Fashion Supply Chain: Everything You Need to Know
Lynne Sampson | Content Strategist | May 9, 2023
As you consider the apparel within your company's inventory, do you know the origins of the fabrics or the assembly location for each garment? Are you aware of the diverse materials used in creating your footwear products, or the multiple countries involved in producing your accessories? While these questions might not be top of mind for the average consumer, they are important for companies involved in procuring, producing, and marketing fashion garments.
What Is a Supply Chain?
A supply chain is a coordinated network of companies and business services involved in sourcing, manufacturing, shipping, storing, and selling products. Supply chain activities include designing the product, sourcing raw materials and parts, evaluating and selecting suppliers, demand planning, manufacturing, shipping (including transportation and fleet management), warehousing, and managing customer orders. Today’s supply chains often span the globe, extending into trade activities such as customs, tariffs, and border crossings.
What Is a Fashion Supply Chain?
The supply chain in the fashion industry refers to the complex network of businesses and services that bring clothing and accessories (shoes, belts, purses, jewelry, and more) from concept to customer. Stakeholders in the fashion supply chain include growers of silk, cotton, and linen; textile manufacturers; distributors; retailers; third-party logistics providers; and more. A successful fashion supply chain has transparent communications among all parties at each stage. Communications are important to reduce lead times, improve quality, and ensure timely delivery to retailers and customers. A strong fashion supply chain helps reduce production, inventory, and logistics costs while increasing customer satisfaction.
Key Takeaways
- Fashion supply chains start with raw materials and end with the final sale of clothing and accessories.
- Supply chains are complicated, involving sophisticated manufacturing plants, various forms of transportation, skilled labor, and myriad regulations worldwide.
- Because they’re so complex, fashion supply chains typically rely on software automation to plan, order, and track goods and shipments at every stage.
- Efficient supply chain management can boost fashion company profit margins by several percentage points.
Fashion Supply Chain Explained
The fashion supply chain starts with designs for the clothing or accessories to be manufactured, including specifications such as colors, fabrics, stitching, and fastenings (buttons, zips, Velcro, and so forth). When a manufacturer receives the specs, it sources the raw materials, develops a production plan, manufactures and assembles the goods, and distributes the finished products to warehouses. From there, the goods are shipped to retailers, for sale to customers online and in brick-and-mortar stores. Retailers typically also provide a customer service team to assist with questions and returns.
The global fashion industry generated more than US$1.5 trillion in revenue in 2022, according to Statista, with most of the manufacturing and production done in countries across Asia, due to their relatively low wages. Increasingly, customers in North America and Europe are demanding that fashion brands and retailers adhere to fair labor and environmental practices, pressuring the industry to evaluate suppliers based, in part, on those practices. Customers also want fashion brands and retailers to make that provenance information available on their websites, product packaging, and shelf labels.
Why Is the Fashion Supply Chain Important?
The supply chain is important for the fashion industry because it ensures that brands and retailers can produce and deliver the right garments, accessories, and other products at the right time to meet ever-changing customer demands in a highly competitive market. A well-managed supply chain results in faster turnarounds, lower costs, and an improved customer experience, helping fashion producers and retailers maximize their profits. Companies rely heavily on technology to manage every step of their supply chains to ensure those results.
How Does the Fashion Supply Chain Work?
The fashion supply chain begins with creating designs by a fashion designer. These designs then go to either a textile sourcing company or a garment manufacturing facility that turns fabrics into pieces of clothing. Once manufactured, the apparel is inspected for quality control. If the garments pass that step, they’re shipped to online distributors and logistics warehouses or directly to brick-and-mortar retail stores, ready for customers to buy. Ultimately, the efficient flow of information and materials within this complex network is what drives the fashion industry forward.
The Supply Chain Process
Fashion industry supply chain processes can vary depending on market conditions, customer demand, and the retailer’s approach. For example, some retailers want to ensure that their products and underlying raw materials are sourced from suppliers that adhere to fair labor practices and have strict environmental standards. In general, though, a typical supply chain process looks like the following:
- Raw materials acquisition. This is the first step in the supply chain process and involves obtaining the necessary raw materials to make a product. This step could include sourcing directly from cotton, silk, flax, and hemp farmers or from third-party suppliers, often locally. The main focus of this step is to get quality materials at the lowest cost, often factoring in fair labor and environmental considerations.
- Design and production planning. In this step, engineers develop a production plan for the product based on customer demand and needs. The plan considers material availability, inventory levels, cost-effectiveness, and product quality.
- Manufacturing/assembly. During this step, raw materials turn into finished products ready for shipment or distribution to retailers or direct to customers. Manufacturers must carefully manage their production levels to meet customer demand while avoiding making too much excess product that they can’t sell quickly.
- Distribution. Once the products are manufactured, they’re distributed to retail stores, sometimes via wholesalers (more on that below), or directly to customers. This step might involve packaging and shipping over various transportation networks, such as roadways, railroads, waterways, and air freight carriers.
- Storage and warehousing. Companies store their inventory holdings close to the point of sale so they can quickly and easily distribute them when needed. This process ensures that orders are filled promptly, without delays or stockouts that might prompt customers to go to competing retailers (online or in-store).
- Logistics and supply chain optimization. This process involves reducing costs and increasing efficiency across all supply chain stages. It can involve switching to lower-cost suppliers, using smarter planning strategies like just-in-time inventory, or finding the shortest delivery routes with the lowest fuel costs.
- Customer service and delivery. Customer service teams deal directly with customers to answer their questions about deliveries, products, and more to ensure they’re satisfied with their purchases and assist them with returns.
Benefits of Fashion Supply Chain Management
Fashion supply chain management involves collecting data at every step of the process and analyzing that data to make improvements. For example, if a shipping lane closes because of a political dispute, or if a key supplier goes out of business, supply chain managers want this information immediately to work around the disruptions quickly. The benefits of supply chain management include:
- Improved visibility and control over the entire supply chain. Supply chain managers are responsible for complex processes, from acquiring raw materials to retail delivery. The more information and visibility they have into this complicated process, the better they can identify bottlenecks and change plans to fix other potential problems.
- Increased efficiency in warehouse operations. Information such as time to unload (comparing the use of robots to people), staffing levels, and wages can help companies improve warehouse efficiency and reduce costs.
- Reduced errors, delays, and costs. This is where automation plays a key role. Automated production lines, robotics, AI-based data analytics, and track-and-trace technologies all help reduce the number of manual handoffs in a supply chain. Fewer manual steps mean less potential for costly human error and mistakes.
- Streamlined processes and improved quality of service to customers. The more efficient the fashion supply chain, the faster retailers can deliver the in-demand final products to customers and the happier they’ll be with the end result.
Challenges of Fashion Supply Chain Management
Fashion supply chains are complicated, and the biggest challenges are associated with organizing and analyzing all the information associated with every step. Companies rely heavily on supply chain management software to create plans, select suppliers, place orders, track progress, manage warehouses, plan logistics, and deliver goods to buyers. The following are among the most common challenges:
- Macroeconomic trends. The state of the economy changes from year to year, even month to month. Among the current challenges affecting the fashion industry are global inflation, including rising energy costs that make transportation and heating more expensive; cotton crop shortages in Pakistan (due to flooding) and in Texas (due to drought); and continued supply chain disruptions from strikes, worker shortages, trade disputes, economic sanctions, and other factors. Fashion supply chains must be flexible enough to be adjusted in response to the next economic challenge.
- Sustainability and human rights. Customers are concerned about climate change and global working conditions. They’re asking questions like: Was this clothing made in a sweatshop? Is it made from recycled materials? And they want answers from fashion brands and retailers. Software applications can help retailers evaluate suppliers to ensure they follow set ethical and environmental guidelines. Fashion retailers are starting to track this information and make it easily findable on their websites and product labels for customers to see.
- Fluctuating demand and trends. Fashion is a fast-changing business. Leading design brands introduce new clothing lines every six months, typically in the spring and fall. A style of jeans that was popular in March might fall to near-zero demand by October. Supply chain planners must keep enough product on hand to meet demand while it lasts but not so much that they end up with a lot of unsold inventory they’ll have to discount once demand begins to drop.
- Logistics and tracking. Logistics for fashion supply chains can span the globe, from clothing manufacturers in Asia to retail outlets in the US heartland. Goods are transported across multiple borders by multiple carriers, via ship, air, rail, truck, bicycle, and even on foot! Supply chain managers must coordinate handoffs between carriers and track their shipments every step of the way. They typically rely on logistics applications, including track and trace, to give them insight into where their goods are at any given time.
7 Fashion Supply Chain Best Practices
Fashion companies compete with one another on cost, price, style, quality, customer satisfaction, and sustainability practices. To stay competitive, fashion companies can follow a number of supply chain best practices, from sourcing to sale.
- Invest in integrated technology. When supply chain applications for planning, sourcing, ordering, invoicing, payments, inventory, logistics, and returns are integrated, their data can flow freely from one system to the next, giving industry players visibility into every step from a single dashboard. Such integration also helps fashion companies automate their supply chain processes, improving efficiency, reducing costs, and limiting errors.
- Prioritize visibility and communication. Having visibility into each stage of a product’s lifecycle— from design through delivery—helps ensure that all parties involved are working together and can resolve problems quickly. Implementing advanced tracking technologies (such as Internet of Things and intelligent track and trace) can provide more visibility into where goods and shipments are at any point along the supply chain. The technologies can also relay information about delays to suppliers and buyers, helping them work together to resolve these problems.
- Comply with local regulations. As a company in the fashion industry, it’s important to be aware of relevant laws and regulations that affect how business is conducted in different countries. Shipping goods internationally requires insurance, duties, and taxes, the costs of which differ from country to country. Global trade management systems can automatically calculate these costs by trade route and transportation method. Such systems can also keep fashion companies updated with the latest information, helping them comply with local regulations, sanctions, or embargoes.
- Optimize inventory management. Most supply chains aim to have enough inventory on hand to meet customer demand but not so much stock that it goes unsold for many months. This is especially important in the fashion industry, where trends change yearly. Inventory management systems provide visibility into everything in a fashion brand’s warehouse and a retail store. Such systems can help companies optimize their inventory management to balance supply with demand, track items quickly, alert them when stocks run low, avoid stockouts, and reduce waste.
- Make use of predictive and prescriptive analytics. Predictive analytics lets fashion companies evaluate historical data and external factors such as weather and competitors’ strategies to predict market demand accurately. This analytics helps businesses plan orders more effectively, reducing overproduction, waste, stockouts, and unfulfilled customer needs. For example, during the COVID-19 pandemic, brick-and-mortar stores were shut down while online orders soared. The AI capabilities in fashion predictive analytics systems can help retail companies anticipate such an outlier event and prepare more accurate crisis plans for similar events in the future. Retailers use AI and machine learning to rely on various product and consumer “attributes.” Attributes represent a more stable data pool, whereby items and customers are grouped differently based on relationships and similarities. Fashion retailers can map and analyze these forensically determined characteristics, arriving at more accurate predictions.
- Partner with ethical suppliers. Today's customers are more concerned about ethical and sustainable business practices than in the past, and many prefer to buy from brands that share their values. Fashion industry producers and retailers should ensure that their suppliers pay their employees a living wage, provide sanitary and safe working conditions, and don't tolerate corruption. Industry players should consider investing in certification programs for suppliers that adhere to high standards—such as social compliance audits (which measure a company’s human rights track record).
- Implement sustainable environmental strategies. Customer awareness continues to grow on issues such as climate change, pollution, and waste. Fashion companies should source materials that can be recycled, minimize their own waste and carbon footprint, and craft eco-friendly strategies throughout their supply chain. Fashion customers increasingly want to see evidence of sustainable business practices—both social and environmental—on company websites, packaging, and store labels, making environmental certifications such as ISO 14001 a good investment.
When to Implement Fashion Supply Chain Management
The more complex a company’s fashion supply chain, the more supply chain management applications can improve its efficiency. A good supply chain management system will help automate many steps in the supply chain. For example, procurement and order management systems can eliminate manual paperwork and data reentry when handing off raw materials from supplier to manufacturer or when moving finished goods from manufacturer to warehouse to retailer. Such systems help automate as many steps as possible, improve tracking, reduce mistakes and delays, and increase profitability. If your supply chain is riddled with manual handoffs, paperwork, or missing inventory, it’s time to implement fashion supply chain management.
Future of the Fashion Supply Chain
The fashion industry is expected to undergo a massive transformation with the advent of AI and machine learning. Supply chain management software with built-in AI, machine learning, and predictive models can help companies adjust quickly to avoid potential interruptions in the chain. For example, machine learning can learn from a supplier's performance over time and apply built-in algorithms to predict future reliability. It can predict the likelihood of the supplier failing to deliver on its orders or the probability of a retail store failing to pay its bills on time. Companies can then take action to prevent these issues, such as switching to a different supplier for the same product or reducing the credit limit for the late-paying store. AI can also pull third-party data, such as weather forecasts, into the algorithm to predict potential shortfalls, including those caused by the Texas drought that’s affecting cotton production. With these advancements, fashion companies are gradually building smarter platforms that can help improve supply chain performance and reduce costs.
Optimize Your Supply Chain and Increase Profitability with Oracle
A well-oiled fashion supply chain can be worth several additional profit margin points. Oracle Retail Supply Chain Management helps fashion companies automate every step, from raw material acquisition to final sale. The entire application suite shares a common data model, ensuring that information remains consistent as it flows between applications. This integration reduces the number of manual handoffs between applications and provides visibility into the data across the entire supply chain. Planners, buyers, manufacturing workers, warehouse employees, shippers, and retail stores can all work with the same data, no matter where they are in the cycle. Oracle Cloud Supply Chain & Manufacturing applications are enhanced with AI and machine learning that continuously analyze the data, helping spot unforeseen problems and recommend solutions.
Fashion Supply Chain FAQs
What is a fashion supply chain?
A fashion supply chain is the network of companies involved in the sourcing, manufacture, distribution, fulfillment, warehousing, and sale of clothing and accessories.
What are the four levels in the fashion industry supply chain?
The four levels in the fashion industry supply chain are primary, secondary, retail, and auxiliary. These correspond roughly to raw material production, apparel fabrication, finished product distribution and sale, and the media, consultants, and trade associations that surround the industry.
What are the steps in the fashion supply chain?
The steps in the fashion supply chain typically involve designing the apparel, evaluating and selecting raw material suppliers, sourcing those materials, manufacturing the apparel, transporting it to wholesalers, distributing it to retailers, and finally selling it to customers. Other activities and processes, such as sales, marketing, and merchandising, are essential to reaching customers and generating demand.
See how Oracle solutions, with built-in AI and machine learning features, help fashion retailers deliver an efficient shopping experience that meets consumers' needs.