How Fashion Can Tackle Its Supply Chain Crisis | BoF Professional, News & Analysis

Phuong Ireland thought she was avoiding the worst of the pandemic’s disruptions to the fashion industry when she delayed the launch of her brand, Wknd Nation, to March 2021. But while the brand’s soft cotton tees and pullovers quickly attracted customers, Covid-19 has thrown up plenty of hurdles to actually making and shipping those products.

Among the problems she’s dealt with so far in 2021: cotton prices have fluctuated wildly, so a manufacturer might charge a 20 percent premium for a second run of a popular item. Global transportation bottlenecks have slowed the time it takes a product to make it from the factory to the customer from a few weeks to two-and-a-half months.

“We’ve been living in the darkness of the supply chain issues since inception,” said Ireland, who previously worked in merchandising for L Brands and American Eagle Outfitters.

She isn’t alone in her struggle. Saitex, a denim manufacturer, said it had to lock down its factory in Ho Chi Minh City as Vietnam experiences its fourth wave of the pandemic, and was forced to provide lodging inside the facility for just under half of its 3,500 employees there. In the freight industry, rising oil prices and a shortage of shipping containers have caused the cost of overseas transportation to quadruple since 2019, some brands say. Carriers such as FedEx and UPS are stretched thin by the online shopping boom. The American Apparel & Footwear Association, a trade group, has sent multiple pleas to the White House for government assistance, citing a “destructive cycle of lengthening delays and rocketing costs.”

“There are about a dozen contributing factors in the [current situation] but it seems like a never-ending list,” said Chris Palmer, chief executive of SupplyKick, a company that helps manufacturers sell their products on e-commerce marketplaces such as Amazon. Palmer estimates that his clients are able to fulfil only one-third of consumer demand.

In tough times, creative solutions to these industry-wide challenges will empower the savviest players to gain market share. No one can escape the supply chain crisis entirely unscathed. But exploring new options, such as factory-direct shipping or combining freight strategies, can offer some fashion companies a leg up on the competition — and not to mention, a healthier bottom line. Below, BoF outlines three ways brands and retailers can address the ongoing supply chain crisis.

Spread Out Production

Pyjamas brand Sant and Abel works with three factories in three different countries: India, Vietnam and China. When its manufacturer in Vietnam unexpectedly shut down last month, the brand was able to shift fourth-quarter production to the facility in India, said founder Sophie Lovejoy.

Spreading production among multiple facilities mitigates risk for brands like Sant and Abel because if one factory is suddenly unable to meet production deadlines, there can be contingency plans. Exploring new factory options can also enable brands to better manage inventory. For instance, Wknd Nation produces its cotton staples in two factories: one in the Philippines, and another in Egypt. Both locations have encountered issues due to Covid-19, Ireland said, which is in part why the company is now in exploratory conversation with a third factory in Hong Kong.

This new factory would allow Wknd Nation to purchase smaller orders for new styles — as few as 20 or 30 units, rather than the standard 2,000-unit minimum order — as well as small reorders for certain sizes.

Even if small-batch production is more expensive for the brand, Ireland said, it could be worth it for meeting customer demand and not having to worry about excess inventory at a time when demand is so difficult to forecast.

Simpler Shipping

Saitex’s new Los Angeles factory opened earlier this year, and it has a capability that most manufacturers don’t: the ability to ship products straight to consumers’ homes.

This is called factory-direct shipping, and it’s a growing trend among e-commerce companies as an effort to reduce the costs of shipping online orders from factories to warehouses, warehouses to distribution centres, and then to the final destination. Saitex facilitates factory-direct shipping for one of its clients, Edwin USA, and is developing capabilities to ship directly to stores for a handful of others, including Everlane. The latter has not yet set in motion.

More brands are turning to this alternative as shipping costs hit record highs. Jet fuel prices are up over 70 percent since last year, according to the International Air Transport Association, while the cost of a 40-foot shipping container is now more than four times higher than a year ago, according to Drewry Shipping Consultants Ltd data cited by the Wall Street Journal.

Keith Turco, president of Evrything, a software company that helps brands track their products in every step of the supply chain, said he too has seen more and more brands opt for factory-direct shipping — even from manufacturers overseas.

Activewear label Girlfriend Collective, for instance, keeps products in a fulfilment centre near its factory in Vietnam. Orders must still pass through US Customs, but this strategy limits the overall distance products must travel and keeps costs down.

The downside of shipping each order from overseas is the consumer wait time: Girlfriend Collective said all orders take between one to six days to ship, and then another seven to 10 days to arrive in the continental US. Compared to Amazon or Revolve’s two-day shipping, keeping customers waiting a week or longer could result in a lower rate of repeat purchases, some logistics experts say. Girlfriend Collective declined to comment.

Bargain With Shipping Partners

In the past 18 months, Lovejoy of Sant and Abel saw the cost of shipping one kilogram of products by air rise from about $5 in 2019 to $10 in 2020 and $18 this year. At that point, she started shopping around.

After months of searching, Lovejoy stumbled upon a Hong Kong air freight company that now ships her products for half the price of her previous partner.

Air freight is faster than ocean shipping, but generally more expensive and not always practical for larger companies. Ireland of Wknd Nation said she uses a combination of transportation methods: air shipping for about a third of her products, which takes a little under two weeks, and container ships for the rest, a journey that takes more than two months.

Typically Ireland uses air shipping for new styles so the brand could have faster data on how they sell, she added.

To reduce the costs of last mile delivery, the final leg of an online order to the customer’s home, brands could compare prices among multiple shipping partners, whether that’s a 3PL operator that sets its own rates with carriers or a shipping software that streamlines the process.

Lovejoy of Sant and Abel said she has been able to negotiate lower domestic rates for FedEx directly with the carrier but also takes advantage of low UPS rates through ShipStation, a company that negotiates lower rates by pooling orders from multiple clients.

3PL operators can also negotiate lower bulk rates, as do e-commerce platforms like Shopify. For instance, when UPS increased its rates by about 5 percent earlier this year, Shopify Shipping clients were not affected by the change.

An Uncertain Future

It’s unclear when these supply chain challenges will subside. Many businesses are hoping the strain will be alleviated in the next year or so.

“I think there’s a little bubble in the demand because people have been so reserved [during the pandemic] and now they want to come out again,” said Kathy Kweon, president of Saitex USA. “Brands have also been reacting above and beyond to their supply chains filled up.”

Many companies are betting sky-high shipping costs are here to stay. Experts say prices will likely rise through the end of 2021, as demand is typically higher in the second half of the year, especially from the back-to-school period to the holidays. And while ocean freight operators have ordered new vessels in reaction to the rising demand, many won’t be ready to ship until 2023.

The good news, according to Palmer of SupplyKick, is that customers may be growing more tolerant of slower shipping times.

“People are buying new cars today and waiting six months for the car to be delivered,” he said. Instead of marking something as out of stock, brands could salvage more sales by listing delivery times as six to eight weeks, he added.

The key, however, is to never over-promise. Shipping notifications should always use the most conservative estimates, and vendors must closely manage their inventory to avoid ever having to cancel orders after they’ve been placed.

“That’s the fastest way to disappoint customers,” Palmer said.

In our latest case study, Fashion’s Last Mile Opportunity, we explore this topic further as we dissect the components of a successful shipping strategy from warehousing to speedy delivery. Download your copy today.

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Risk, Resilience and Rebalancing in the Apparel Supply Chain

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In Fashion’s Global Supply Chain, a Ruthless Race to the Bottom

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