Case: - 

H&M invests in supply chain as fashion rivalry intensifies

STOCKHOLM (Reuters) - Cost controls helped H&M HMb.ST to limit a drop in quarterly

pretax profit but the fashion chain said it was increasing investments this year as it tries to keep
pace with its larger rival, Zara owner Inditex ITX.MC.

H&M, the world’s second-biggest fashion company, said conditions remained very tough in key
European markets and in the United States, with shopping behavior and expectations changing
rapidly.

Earnings were dented by weaker than expected sales growth and bigger mark-downs and H&M
shares fell 5 percent.

After years of hectic expansion across the world, the Swedish company's profitability has
faltered as Inditex, Fast Retailing's 9983.T Uniqlo and online specialists such as
ASOS ASOS.L gain an edge in "fast fashion". By turning over more new styles each year and
having production closer to customers, they can quickly boost supplies of best-selling items.

H&M’s supply chain lead times are around double those of Inditex, according to a report this
month by Goldman Sachs, which recommended that investors “sell” H&M shares.

H&M Chief Executive Karl-Johan Persson conceded that the company’s supply chain practices
had remained the same while the world had changed. H&M would “definitely” move some
production closer to end-markets while keeping an eye on profitability.

“Some is about moving to Europe as well, it could be Turkey or other countries in Europe, in
order to get faster deliveries to Europe,” he said. The company would also seek more flexibility
with suppliers so it needs lower inventories and boost spending to make the supply chain more
flexible.

DILEMMA

H&M has seen competition and price pressure in its budget ranges increase from rivals such as
Britain's Primark ABF.L, which recently entered H&M's biggest market Germany.

H&M is also branching out to reach a broader customer base and cut exposure to the budget
segment. On Thursday it announced a new chain of stores, ARKET, with a slightly higher price
range than its core budget H&M brand.

The new chain would also sell brands made by third parties.

But H&M has a dilemma -- the need to compete on price means four fifths of its production is in
Asia, far more than Inditex which sources around half its products from countries close to its
main markets, allowing it to react faster to sales trends.
More of Inditex’s clothes are ordered, produced and delivered in-season, on demand, from
nearby factories within weeks so it can capitalize on the constantly shifting preferences of young,
fashion-conscious shoppers.

H&M’s further-flung supply base could also leave it more exposed to trade disruption from
protectionist moves such as Britain’s decision to leave the European Union and the election of
U.S. President Donald Trump.

“While we don’t know if imports or exports will change for either, or other, countries at this
point, if they do create significant impacts, that could change the dynamics of production for
many retailers in the long term,” said Kantar Retail consultant Tiffany Hogan.

Large markdowns in stores last year hit sales and highlighted shortcomings in design and supply
planning. Thursday’s results further underscored the need for H&M to become more responsive
to consumer tastes.

Societe Generale analyst Anne Critchlow said H&M’s gross margin -- its most basic measure of
profitability -- was higher than expected in its financial quarter that runs from December to
February.

But she said March sales, which rose 7 percent on a constant currency basis, looked
disappointing, “even taking into account the later Easter this year”.

She highlighted a 30 percent increase in inventory compared to a year earlier and the company
warned of a risk of increased mark-downs impacting its gross margin if that stock-in-trade is not
sold down over the months ahead.

Quarterly pretax profit fell to 3.21 billion crowns ($362 million) from 3.33 billion a year-earlier,
above a mean forecast for 2.87 billion in a Reuters poll of analysts, helped by cost controls and
currency translation effects.

STOCK CHECKING

H&M shares have lost a third of their value since reaching an all-time high two years ago. In
January, H&M was dethroned by financial services company Nordea NDA.ST as Sweden's most
valuable listed company.

Overhauling H&M’s supply chain model to mirror that of Inditex could be a major logistical
challenge and incompatible with H&M’s lower-than-Zara price point as production in Europe is
more costly than in Asia.

H&M managers are focusing much of their energy on warehouse automation, meta-data analysis
and RFID clothes tagging so staff can know where clothes are and move quicker to address
shortages or oversupply.
It aims to get RFID tagging, which allows stock checks in less than a sixth of the time it used to
take, up and running next year. Inditex already uses it across its Zara operations.

“I think it’s more important that H&M keep tabs on their shopper and be able to deliver strong
assortments via shopper data and analysis,” said Kantar Retail’s Hogan.

“H&M need to make sure they’re innovating ahead of the curve, not just to catch up,” she added

Source: https://www.reuters.com/article/us-h-m-results-idUSKBN1710PM

Question No.01. What do you think are the complexities and challenges associated with

supply chains of Fast fashion Industry? Discuss in detail

Answer

The fashion and clothing sector is surrounded by a high degree of demand uncertainties, which

has an impact on the fashion supply chain. Brands in the fashion and clothing sector are being

pushed to listen to their customers as a result of globalization and numerous new entrants, as

well as competition. It's more crucial than ever to understand what hits with customers and to

respond quickly by meeting their demands without causing any delays in the fashion supply

chain. It's even more difficult to foresee the market and, as a result, forecast the needed raw

materials and supplies at the earliest possible moment, with ever-changing trends that lead to

changes in customer needs. The movement of resources, and hence the manufacturing lines, is

slowed by unpredictability. A supply chain problem is anything that halts or delays the flow of

materials and apparel goods, or even the forecasting process. It might be an issue with raw

material inventory, or it could be increasing tariffs in the countries where company factory,

warehouse, and suppliers are located. These supply chain issues may have a significant influence

on the company's revenues and make day-to-day operations uncertain.

Fast fashion firm demands that might create challenges for fashion supply chain

 To respond to real time changes customers tastes as quick as possible.

 Supply chain models must be established for short lead time supply chain.

 A greater degree of flexibility and a quicker turn-around time needed.

 Manufacturing process having fast-cycle process.

 Real time availability and efficient quality control.

The Fashion Industry's Complexity

 The majority of today's fashion brands do not own any manufacturing facilities. At any given

moment, certain brands may deal with thousands of manufacturers. These factories may be

located all over the world, and the clothes they produce frequently cross national borders.

Furthermore, after a product is ready, a brand may put an order with one supplier, who then

distributes the order and subcontracts the work to several manufacturers. This occurs often in

the industry and is a significant problem, resulting in occasional outsourced manufacturing

delays. As a result, transporting materials and final products has a high cost. When expenses

and delays in receiving items from one supplier are combined together, clients may receive

products with significant delays, severely impacting the customer experience. During the

festive season, long delays can have a severe impact on company. During the festive season,

significant delays can have a negative impact on company.

 Shipments that is lost or damaged

To maintain track of high-value objects in transportation, a high level of security is required.

This element must be carefully considered by logistics providers at every stage of the supply

chain. There are various techniques to avoid thefts, losses, and damages at the warehouse.

 On-time Deliveries

Meeting the demands of the “fashion on demand” purchasing age would necessitate significant

adjustments to the fashion and clothing industry' present business structures, particularly the

supply chain. Most fashion retailers and clothing firms are pushing their suppliers to have a

faster speed to market to reduce the risk of a fashion or trend miss. If the supply chain fails to

deliver on time, or if products are constantly out of stock, or if product quality is poor, the

brand's reputation suffers, and customers may shop elsewhere, resulting in strong criticism.

 Technology

A rise in connected devices and solutions inside the fashion supply chain, as a result of various

new technology adoptions, can lead to an oversupply of data and future regulatory issues in data

management.

 Digitalization

Digitalization is regarded as the third-largest challenge that fashion companies face. It is also one

of the most important efforts if a fashion retail company wishes to remain relevant in the

industry. Instead of falling behind, shippers and their supply chain partners must incorporate

fluid, digitalized supply chain automation processes that disrupt current operations and lay the

foundation for the future. Improved forecast accuracy, enhancing transportation performance,
improving product monitoring and traceability, and evaluating product returns are the supply

chain use cases with the most potential for analytics growth.

 Logistics

The textile, clothing, and garments business is regarded as a time-sensitive industry in terms of

logistics. Irregularities in delivering items to a certain location on time might result in lower (or

no) revenues for the textile owner. Furthermore, clothing collections change quickly: their

lifetime is limited (as perishable items), and their commercialization is marked by significant

seasonal peaks. Textile logistics, in this sense, is distinguished by limited inventories and quick

delivery periods.

 E-commerce

With the emergence of ecommerce business, E-commerce advancements have emphasised time-

sensitive logistics requirements, such as next-day delivery, as well as the ability to handle a huge

volume of returns and provide the ability for manufacturers and dealers to verify the location of

their goods at any time.

 Challenges in inventory position and system design

 Without a doubt, the fashion industry's fast-changing and glamorous image to consumers

and the rest of society is highly attractive. Nonetheless, it is primarily possible that the

reason supply chain experts face major problems. One such difficulty is marking down

slow-moving products at the end of the season, an example that exemplifies the

reasoning behind a number of critical business decisions such as system design and

inventory position.
 Depending on the business and its location, one item may shift quicker or slower. Slow-

moving inventory is usually sold at a deep discount during clearance seasons, or moved

through an external, online, or corporate outlet store. It might have been sold at full price

if it had been found at the right retailer at the right moment. As a result, businesses are

increasingly choosing for simpler supply chain networks that allow them to simply and

rapidly restock and rotate goods to retailers in response to local market trends.

 It would be ideal if you could just have one global inventory location. However, for most

firms, this is not a viable choice. Only one firm, Inditex (Zara), has so far been able to

make efficient global deliveries from central distribution centers in Spain to retailers

within a 40-hour time frame.

 Many firms' product volumes are insufficient to justify attempting to distribute

worldwide with such speed and efficiency. For example: Size may often be a speed

enabler since large quantities, such as Inditex's 800 million garments per year, allow for

lower airfreight costs and the ability to move production between suppliers, which is not

an option available to other companies in the market.

 Companies have chosen to locate inventory locally in order to assure quick deliveries

and order lead times of no more than three days to shops. Companies that have adopted

this method generally operate with networks that include up to three or four worldwide

inventory sites, typically in Asia, Europe, and the United States.

 In certain situations, organizations prefer network modeling technologies to evaluate

various inventory placement scenarios in order to find the best option.

References
 (Sandra et.al 2014), Clothing Industry: Main Challenges in the Supply Chain

Management of Value Brand Retailers. Research Gate, viewed 20 June 2021, <

https://www.researchgate.net/publication/286283893_Clothing_Industry_Main_Challeng

es_in_the_Supply_Chain_Management_of_Value_Brand_Retailers>.

 Suhrawardi, Rebecca. (2019, June 16). The biggest issues facing fashion in 2019. Viewed

20 June 2021. < https://www.forbes.com/sites/rebeccasuhrawardi/2019/01/16/the-big-

issues-facing-fashion-in-2019/?sh=7a9ee84c23a9>.

 Juri Reich, 2012, ‘Fashion-Specific Supply Chain Challenges and Fast Fashion as a

Suitable Solution’, Bachelor thesis.

 River logic. (n.d.). The Five Biggest Supply Chain Challenges of 2020.viewed 21

June, 2021, < https://www.scribbr.com/apa-examples/citing-online-sources-no-author-

date-title/>.

 Jungles, S.(2021). 28 supply chain professionals share the biggest challenges of

supply chain management. 6 River systems. Retrieved from .https://6river.com/biggest-

challenges-of-supply-chain-management/.

 Ganguli,R.,& Slob,B.(2016). Key issues in the garment supply chain and what to

do about them. Retrieved from file:///C:/Users/legend1/Downloads/garment_event_-

_garment_study_-_25_april_2016.pdf.

 HQTS Group Ltd. (2020). Current Sourcing Challenges in the Garment and

Textile Industry. Retrieved from. https://textilefocus.com/current-sourcing-challenges-

garment-textile-industry/.
Question.No.02. “H&M need to make sure they’re innovating ahead of the curve, not just

to catch up”. What are the major supply chain and operations overhauls that H&M is

working on? Share your opinion on its effectiveness and justify using relevant reasoning.

Answer

H&M is ranked third on Gartner's Supply Chain Top 15 list. The organization's reliance on

effective and integrated retail inventory management systems in the key components of its

supply chain has resulted in significant success in stock control management and a well-deserved

position on the Gartner list. Design: A combination of modern and classic designs is featured in

this collection. The supply chain operations and its effectiveness that H&M have implemented

are as follows:

Independent Suppliers, But Strong Relationships in Manufacturing

H&M retains control over their outsourced manufacturing with 30 production offices

strategically located near suppliers. Production offices are responsible for the following tasks:

 Act as a bridge among designers and suppliers, using information from both to select

vendors that are more efficient and convenient for a given product.

 Perform quality and safety testing while also monitoring the environmental consequences

of industrial activities to verify that the company's standards are satisfied.

 Assist suppliers in improving working conditions and standards in order to build a

stronger connection with them, allowing the firm to minimize lead times.

 Managing risk by acquiring raw materials on a continuous basis throughout the year.

Logistics

The majority of produced articles leaves the plant and is sent to logistics hubs, from where they

are transferred to retailers in the surrounding region. While there are no regional restocking

centers, inventory is kept in regional replenishment centers. Back-up supplies Inventory is

distributed directly to outlets from regional replenishment centers.

Technology (From Product Design to Sales, Integrating the System)

 H&M, which has a very complex supply chain, uses a very well developed IT system that

integrates the headquarters, administrative sources, production offices, and stores,

allowing for real-time communication, particularly in regards to design and product

development, which is important because the fashion giant does not own any of their

factories and does not purchase fabrics in advance.

  The firm uses IT to acquire information about the textiles possessed by each supplier in

order to make sensible judgments about where to place a specific order.

 Each store is linked to corporate logistics and H&M warehouses via common inventory

management software, making ordering and replenishing stores more efficient.

 The head office analyses sales trends from each outlet and uses this knowledge to make

customer-oriented design and manufacturing decisions.

 To track consumer patterns, H&M employs a centralized IT system. This provides them a

competitive edge by allowing them to complete 20 percent of their production in shorter

lead times.

Distribution of H&M

 Garments are delivered to one of the many distribution channels situated in various sales

markets, where they are unpacked and allocated before being distributed to outlets. These

distribution networks serve as a central for supplying retail outlets in an area comprised

of multiple sales countries.

H&M: Green Supply Chain

Despite the fact that logistics can be difficult in the fashion business, H&M emphasizes green

transportation as a fundamental value. In Asia, products are primarily carried by ocean, but

goods from Europe are mostly transported by rail rather than road, as H&M seeks to increase the

percentage of distribution movements by rail over road in Europe. Air is only utilized in extreme

circumstances where faster delivery is necessary.

Outsourcing Motives
  Cost Control

Because the firm does not own any plants, it saves money on plant, building, and

equipment setup expenses, and it benefits from labour arbitrage and inexpensive raw

materials.

 The fashion business is dynamic, which the firm may take advantage of by altering

manufacturing patterns, resulting in significant earnings. Apparels in great demand can

be reordered, while those in low demand can be ordered in smaller quantities.

 Every year, H&M launches two main collections: spring and autumn. Many sub

collections exist between each season, allowing H&M to alter its inventory on a regular

basis. The primary collections include of traditional long-lead products, while the sub-

collections consist of contemporary items with short lead periods.

 The reason for H&M's ability to act swiftly is its network of 20-30 operational offices

located around the country.

 Strategically located near suppliers. These offices collaborate with the buyers in Sweden

as well as the manufacturing. Facilities, they evaluate samples, inspect quality, and

choose vendors to handle each order.

References

 Rathore, M., & Maheshwari, K. (2019). Fast Moving H&M: An Analysis of Supply Chain

Management. 5(4), 1562-1566.

http://ijariie.com/AdminUploadPdf/Fast_Moving_H_M__An_Analysis_Of_Supply_Chai

n_Management_ijariie10784.pdf
 Clara Lu. (2020). H&M Supply Chain Strategy - Successful Retail Inventory Control. Trade

gecko. Retrieved from https://www.tradegecko.com/blog/inventory-management/hm-

retail-inventory-control

 Lee,G. (2017). H&M supply chain upgrade to boost speed and flexibility. Just style. Retrieved

from https://www.just-style.com/news/hm-supply-chain-upgrade-to-boost-speed-and-

flexibility

 H&M group. Supply Chain. Retrieved from https://hmgroup.com/sustainability/leading-

the-change/transparency/supply-chain/

 Rogele,M.( 2019). Supply Chain Analysis of H&M. GRIN. Retrieved from

 https://www.grin.com/document/497203

 UKEssays. (November 2018). Global Logistics & Supply Chain Management of H&M.

Retrieved from https://www.ukessays.com/essays/international-business/global-logistics-

supply-chain-management-of-hm.php?vref=1

 Milne, R. (2020). H&M opens up global supply chain to rivals in green push. Retrieved

from https://www.ft.com/content/302937a0-5d6c-11ea-b0ab-339c2307bcd4
Question.NO.03. Compare Zara and H&M’s supply chain capabilities. Which do you think

is superior in meeting market requirements and is more sustainable? Justify your answer

with suitable reasoning.

Answer

H&M ZARA
The Swedish firm reported a 3 percentage drop Zara, on the other hand, recorded a 14 percent

in first-quarter net profit from the previous increase in net profit for the fourth quarter of

year. last year, as well as record yearly sales.

H&M's supply chain lead time was double that Inditex has experienced double-digit sales

of Zara owner Inditex. growth as a result of a logistical and business

approach that enables the company to get

designs into shops more quickly.

The majority of H&M's manufacture takes ZARA on the other hand, is already produces
place in Asia. Now, H&M intends to rearrange in nations closer to its main markets. This

aspects of its supply chain in order to be closer allows it to react to changing sales patterns and

to the nations where its products are marketed. reduced production-to-sales time.

H&M has strategically kept manufacturing in

Asia, claiming the necessity for cost savings.

However, because the fashion business evolves

from season to season, their cost reductions

come at the disadvantage of being able to bring

new goods to market rapidly.

ZARA supply chain capabilities

 Zara prioritizes their response and rapidity to the newest fashion trends. The reason for

competitive edge of ZARA is its supply chain management system. Zara manufactures

around 450 million products every year. Because of the frequent, small batch deliveries

that happen with clockwork accuracy twice a week to retailers all over the world, it

remains so efficient despite the massive volume that flows through its supply chain.

 Zara produces and supplies items in small batches through vertical integration. The firm

handles all of its own warehousing, design, logistics, and distribution.

 Zara can ship more often and in smaller quantities due to quick in-season turnaround

from production facilities near Zara's distribution headquarters in Spain. Little harm is
 done if Zara's quickly created design in an attempt to pursue the newest trend does not

sell well.

 Zara's just in time manufacturing strategy has assisted it in lowering inventory in its

supply chain, providing responsiveness that distinguishes it from competitors, and

achieving quick turnover by creating goods in small quantities. Zara, the retailing giant,

produces attractive and trendy clothes suited to various preferences through a disciplined

and collaborative process (JIT) just in time.

 Zara produces a substantial portion of its products in-house and ensures that its factories

reserve 85 percent of their capacity for in-season changes. It enables Zara to be flexible in

terms of the frequency, quantity, and variety of new merchandise launched. The firm

relies on advanced fabric cutting, sourcing, and sewing capabilities located closer to its

design headquarters in Spain.

 Zara also has additional capacity on hand to meet fluctuating demand. This results in

more regular shipments and more consumer visits to the stores, providing an atmosphere

of opportunity.

 Zara's key to success is centralization. They make decisions in a very organized manner.

It follows a consistent, deep, and rapid rhythm centered on order fulfillment to retailers.

 Zara's outlets generally put in two orders every week on particular days and times. Trucks

leave at certain times, and goods arrive at specific times in stores. Garments are already

marked and priced when they arrive at their destination. As a consequence of this well-

defined pattern, every member of the team (from design through procurement,

manufacturing, distribution, and retail) understands the chronology and how their actions

interact with those of other divisions.

H&M supply chain capabilities

 The organization's reliance on effective and integrated retail inventory management

systems in the key components of its supply chain has resulted in stock control

management success. A staff of around 100 pattern makers and 160 in-house designers

work with merchandisers in our production offices to design, plan, and acquire

collections from the buying office in Stockholm, Sweden. Every year, H&M releases one

collection in the spring and one in the fall. To increase market share quicker while

remaining flexible in the eyes of the client, the firm has two design procedures: long-term

collection planning and real-time design based on current trends.

 H&M outsources all of its manufacturing and does not own any factories. Merchandise

with shorter lead times is manufactured in Europe, whereas those with lengthier lead

times are manufactured in Asia.

 It is critical to order the goods at the appropriate time in order to get the best pricing,

quality, and shorter lead times.

 H&M manufactures 80 percent of its inventory in advance, with the remaining 20 percent

introduced based on current market trends

 With advance orders for clothing such as children's wear and essentials, lead times range

from a few weeks to six months, while fashionable items based on current trends that

require fewer numbers may be produced at a shorter notice.

 The majority of manufactured articles leaves the factory and is sent to logistics hubs,

from where they are delivered to retailers in the surrounding region.

  H&M believes that warehouse automation and RFID tagging will help the firm better

manage its shortages and overstock concerns

The Firm superior in terms sustainable and of meeting market requirements

If I talk about the superiority in terms of responding the market requirements both firms are

possessing various supply chain attributes that might be differ from one another but are superior

so we can’t deny the supply chain tactics of one firm over other. Some of the superior and

sustainable market requirements I observed are:

 A key common concept among the firms is a thorough awareness of their consumers'

needs and expectations. ZARA and H&M have created frameworks to help them

determine their preferences. Zara's competitive edge is based on its ability to respond to

consumer requests, whereas H&M is recognized for its focus on researching and

anticipating new trends.

 Zara's success is dependent on its supply chain and cost leadership. It has a unique supply

chain that allows it to deliver items in real time and respond to current fashion trends.

H&M's fashion cycles are longer than Zara's, yet it still responds to changing trends. Zara

similarly focuses on consumer preferences in order to preserve a competitive advantage.

Zara also maintains close ties with suppliers, which enables reduced raw material pricing

and cost management.

 H&M puts a focus on building long-term relations with its suppliers. Trust, openness, and

integrity are essential. Important in supplier relationships the emphasis is also on supplier

growth and sustainability. Similarly to H&M As the company has grown worldwide, it

has created new opportunities for suppliers and employees.

  Zara has created a supply chain that allows it to keep up with fashion changes and deliver

items in near real time. H&M takes a hybrid strategy that combines the Uniqlo and Zara

concepts. It combines a dedication to durability with a responsiveness to fashion trends.

 Fast fashion merchants like Zara and H&M keep their merchandise moving with current

trends and a balanced inventory to minimize inventory losses and maximize revenues.

Quick response supply chains enable retailers such as Zara and H&M to move their items

from design to distribution in a timely manner. Such an effective and efficient rapid

response approach allows these merchants to prevent stock outs and assures constant

rotation of the latest goods for consumers, which increases shop visits and full price sales.

References

 Pareitti,M. (2021). H&M vs. Zara vs. Uniqlo: What's the Difference? Retrieved from

https://www.investopedia.com/articles/markets/120215/hm-vs-zara-vs-uniqlo-comparing-

business-models.asp.

 UKEssays. (November 2018). Zara vs. H&M Supply Chain | Case Study. Retrieved from

https://www.ukessays.com/essays/business/which-of-the-three-supply-chain-strategies-is-

the-most-competitive-business-essay.php?vref=1

 Mhugos. (2020). Zara’s Unique Business Model is Driven by Its Supply Chain

Capabilities. Retrieved from https://www.scmglobe.com/zara-clothing-company-supply-

chain/

 QuickBooks Commerce (June 2018). Zara supply chain analysis - the secret

behind Zara's retail success. Retrieved from https://www.tradegecko.com/blog/supply-

chain-management/zara-supply-chain-its-secret-to-retail-success
 Supplier managemenr. (May 2020). Zara – a Masterclass in Supplier Relationships and

Supply Chain Management. Retrieved from https://www.ivalua.com/blog/supply-chain-

management-zara/

 Ikram. (March 2021). H & M Supply Chain management: A case study. Retrieved from

https://www.schain24.com/2021/03/06/h-m-supply-chain/#ixzz6z1R9N09S

 Nieto, J. (2015). SUPPLY CHAIN MANAGEMENT H&MvsZARA. Retrieved from

https://www.academia.edu/25296267/SUPPLY_CHAIN_MANAGEMENT_H_and_Mvs

ZARA

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 Shen, B. (2014). Sustainable Fashion Supply Chain: Lessons from H&M. http://idea-

space.eu:19001/up/a29450dbbdf97bb9c2edc8ace6a2b06e.pdf
Question.No.04. how has Covid-19 impacted the fashion industry and its Supply Chain?

Produce a detailed discussion on how businesses can prepare themselves to minimize the

impact of future supply chain disruptions?

Answer

The corona virus outbreak caused a 3percent reduction in worldwide trade values in the first

quarter of 2020. COVID-19 might cause the worst economic crisis since World War II,

impacting industries ranging from commerce to hospitality.

Industries with more international operations (especially those that rely on Chinese inputs for

manufacturing) were most vulnerable to the first supply chain disruption caused by COVID-19.

This was true for precise instruments, machines, automobiles, and communication devices.

The fashion companies are facing severe challenges. Indeed, as a result of COVID-19, customers

all around the world are no longer in need of new items. This industry is recognized by a

globally connected supply chain.

China is considered to be an important center of a significant textile centre and worldwide value

chains in clothes. Because of cheap labor costs, these two innovations led to a shift in garment

manufacture and sourcing (by multinational retailers and producers) to China and other Asian

nations. As wages in China steadily rose and Chinese plants shifted to create higher-value items,

nations with lower wage costs, such as Bangladesh, Pakistan, and Vietnam, began inviting

companies to shift their production from China.

Because of the industry's globalization, businesses and retailers must move their goods and raw

materials across many nations. Other nations, in addition to China, play a vital role as key hubs

for the trading of fashion items.

Supply chain disruptions due to covid-19 outbreak

 The COVID-19 epidemic halted manufacturing in China initially, followed by store

closures across the world. For the time being, European and American retailers, the

sector's two destination markets, are still cancelling orders. Order cancellations are a

source of concern in many sourcing nations.

 The development of the local epidemic situation in major sourcing nations has had an

influence on labor availability and production, as well as the multimodal logistics that

support global value chains.

 Observable changes in ocean transport networks as a result of the pandemic include, for

example, a drop in service frequency (blank sailings and idle fleet) and changes in route,

notably affecting Asia-Northern Europe services, an important axis in the trade of fashion

products. In these uncertain times, the fashion sector is definitely under pressure.

Building resilience may need different demands and tactics depending on the role that

nations play in the supply chain.

 Prospects appear especially hopeless for low-cost sourcing countries that rely heavily on

textile and garment exports for revenue, while also dealing with the challenge of limited

financial resources and less developed health systems and social safety nets to deal with

the pandemic's socioeconomic effects.

 Due to covid-19, a decline in demand has resulted in brands and retailers breaking

contracts, cancelling orders, postponing delivery, and requesting reductions from

 suppliers. As companies cancel orders, the effects fall disproportionately on the most

vulnerable members of the supply chain.

 The worldwide demand for clothes has collapsed as a result of the crisis. During this

period of extremely low demand, a number of brands and retailers are using their

influence over suppliers and employees in the global garment industry by cancelling

orders for items (even those already in progress or manufactured), postponing payment

conditions, or demanding concessions. According to the Bangladeshi and Garment

Manufacturers Exporters Association (BGMEA), at least 1.2 million garment workers in

Bangladesh alone have been furloughed without pay after western brands cancelled $2.8

billion of existing orders in the wake of the Covid pandemic. Source:

https://www.fibre2fashion.com/industry-article/8771/what-covid-19-has-done-to-the-

fashion-supply-chain

 According to recent claims, fashion retailer H&M has announced the closure of 45 stores

in China. Other big retailers, including Gap, Uniqlo, Hugo Boss, Ralph Lauren, Nike,

Levi Strauss, and Adidas, have officially announced the closing of various shops in China

due to the impact of Covid-19.

 USA and EU are considered to be the major importers of apparels. Due to Covid-19 US

showed the change in apparel consumption indicating a projection of 40% lower

consumption of apparel and in EU a lower consumption of apparel up to 50% due to the

discontinuation of apparel stores.

In my opinion, businesses can prepare themselves to minimize the impact of future supply

chain disruptions as follows

 Industries and communities may learn from the failed supply chain systems around them and

improve them after the epidemic for the benefit of customers and society as a whole. First

and foremost, protecting the safety and security of the workers is a top issue for

manufacturers and merchants right now. Second, thorough research and analysis of consumer

behavior during this pandemic is needed, because it will give businesses with a smart method

of doing business. to ensure the long-term viability of their companies. Experts believe that

this unusual period of inactivity will not only provide consumers with important perspective

on the priority of various commodities in their life, but will also result in changes in their

attitude toward shopping and product choices in the post-pandemic world.

 Transparency at all stages of supply chain management, diversification of key resources, lean

supply, total cost ownership, and authenticity in customer retention would aid in the recovery

from the financial crisis as well as the reconstruction of supply chain management.

 Industries should collaborate to strike a balance between upgrading the old supply chain and

dealing with the rapid changes in business. They should also concentrate on building a data-

driven and technology-based digital supply chain in order to avoid unnecessary supply chain

interruption.

 To reconstruct the supply chain system, new sourcing, production, and distribution methods

should be implemented. Market analysts predicted that retailers would be increasingly

interested in re shoring and near-shoring following COVID-19. As a consequence, each

nation should establish a just-in-time and lean textile and clothing manufacturing and

delivery infrastructure.

 Retain existing orders with suppliers - All companies should agree to accept and pay for

items that have been created and are still being manufactured. H&M, PVH, Target, M&S,
 and other leading companies have made the right choice and demonstrated that it is feasible;

now more companies must follow likewise.

 Cooperate with suppliers to reduce COVID-19 risks while respecting labour rights – Support

suppliers in meeting WHO recommendations for COVID-19 prevention; provide financial

contributions and assistance in ensuring workers receive sick pay, wages during periods of

suspension, and severance pay during layoffs; and assist suppliers in developing plans to

address the increased risks.

References

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