In recent years, segmentation of the market has emerged with the rise of ‘affordable luxury’ brands such as Michael Kors, while the phenomenal growth of the online fast fashion sector has speeded up product life cycles even more. However, corporate social and environmental responsibility has become an increasing concern, especially given the geographically dispersed nature of fashion supply chains…
Fashion supply chains have become geographically long and increasingly complex over the past 30 years. The rise of fast fashion in the 1990s saw the democratisation of fashion, with mass market retailers such as Zara and H&M replicating catwalk and celebrity trends quickly to provide budget versions for their customers. To increase cost efficiencies and meet the increasing volume of demand, garment sourcing shifted from domestic to offshore production as retailers increasingly outsourced their manufacturing functions, while retaining focus on design, branding and retailing.
In recent years, further segmentation of the market has emerged with the rise of ‘affordable luxury’ brands such as Michael Kors, while the phenomenal growth of the online fast fashion sector has speeded up product life cycles even more. However, corporate social and environmental responsibility has become an increasing concern, especially given the geographically dispersed nature of fashion supply chains.
Fashion retailers have been accused of chasing cheap labour across the world while failing to pay living wages, using child labour, ignoring human rights abuses, being complicit with repressive regimes by denying workers the right to join unions and failing to enforce minimum labour standards (Maitland, 1997).
Corporate social responsibility (CSR) initiatives are crucial to companies’ strategies, especially for those operating in sensitive industry sectors such as fashion with its intensive use of natural resources and high labour inputs. Implementing CSR within fashion supply chains requires retailers to consider the social and environmental impact of their business operations on stakeholders. Environmental issues of pollution and high use of natural resources mainly relate to the textile pipeline and the associated use of water and toxic chemicals at the fabric production and processing stage, as well as textile waste issues in the consumer disposal of used garments, given the ever- shorter trend cycles and the rise of low quality, fast fashion with a limited lifespan (Perry, 2017).
Social issues focus particularly on the implications for workers and associated communities, in terms of wages, working hours and working conditions. Given the labour intensive garment manufacturing function, the fashion industry has faced scrutiny over sweatshops, child labour and worker exploitation. However, the industry’s intense focus on cost and lead time reduction means there are significant challenges to successfully implementing strategies that meet competitive demands as well as being socially and environmentally responsible.
The Internationalisation of Fashion Supply Chains
The mainstream fashion market is a dynamic industry sector, characterised by short product life cycles, high product variety, low predictability, relatively low margins and high levels of impulse purchasing (Turker and Altuntas, 2014). There is significant pressure for shorter lead times and reduced costs in order to meet consumer demand in the face of stiff competition. This is all the more so given the influence of fast fashion on the sector as a whole, with much shorter product life cycles and more collections per year, as well as the addition of pre-collections to standard spring/summer and autumn/ winter assortments for luxury retailers. Success or failure is largely dependent on flexibility and responsiveness.
A major supply chain trend within mass market fashion has been the vertical integration and outsourcing of the production function to a global network.
A major supply chain trend within mass market fashion has been the vertical disintegration and outsourcing of the production function to a global network of independent suppliers, usually within lower labour cost countries. In the mass market, vertical integration is rare, with a predominant global shift of production to emerging markets, as retailers respond to downward price pressure and increased competition. Even Zara is no longer an exception to outsourcing and has expanded its supplier base further afield to include lower labour cost countries such as Morocco, Turkey and India, finding that suppliers could respond quickly and to the standard required (Tokatli, 2015). Many fashion retailers and brands adopt a design/source/distribute model by focusing on design, branding and retailing, with production outsourced to global networks of independent suppliers.
The main driver for shifting production to developing countries is cost, given the labour-intensive nature of garment production and the large differentials in labour rates. Sewing operations can be located wherever there is a cheap and readily available labour source. As countries progressively industrialise and experience economic development, labour rates increase, and competitive advantage moves successively to the next newly industrialising country where labour rates are even cheaper.
Current locations of low-cost garment manufacture include Bangladesh, Myanmar and Cambodia.
Current locations of low-cost garment manufacture include Bangladesh, Myanmar and Cambodia (Hamlin and Roberts, 2017). Within China, as labour rates in coastal areas have increased, garment manufacturing has moved to cheaper inland regions. Likewise, as costs in Turkey have increased, some garment manufacturers shifted production to Egypt. To avoid this continuous ‘race to the bottom’, some firms or countries have attempted to ‘move to more profitable and/or technologically sophisticated capital- and skill-intensive economic niches’ – known as ‘industrial upgrading’ (Gereffi, 1999:52; Tokatli, 2008).
However, this may now be threatened by automation possibilities in garment manufacture, which could allow companies to manufacture closer to their selling market and avoid the shipping costs and delays of outsourcing. For example, while German sportswear group Adidas AG manufactures 96 percent of footwear in Asia (Spetzler, 2016), this could change following the establishment of a highly automated ‘speedfactory’ in Germany in 2017. With such technological developments, lower labour cost countries dependent on large-scale manufacturing for employment might see their price competitiveness blunted by close-to-market automated production.
Globalisation, heightened competition and the changing nature of the luxury consumer have resulted in a greater level of complexity and turbulence in the luxury market, which has also seen greater movement towards vertical disintegration and a networked structure and an increasing shift towards mass production of luxury fashion products. By 2011, up to 20 percent of Prada’s collections were made in China, with some manufacturing also taking place in Turkey and Romania (Sanderson, 2013). Whilst Burberry manufactures its classic trench coats in the UK, fashion-focused products in its collections have been outsourced to independent subcontractors in lower labour cost countries, including Turkey and China (Tokatli, 2012).
Traditional vertical integration to protect luxury brand values of country of origin and craftsmanship has often given way to outsourcing of some garment production from country of brand origin or material origin (e.g. Italy, France) to lower labour cost countries such as Romania, Turkey or China.
Vertical disintegration and outsourcing also brought an increased focus on supply chain relationship management. Traditionally, buyer-supplier relationships in fashion were short-term and adversarial, characterised by multiple sourcing, price orientation and competitive bidding. The balance of power shifted from manufacturers to large retailers, who create global sourcing networks and exert control over production, distribution and retail (Gereffi et al., 2005; Starmanns, 2017). They leverage their dominant position to dictate terms to manufacturers, both in the mass-market sector (Hearson, 2009) and in luxury (Gesualdi and Lucchetti, 2017). But as shorter product life cycles and rapidly changing consumer demands have led to a renewed focus on flexibility and responsiveness as a means of reducing lead times, there has been a move to strategic partnerships based on commitment, trust and continuous improvement. Rather than seeking price reductions in short-term transactions, long-term oriented firms seek to maximise their profits over a series of transactions by achieving synergy and sharing risks.
For fashion products, closer trading relationships are necessary to maximise supply chain effectiveness and efficiency in terms of reducing lead time and maximising stock availability (Perry and Towers, 2013). Therefore, many larger retailers have rationalised their global supply networks to reduce costs and develop closer partnerships with a fewer number of preferred suppliers. A reduction in supply base enables buyers to develop long-term collaborative relationships with fewer key suppliers and then work to improve these suppliers’ performance and capabilities for the benefit of both parties (Starmanns, 2017).
Fast fashion retailers face greater pressure for both cost and lead time and therefore tend to rely on short-term, arm’s-length trading relationships.
Because of the short product life cycles of fast fashion, retail buyers tend not to place long- running orders, but rather small batches which may be easily moved from one supplier to another.
For example, fast fashion retailers’ sourcing policies may dictate sourcing products from the cheapest possible supplier, with short and variable trading relationships, sometimes even changing supplier mid- season. Nevertheless, developing supplier relationships is also important in fast fashion to achieve benefits of increased agility and joint problem-solving.
Corporate Social Responsibility in Fashion Supply Chains
A further challenge in recent times has been the management of ethical issues in complex global sourcing networks. For example, in 2010, a media investigation into Indian garment suppliers of fashion retailers Gap, Next and Marks & Spencer led to strong media criticism of alleged inhumane working practices, including long hours, wage violations and forced labour. In 2013, several Western fashion retailers were implicated in the tragedy of the Rana Plaza garment factory building collapse in Dhaka, Bangladesh, which killed over 1,100 people. In 2017, Gesualdi and Lucchetti exposed the ‘harsh conditions’ imposed upon suppliers by a number of luxury Italian footwear brands and the consequent poor working conditions.
There are increasing calls for transparency in supply chains in recent NGO campaigns, including Fashion Revolution (2017), Change Your Shoes (Spetzler, 2016) and Greenpeace (2016), meaning that retailers need to have knowledge of the outer tiers of their supplier networks. Tighter legislation in certain areas such as industrial pollution and modern slavery has led to greater pressure on companies to consider the social and environmental impacts of their operations. China’s environmental law was significantly updated in January 2015, with a specific focus on the fast fashion sector (China Water Risk, 2016). Companies are increasingly held responsible by consumers and the wider media for the social performance of their suppliers, and ultimately for the entire supply chain (Andersen and Skøtt-Larsen, 2009). In 2010 for example, Nike was pressured to make good its Honduran subcontractors’ failure to pay workers $2 million in entitled severance benefits when their factories closed down, despite the fact that the subcontractors were independent supply chain entities.
The idea that business has wider responsibility than merely profit- maximisation is not novel, but it has become increasingly topical given the slew of ethical scandals in recent years. But despite growing awareness of ethical issues in fashion supply chains, CSR implementation remains challenged by the context of the global fashion supply chain, in terms of commercial cost and lead time pressures, as well as the poor working conditions, weak regulatory compliance and corruption often encountered in less-developed countries (Ruwanpura and Wrigley, 2011). Globalisation has led to a situation whereby multinational corporations based in developed countries are able to apply local standards to their operations in less developed nations in order to maximise profits. Invariably, host country regulatory standards on issues such as pollution, discrimination and wages appear inferior to accepted home country standards.
The idea that business has wider responsibility than merely profit- maximisation is not novel, but it has become increasingly topical given the slew of ethical scandals in recent years.
Despite the development of ethical codes of conduct and audit procedures to guide socially responsible practices, these have questionable effectiveness, given the complexity of global fashion supply chains and the significant pressure on cost and lead time. These can present challenges for suppliers to uphold ethical requirements, both in the mass market (Hearson, 2009; Starmanns, 2017) and in luxury (Gesualdi and Lucchetti, 2017). With unpredictable demand and shortening product life-cycles, retail buyers reduce their risk of under- or over-buying by placing orders as close to the season as possible; however, short lead-times and unrealistic delivery schedules increase the likelihood that suppliers may have to work overtime to complete orders in a timely fashion. Lack of advance commitment to orders and a requirement for supplier flexibility affects the supplier’s ability to reasonably plan the demands on business resources and recruit the necessary permanent employees – instead necessitating the use of temporary workers who may also belong to vulnerable social groups such as economic migrants. Pressure to reduce cost could also force the supplier to lower wages and fail to pay overtime. Extended payment terms, which vary from 30 to 160 days, put added pressure on suppliers that need to pay wages on time, and particularly on full-package suppliers that must also pay for fabric and trims in advance. There have also been numerous reports of retailers requesting retrospective discounts on orders already placed and extensions to payment terms. Such conflict between managing commercial requirements and ethical demands was neatly summarised by a factory manager of an Indian Walmart supplier in Hearson’s (2009) study:
‘Of course Walmart has many compliance standards. If we try to implement all of them, we can sit at home. No production will happen… To ask us to complete production with a code of conduct is one thing and to implement it is another thing’.
Extended payment terms, which vary from 30 to 160 days, put added pressure on suppliers that need to pay wages on time, and particularly on full- package suppliers that must also pay for fabric and trims in advance.
Given the development of retailer buying practices designed to minimise buying risk, reduce cost and increase frequency of shipments, there is a need to reconcile concern for ethical issues with the competitive challenges of the fashion sector. Research suggests that certain supply chain initiatives may partially overcome the conflict between commercial demands and ethical requirements in fashion supply chains (Perry and Towers, 2013). In Sri Lanka, a key garment sourcing location with a reputation for ethical and environmental production, Perry et al.’s (2015) research found evidence of long-term partnership relationships between garment manufacturers and mid-market retailers, characterised by trust, commitment and a drive for continual improvement. The larger Sri Lankan garment suppliers had developed strong long-term relationships with US and European retailers over 10-20 years. With increasing global scrutiny of ethical standards in globally dispersed supply chains, sourcing from trusted full-package suppliers in low-risk locations reduces the risks associated with ethical misconduct and the potential of negative publicity. Collaboration and coordination between buyers and suppliers enabled suppliers to achieve cost reductions and improve agility by developing fashion product closer to demand, without a detrimental impact on worker welfare. By collaborating with buyers during product development or by integrating design and product development into sourcing, suppliers could reduce lead times and uncertainty, resulting in a lower likelihood of order changes or cancellations.
Long-term relationships build trust and facilitate buyer- supplier interactions as the supplier understands the buyer’s requirements more quickly and is more willing to move towards those requirements, which support the presence of better working conditions (Starmanns, 2017). Frenkel and Scott’s (2002) study of Asian athletic shoe manufacturers found that collaborative trading relationships were dynamic and promoted joint learning and innovation, whereas compliance-type relationships were characterised by the setting of functional targets which merely resulted in their achievement and maintenance, rather than a push for further improvement.
Conclusion
The influence of fast fashion has resulted in a restructuring of international supply chains as retailers have had to adapt to the simultaneous challenges of downward price pressure, higher product variety and shorter product life cycles. Outsourcing of production has been a key feature of fashion supply chains more widely as Western retailers seek to reduce costs while maintaining flexibility and responsiveness. However, complex global subcontracting relationships reduce visibility and control of ethical issues in fashion supply chains.
Fashion supply chains management practices must enable retail buyers and suppliers to reconcile ethical issues alongside the commercial pressures of cost and lead-time.
Implementing CSR initiatives can be justified by the need to protect the reputation of the retail brand and ensure supplier business sustainability and capability enhancement. Such initiatives ultimately lead to a reduction of risk in sourcing. By better managing their trading relationships with suppliers, fashion retailers may reap the potential of improved supply chain performance and reduce ethical transgressions in garment factories. By building closer relationships with fewer suppliers, sharing information and integrating pre-production activities such as product design and development, fashion retailers can reduce time-to-market without compromising worker welfare in factories. Shared goals and collaborative ways of working move the focus onto a long-term and partnership oriented relationship. This encourages suppliers to be innovative and take ownership of CSR, driving it through their businesses to cascade best practice throughout the supply network for the benefit of all supply chain partners.
