Why fashion firms are favouring long-term suppliers

15 January 2021

Covid-19 has caused fashion firms to favour long-term partnerships with suppliers over previous “transactional and short-term” relationships. 

In a report by Business of Fashion and McKinsey and Company, a survey found three-quarters (73%) of the sourcing community expected the trend towards “deeper partnerships” to accelerate over the coming year.

The report said fashion companies needed to boost transformation of purchasing practices and sourcing relationships in 2021 to contend with sales volatility, overstock, and sustainability issues, while aiming for a “more flexible demand-focused supply chain”.

The report said: “We expect fashion brands to reduce transactional or non-committal relationships in favour of medium to longer-term volume commitments and strategic alignment with suppliers.”

Collaboration included more transparency around sales data, the use of forecasts and help with suppliers' investments in new machinery, semi-automation and technology to boost productivity and inventory management. 

The pandemic exposed the “fragile” nature of fashion supply chains and the “imbalance of power” between firms and vendors, with retail firms cancelling orders, delaying payments and renegotiating contracts. 

The Bangladesh Garment Manufacturers and Exporters Association estimated in April 2020 that $3bn worth of garment exports had been cancelled or suspended due to Covid-19. Primark was at the top of the list with orders estimated at $273m, while fashion giant Arcadia extended payment terms from 30 to 60 days and asked for a 30% discount on orders already shipped.

A range of suppliers including producers in Bangladesh and Indian artisans are taking measures to ensure contracts are upheld, payment terms are fair, and there is overall accountability and financial risk sharing from buyers, according to the report.

Over seven in 10 sourcing executives (76%) said there would be a greater need for flexibility and speed as firms put emphasis on selling inventory at full-price in order to recover from the crisis.

Helena Helmersson, chief executive at H&M Group, who was interviewed for the report, said the firm had a 50% year-on-year fall in sales due to the pandemic. She confirmed speed and flexibility were key elements of the retailer's future supply model. 

Due to an “oversupply problem” in 2020, fashion firms will streamline product lines, reduce complexity and work toward a demand-led model for inventory. 

Around half of fashion executives (55%) said they will be implementing a more agile supply chain to avoid overstock in the future. Meanwhile, 60% will be improving analytics for consumer behaviour, 54% will be revising assortment structures, 43% will reduce product lead times, and 30% will reduce collections. 

Michael Burke, chief executive at luxury brand Louis Vuitton, told researchers: “The higher the percentage of made-to-order business, the less overproduction you’re going to get involved with. That’s the first thing that luxury needs to concentrate on: smaller runs, ideally a run of one.” 

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