The shirt you are wearing now was probably manufactured in a far-away country, based on a months-old design, and then shipped for weeks across the high seas before reaching your local retailer or e-tailer. You might have picked it up 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.
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Apparel-sourcing executives are the first to say that this must change—and they are looking to digitization as a major enabler of the transformation the industry needs if it is to improve its disappointing returns, please increasingly choosy consumers, and compete with nimble start-ups. Yet, as a new McKinsey study shows, apparel remains an industry that has not yet fully embraced digital technologies. We surveyed chief purchasing officers (CPOs) from 63 of the world’s leading apparel companies, and the majority of them rated their organizations’ digitization 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, digitization will be the sourcing caravan’s next stop (exhibit). More than 80 percent of CPOs in our survey expect digitized end-to-end process management—including centralization 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 both with external suppliers and internal colleagues.
The business impact of these digitally enabled sourcing solutions could be exciting. The majority of CPOs we 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 percent through digitization alone.
Pioneering companies are already providing a glimpse of this future. For example, companies that have implemented 3-D 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.
As robotics technology grows in sophistication, widespread automation of apparel production is also becoming a real prospect. More than 60 percent 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.
As our study makes clear, digitization must not be seen as an end in itself. Rather, it is a powerful enabler of progress in all the main drivers of future success in apparel sourcing—including the continued optimization of sourcing-country strategy, strategic supplier partnerships, better environmental and labor compliance, and a doubling down on end-to-end efficiency. Apparel players have a major transformation ahead of them, spanning all these elements. Effective digitization will help them deliver that transformation faster and with much greater impact.
Download the full report on which this article is based, The apparel-sourcing caravan’s next stop: Digitization (PDF–9,506 KB).