robotics technology grows in sophistication, widespread automation of apparel production is also becoming a real prospect,” said the study, authored by McKinsey’s Achim Berg, Saskia Hedrich, Tim Lange and Karl-Hendrik Magnus. “More than 60 per cent of CPOs in our survey believe that automation will become a major driver of sourcing decisions by 2025. But automation will coexist with manual production in low-cost countries such as established sourcing markets Bangladesh and Ethiopia, where apparel companies are building major new facilities and training thousands of workers.”

Executives expect a “multispeed model” to emerge. High-end, quick-turn products will be produced in semi-automated plants in developed markets, while longer-lead-time commodity products will be produced in low-cost countries where technology will support, not replace, the workforce.

With apparel companies under pressure to step up their agility, there is also fresh focus on proximity sourcing and re-shoring. Meanwhile, factors other than price–strategic collaboration with suppliers and end-to-end process management–are becoming increasingly important considerations for sourcing executives.

The China Conundrum

China appears to have passed its zenith as a low-cost sourcing country, due to increased local demand and a reduction in size of the available workforce, the survey noted. Despite Chinese export capacity coming under increasing pressure, McKinsey expects China to be indispensable. For one thing, the sheer size of its apparel-manufacturing sector will make China a dominant player for years to come. Moreover, initiatives of the Chinese government–One Belt, One Road and Made in China 2025–will help modernise the sector and boost its global relevance.

Bangladesh, Vietnam and India, despite a slowdown in growth, are expected to remain sourcing hotspots.

But digitisation of sourcing processes was ranked among the top three focus areas for almost half of the sourcing executives surveyed and 21 per cent pinpointed it as their most important topic. This includes using technology to create transparency throughout the supply chain, adopting advanced analytics and artificial intelligence, redesigning and digitising processes, and making greater use of automation.

Digital printing was cited as the most advanced aspect of digitisation in apparel manufacturing. Together with automated cutting, this technology can dramatically reduce production time, increase flexibility, and reduce waste. Digital printing can also “democratise” design by creating the flexibility to run multiple small batches, the study said.

Another area gaining ground is automatic order processing and real-time re-planning, which can lower costs in logistics through automation of manual tasks, higher reliability due to granular feedback, and superior customer experience through immediate and reliable responses.

Another digitisation opportunity to watch is blockchain technology, which McKinsey said has the potential to completely transform the way information and transactions are captured, owned, stored and shared among companies and radically increase transparency across the supply chain.

“As our study makes clear, digitisation must not be seen as an end in itself,” the McKinsey team wrote. “Rather, it is a powerful enabler of progress in all the main drivers of future success in apparel sourcing, including the continued optimisation of sourcing-country strategy, strategic supplier partnerships, better environmental and labour compliance and a doubling down on end-to-end efficiency. Apparel players have a major transformation ahead of them, spanning all these elements. Effective digitisation will help them deliver that transformation faster and with much greater impact.”