Sustainability is Key to Growth

“Apparel is an old industry that is not doomed to being low profit and low technology. It’s in the midst of a reinvention, and that can be very exciting.”

So says John Thorbeck of Chainge Capital, a company name that is a play on words meant to communicate change in the supply chain. Thorbeck has collaborated with Stanford Professor Warren Hausman over the past decade to study supply chains outside of the apparel industry.

“We wanted to see what we could learn from the experiences of other industries,” Thorbeck said, “most notably the electronics and auto industries, that could apply to the fashion industry. Our answer is a resounding 'yes,' there are lessons to be learned. We have focused on process innovation from those industries that might be transferrable into apparel. That learning in terms of research, case studies, models and financial metrics runs very deep and leads to our conviction that the global apparel system can perform much better than it historically has.”

The apparel industry has a very large, established and complex global supply chain that is highly inefficient, a fact that has become quite apparent during the last year, according to Thorbeck. 

As an example of how the auto industry could provide guidance for a redefinition of the apparel supply chain, he and I reminisced about the NUMMI project in Fremont, Calif., an automobile manufacturing company jointly owned by General Motors and Toyota.

New United Motor Manufacturing, Inc., opened in 1984 and closed in 2010. It was in many ways a breakthrough operation that built on the quality movement of the time. General Motors saw this joint venture as a way to capitalize on the significant advances in quality achieved by Toyota, a learning experience that could be transferred to other GM plants. For Toyota, it was a way to begin to establish a manufacturing base in the lucrative U.S. market. Despite its 2010 closure, as a side note, the plant currently operates as a Tesla manufacturing site.

“The reference to the Fremont plant is good on several levels,” Thorbeck said. “Toyota’s breakthrough was they could bring greater quality at lower cost. At that time, quality was the mission in manufacturing. And I would say the mission today is sustainability – how can an industry respond to sustainability demands but do so at a lower cost? These are major challenges that clearly include references to the transformation of the auto industry. Current industries, like apparel, are undergoing some of the same challenges today.

“The greatest costs are not in manufacturing and sourcing. The greatest costs are actually more related to risk. It’s a system that is built on lowest cost countries, wages and materials, but in fact, the largest costs are in the discounts, markdowns, lost sales and the working capital required to finance that long lead time supply chain. It’s an embedded system. It doesn’t change overnight, but it does need to change. It is a broken system.”

One other weakness in the apparel supply chain the pandemic exposed was the way that contracts are slanted to benefit buyers, not suppliers.

“As a result,” he said, “suppliers are demanding change. I think they were badly mistreated during COVID with a lot of order cancellations, payment deferrals or denials or further discount bargaining, and unilateral changes in terms. Those actions did a lot of damage to relationships and trust. As a result, the supplier community is more organized and willing to challenge existing contracts and terms that are more protective of buyers than suppliers. So there is no normal to cycle back to. And this injects some urgency into the need to drive change.”

Another driver for change Thorbeck identifies is the shift in consumer concern about sustainability.

“In terms of conversations about quality or organic materials or other sustainable virtues, the feeling among many brands was that it was limited to a very small market of people that were willing to pay more, or it was something that people talked about but actually did not spend their money that way," Thorbeck said. "Now, companies are being taught a lesson by the Gen-Z/20-something consumer who really does want to see a better world, and they expect brands to be supportive of that. They are walking the talk, and more importantly, spending their values. That is finally starting to catch the attention of major brands who are realizing that if they don’t have a believable narrative for sustainability, their brand will be abandoned.”

How quickly can this massive supply chain shift to a more sustainable model?

“There is some urgency behind this question today due to pressure from both suppliers and younger consumers," he said. "We are in an era of what people call lost growth. If you don’t have growth as the engine of the relationship, then it needs to be more fair and productive to both the buyer and supplier side. That opens up interest and urgency behind on-demand manufacturing of apparel. I don’t think that will solve the industry’s problems overnight, but it is certainly a viable alternative, and people are beginning to understand that.”

Thorbeck points out that on demand, and the growth in digital printing, provides us with a formula that allows us to be responsive but also responsible.

“It does open up the possibility for microfactories that can be anywhere. I’m working with several small ventures that are developing that model. Those will be the laboratories that will be instructive to larger brands. Larger brands may be hesitant because of scale, but I believe the ability to scale will be validated in these test beds.”

But will on-demand production necessarily bring the apparel manufacturing industry back to North America?

“I don’t think location is the obstacle to shorter lead times and greater productivity," Thorbeck said. "My point of view is based on long study, and it reflects that location should not matter. You should be able to deliver product in two to four weeks in any region of the world, and the decision where to manufacture should be based on process innovation, not geography.”

He also believes that microfactories that are built for responsiveness and zero inventory and waste can create new jobs in North America.

“I don’t think that necessarily brings Asian jobs back to America,” he said. “But both models can work. And it’s quite promising for the future of the industry as we continue to explore how best to leverage all of the resources in the most efficient, fair and innovative manner.”